The largest US banks may have to put the brakes on capital returns to shareholders because of regulators’ annual stress test, according to analysts at Morgan Stanley led by Betsy Grasek. Analysts’ reaction to the results of the Federal Reserve stress test released on Thursday focused on unexpected increases in stress capital buffers from banks including JPMorgan Chase, Bank of America and Citigroup. This measure of capital spent in a hypothetical stress scenario of declining US employment and stock prices essentially reflects the minimum capital level required for each individual bank in the Federal Reserve’s annual exercise. The three largest US banks by assets may have to preserve capital and adjust trading activity as their buffers are expanding more than expected, analysts said. “Relative to our prior projections, new stress capital buffers suggest that BAC, Citi and JPM will need to keep dividends flat, eliminate buybacks and cut” trading to remain comfortably above new required capital levels. related assets, Gresek said in a note. Released early Friday. To be clear, all 34 banks involved in the 2022 stress test passed the exercise, which showed the industry would be better able to handle a “severely unfavorable scenario” in which US unemployment is rising to 10%. While the annual exam is becoming increasingly more difficult, the analyst community expected banks to have; At play was how much capital they could return to shareholders in the form of buybacks and dividend increases. Many analysts focused on higher-than-expected growth in stress capital buffers at some of the largest banks. At Bank of America and Citigroup, lower company revenue under the hypothetical scenario results in lower-than-expected capital levels, analysts at Deutsche Bank led by Matt O’Connor said on Friday. For JPMorgan, capital was 10 basis points below minimum levels as a result of a combination of lower revenue and higher credit costs, O’Connor wrote. Stress capital buffers at Bank of America and Citigroup jumped nearly 100 basis points from a year ago, said JPMorgan analyst Vivek Juneja, “which will increase their capital requirements and targets, and in turn impact share buybacks.” ” As a result, the U.S. banking industry may pull back on share buybacks at a time when investors want their stock prices to rise sharply due to lows. JPMorgan shares hit a 52-week low of $111.48 on Thursday. Shares of major banks are down more than 20% so far this year, and all are trading at the lows of their 52-week range. O’Connor wrote, “The results today confirm what we already knew … share buybacks at most banks will be low in the near term.” The change reflects a combination of “increased macro uncertainty, stronger credit growth (which consumes capital), the impact of higher rates on capital (for some banks), and the impact of deals (for some banks).” While the results for the largest lenders are disappointing, Goldman Sachs’ results may lead to greater flexibility. The bank was the only one under O’Connor’s coverage whose capital buffer was depleted by last year’s stress test, they wrote. This, he wrote, would give New York-based Goldman the ability to help “support growth, additional bolt on deals and buybacks.” Banks are expected to release their capital plans after the market closes on Monday. Only then will investors know the size of the buyback plans and whether the dividend will increase. Before the release of the stress test results, JPMorgan was expected to return a combined $18.9 billion in dividends and share repurchases, and Bank of America was expected to issue $15.5 billion, according to analysts at Barclays.