4th UPDATE: JP Morgan Leads Banks Set To Raise Dividends After Stress Test

J.P. Morgan Chase & Co. (JPM) led a number of the biggest U.S. banks in announcing dividend raises and stock buybacks, after receiving the results of the Federal Reserve's stress tests.

The Fed said 15 out of 19 banks maintained healthy capital levels in the stress-test scenario. Four firms, including Citigroup (C), SunTrust Banks Inc. (STI), MetLife Inc. (MET) and Ally Financial (GMA.XX), failed to meet at least one of the capital requirements under the hypothetical stress scenario. Ally trailed the guidelines with Tier One capital below 5% in the test.

Many banks were expected to raise dividends and increase share buybacks four years after the financial crisis as capital levels have improved and losses from bad loans continued to abate. The Fed said its test was "deliberately stringent," but strong capital levels "are critical to ensuring that banking organizations have the ability to lend and to continue to meet their financial obligations, even in times of economic difficulty."

Citi said in a statement the Fed objected to its plan to return capital to shareholders, though it had no objection to its current dividend levels on preferred and common stock. The bank said it will submit a revised capital plan to the Fed later this year. The bank also said it exceeded the stress test requirements without its planned dividend increase.

Fifth Third Bancorp (FITB) said the Fed objected to parts of its capital plan, namely a dividend increase. The bank can buy back common stock, but only as much as the after-tax gains from the sale of Vantiv Inc. shares. The Cincinnati bank owns 49% of Vantiv, a payment processing firm; Vantiv has plans to go public.

The test shows that SunTrust has sufficient capital only if it doesn't increase the dividend or buy back common stock, and the Atlanta bank said, as a result, it "will not be increasing its return of capital to shareholders at this time."

MetLife, the only insurer included in the program, said in a statement it was "deeply disappointed" with the Fed's analysis, and said the "bank-centric methodologies" of the stress test don't properly evaluate the financial strength of a life insurer, which operates under a different business model.

Ally Financial, majority owned by the U.S. government, said the Fed's assumptions in its test were "inconsistent" with its own views and "dramatically overstates potential contingent mortgage risk." Ally plans to submit a revised capital plan in the near future, the company said.

Of the banks that maintained healthy capital levels in the stress test, Bank of America (BAC) didn't seek to raise dividends or a new buyback authorization.

Capital One Financial Corp. (COF) didn't ask for a dividend increase or share buyback because it recently announced two acquisitions and plans to raise capital tied to the deals. The bank remains comfortable with its capital levels, a spokeswoman said.

Morgan Stanley (MS) said Tuesday it received no objection from the Fed for its 2012 capital plan, including the potential cash acquisition of an additional 14% of Morgan Stanley Smith Barney and ongoing payment of current common and preferred dividends. Goldman Sachs Group Inc. (GS), meanwhile, said it got no objections to plans to repurchase unspecified amounts of stock and potentially raise its dividend.

U.S. Bancorp (USB) boosted its dividend by 56%, and PNC Financial Corp. (PNC) said it passed the stress test, according to a person familiar with the matter. BB&T Corp. (BBT) said the Fed had no objection to it raising its dividend by 4 cents.

Keycorp (KEY) said it will buy back $344 million in stock and said its board will evaluate an increase in the dividend and make a decision on that in May.

Bank of New York Mellon Corp. (BK) also said the Fed had no objections to its plans to buy back $1.16 billion of stock. Wells Fargo & Co. (WFC) raised its dividend to 22 cents retroactively to the first quarter.

American Express Co. (AXP) plans to buy back $4 billion of shares; it also may increase its quarterly dividend to 20 cents from 18 percent.

The Fed had planned to release the results of this year's Comprehensive Capital Analysis and Review, or stress tests, on Thursday afternoon. It decided to move up the timing to Tuesday afternoon.

The tests look at how the 19 biggest U.S. banks would fare in a severe downturn, including an unemployment rate of 13%, a 21% decline in housing prices and a 50% drop in equity prices.

Of the 19 banks subject to this year's test, Regions Financial Corp. (RF) is the only one left that hasn't repaid funds received under the Troubled Asset Relief Program, the crisis-year emergency fund used to shore up bank capital levels.

Regions said Tuesday it would raise $900 million in common stock to pay $3.5 billion in TARP funds.

Bank stocks jumped in afternoon trading on the stress test results. J.P. Morgan's shares surged 7.03%, to $43.43 and Bank of America shares rose 6.26%, to $8.49. Morgan Stanley rose 4% to $18.93. U.S. Bank rose 4.8%, to $31.01, while PNC rose 4.1%, to $61.94. BB&T rose 3.7% to $30.40. But some fell in after market trading, particularly Citi and SunTrust, which fell 3.21% and 3.68%, respectively.

-By Liz Moyer, Dow Jones Newswires; 212-416-2512; liz.moyer@dowjones.com

--Dan Fitzpatrick, Brett Philbin, Erik Holm and Andrew Johnson contributed to this report.

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