Large U.S. banks are expected to increase dividends in 2023 even with the rise in capital requirements.

Of the 17 public banks with more than $100 billion in total assets as of Sept. 30, 16 are expected to raise dividends next year, according to forecasting data from S&P Global Market Intelligence.

Banks can pay dividends and buy back shares without restriction provided that they do not eat into their stress capital buffers, one of the elements of banks' capital requirements. Such requirements, however, have been moving up due to the losses projected under the 2022 Federal Reserve stress tests of large banks, which showed a bigger decline in capital relative to 2021.

Dividend increases can reflect earnings growth, with many banks targeting percentages of net income. Regions Financial Corp., for example, seeks to pay out about 35% to 45% of earnings in dividends, CFO David Jackson Turner Jr. said Dec. 7. "We've been at the lower end of that, frankly, even though we had about an 18% increase in dividends [in our] last move," Turner said.

Forecast dividends

Among the banks in the analysis, First Citizens BancShares Inc. is expected to record the highest percentage increase in dividend per share at 43.5%, followed by Wells Fargo & Co. at 18.2% and PNC Financial Services Group Inc. at 17.4%.

Wells Fargo's common equity Tier 1 ratio was 110 basis points higher than its current regulatory minimum in the third quarter, President and CEO Charles Scharf said on the company's earnings call. The company hiked its dividend by 20% in the period.

"We will continue to prudently manage our capital levels to be appropriately prepared for slowing economy and market volatility," Scharf said.

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Wells Fargo has been lifting its dividend after being forced to cut it early in the pandemic because of temporary regulatory restrictions. The 2023 level anticipated by analysts is still lower than its pre-pandemic quarterly rate of 51 cents a share.

The remaining three of the Big Four U.S. banks — JPMorgan Chase & Co., Bank of America Corp. and Citigroup Inc. — are also anticipated to raise dividends by 5.0%, 14.0% and 11.8% to $4.20, 98 cents and $2.28, respectively.

In the third quarter, Citigroup returned over $1 billion to its shareholders through common dividends, while repurchases are still on hold.

"We will keep evaluating that decision on a quarterly basis as due to increasing regulatory requirements, we build our CET1 ratio to 13% or so by mid-next year," CEO Jane Fraser said on the company's earnings call.

Dividends paid in Q3

JPMorgan has paid $10.19 billion in dividends year-to-date as of the end of the third quarter, the highest among the 17 banks with over $100 billion in total assets as of Sept. 30. In 2021, the company logged $12.86 billion in dividends paid.

Out of the banks included in the analysis, only two companies — Citigroup and Huntington Bancshares Inc. — recorded a year-over-year decrease in dividends paid in the third quarter, but neither reduced their per-share dividend. Citigroup's quarterly per-share dividend remained flat year over year at 51 cents but its overall payout dropped 2.5% to $1.26 billion. Huntington's quarterly dividend in 2022 has increased to 15.5 cents from 15 cents in 2021, but its total payout dropped 5.3% to $252.0 million.

First Citizens BancShares booked the largest yearly increase in dividends paid in the third quarter at 116.2% to $20.0 million. The company completed its all-stock merger of equals with CIT Group Inc. on Jan. 3.