These big banks may be at risk of dividend cuts after the Federal Reserve’s stress tests

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Sell-side analysts have expressed confidence during the coronavirus crisis that most banks will be able to maintain their dividends through the expected economic recession. But now we’re about to see the results of the Federal Reserve’s annual stress-test process.

Analysts at Keefe, Bruyette and Woods don’t expect any dividend cuts among the large U.S. banks undergoing the supervisory stress tests. They expect dividends to remain unchanged, and for all the stress-tested banks not to repurchase any shares until at least the end of 2020.

However, the analysts, led by Brian Kleinhanz, acknowledged in a report on May 26 that investors are concerned about the possibility of regulators requiring dividend cuts.

The analysts wrote that if the Fed were to make certain changes to its “severely adverse” stress-test scenario, detailed below, their dividend forecasts for Goldman Sachs Group Inc. GS, -2.23%, Citigroup Inc. C, -3.98% and J.P. Morgan Chase & Co. JPM, -1.52% would be “at risk.”


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