Published - June 28, 2022 @ 11:56 AM (EET)

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On Monday, one of America's largest banks, Morgan Stanley (NYSE:MS), said it would increase its quarterly dividend payouts on its common stock to 77.5 cents a share, up 11% from last year's payout of 70 cents.

In addition, the Firm's Board of Directors authorized a new multi-year common equity share repurchase program of up to $20 billion without a set expiry date.

"Morgan Stanley has accumulated significant excess capital over the past several years and now has one of the largest capital buffers in the industry," says CEO James Gordon.

The Federal Reserve effectively gave the bank, among other US banks, the green light to return billions of dollars to investors in dividends and share buybacks in response to the bank's success in clearing this year's stress test. 

WHAT HAPPENED

All lenders passed the examination last week, which indicated they have enough capital to handle a severe economic meltdown.  The banks held liquidity above the minimum capital requirement even as they are expected to report an aggregate loss of $612 billion.

Though big banks don't appear to be in any danger of going bust amid rising unemployment, real-estate prices collapsing, and plunging stocks, it does not mean that shareholders don't have to worry.

Losses of the large banks rose over $50 billion compared to 2021, including more than $450 billion in loan losses and $100 billion in trading and counterparty losses.

NOW WHAT

When asked about the potential of a recession, Morgan Stanley's Mike Wilson, a stock-market bear who predicted this year's selloff, recently said that the S&P 500 would need to drop to about 3,000 points to fully reflect the effect of an economic contraction, should one occur.

"The banking system is very secure," he said.

Morgan Stanley isn't the only large investment firm to announce a hike in dividends.  

Goldman Sachs (NYSE:GS) said it would increase its dividends by 25%, Bank of America Corp. (NYSE:BAC) raised dividends by 5%, while Wells Fargo & Co. (NYSE:WFC) said it expects to boost dividends to 30 cents from the current 25 cents.

PRICE ACTION:  Following Monday's announcement, shares of Morgan Stanley surged nearly 4% in after-hours trading.