The US Federal Reserve has rejected plans from the American units of two large European banks to pay higher dividends or launch share buybacks in the coming year, citing “deficiencies” in their capital planning processes.
As part of its annual stress tests, the Fed said Santander displayed deficiencies in a number of areas, including “governance, internal controls, risk identification and risk management, management information systems and assumptions and analysis that support the capital planning processes”.
The Fed also said that it had identified “numerous and significant deficiencies” across Deutsche Bank’s risk-identification, measurement, and aggregation processes, its approaches to loss and revenue projection and its internal controls.
The two may only make capital distributions that are expressly permitted by the Federal Reserve.
America’s central bank has also asked Bank of America to resubmit its capital distributions plans. The Fed did not object to Bank of America Corporation’s capital plan, but said it “exhibited deficiencies in the capital planning process, and asked the bank to resubmit it.
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The rulings mark a public humiliation for Santander, the largest eurozone bank by market capitalisation, which failed the test last year when it was subjected to similar restrictions.
The remaining 28 systemically important financial institutions, with total assets of more than $50 billion, including HSBC, all passed the tests.
After the Fed announcement a number of banks were quick to unveil share buybacks and dividend increases.
Citigroup said it would raise its dividend by 5 cents a share, while Bank of America has plans for a $4 billion stock buy back and Morgan Stanley will repurchase $3.1 billion worth of its shares.
Goldman Sachs will also buyback its shares and raise the quarterly dividend by 5 cents, or 8.3 per cent, a share.
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“We remain focused on managing our resources dynamically, growing our client franchise, and generating superior returns for our shareholders while remaining well capitalised,” Lloyd Blankfein, chairman and chief executive of the Wall Street bank, said.