By Pam Martens and Russ Martens: June 25, 2020 ~
The Federal Reserve will release the results of its stress tests on the biggest and most dangerous banks at 4:30 p.m. today. But the potential results of those tests played a negative role in the stock market’s performance yesterday.
The Dow’s drop of 710 points yesterday can be ascribed to two things: the alarming news reports that COVID-19 cases are skyrocketing in the second and third most populous states in the U.S. – Texas and Florida; and a bombshell report from Bloomberg Newsreleased at 7:00 a.m. yesterday morning.
The Bloomberg article, by Lisa Lee and Shahien Nasiripour, cast the Federal Reserve in an unfavorable light over its failure to halt dividend payments at the biggest Wall Street banks, something that European bank regulators have done during the pandemic crisis. Eight of the largest U.S. banks announced in unison on Sunday, March 15, that they would halt share buybacks through the first and second quarter, but they’ve continued to pay cash dividends to shareholders, whittling away critical capital that could serve the struggling U.S. economy far better as loans to consumers and businesses. (Two-thirds of U.S. GDP consists of consumer spending. Ed. note: The other third [$6-7 Trillion] consists of pension fund management).
The Bloomberg article dropped this bombshell nugget on what Bank of America, Citigroup, JPMorgan Chase and Wells Fargo had spent on share buybacks and dividends since 2017:
“From the start of 2017 through March, the four banks cumulatively returned about $1.26 to shareholders for every $1 they reported in net income, according to data compiled by Bloomberg. Citigroup returned almost twice as much money to its stockholders as it earned, according to the data, which includes dividends on preferred shares. The banks declined to comment.”
We need to pause right there for a moment because both Fed Chairman Jerome Powell and the Fed’s Vice Chairman for Supervision Randal Quarles have been telling Congress and the public for months now that these mega banks, which it is in charge of supervising, have “adequate capital” and are a “source of strength” in this crisis. There is no accounting alchemy in the world that can make Citigroup a source of strength if it’s been paying out twice as much money as it’s been earning for 3 ½ years.
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