Tourists walk in front of the Federal Reserve in Washington, D.C.
“The big U.S. banks will get bigger,” David Coker, lecturer in accounting, finance and governance at Westminster Business School, told CNBC via email.
Coker, who is also a former vice president of global risk management at Deutsche Bank, added that share prices of American banks were already surging in expectation, and the combination of share repurchases and dividend hikes will make future capital raises much easier.
Big banks like JPMorgan and Citigroup announced their largest ever stock repurchase program of $19.4 billion and $15.6 billion respectively. Buybacks occur when firms purchase their own shares, reducing the proportion in the hands of investors. Like dividend payments, buybacks offer a way to return cash to shareholders, and usually, see a company’s stock push higher as shares get scarcer. Citigroup also doubled its dividends while Bank of America and Morgan Stanley hiked their quarterly dividends to 12 cents a share and 25 cents a share, respectively.
“Profitable banking is all about economies of scale; as the U.S. banks get bigger, costs will continue to tumble and a virtuous cycle realized,” Coker said.
Coker thinks that driven by Brexit uncertainty and a need to maintain continental access, we will see more American banks going on a “shopping spree.”
“Again, in mergers and acquisitions (M&A), size matters. To get an idea of just how large American banks are, a single U.S. bank such as JP Morgan is larger than the combined capitalization of banks in Spain, Germany, France and Italy.”