Recent news affecting the financial services sector has been good. Last week, the Federal Reserve revealed all 31 big U.S. banks subjected to the central bank’s stress tests passed, opening the door for increased buybacks and dividends.
On Wednesday, the Fed removed “patient” from interest rate outlook verbiage, which should provide a spark for rate-sensitive insurance providers, regional banks and the relevant exchange traded funds. However, financial services ETFs are finding it difficult to share a lengthy stretch of underperformance against broader market benchmarks.
The Financial Select Sector SPDR (NYSEArca: XLF), the largest ETF tracking the financial services sector, was ahead of the S&P 500 “by 0.9 percentage point on March 12, the day after the Fed released results of its annual review of capital plans,” but since then has lagged behind S&P 500 by 0.8 percentage point, nearly erasing that one-day gain,” report Anna –Louise Jackson and Anthony Feld for Bloomberg.
The largest U.S.-based banks “continue to build their capital levels and to strengthen their ability to lend to households and businesses during a period marked by severe recession and financial market volatility,” the Fed said last week.
That news set off a spate of positive dividend and share repurchase news from XLF holdings. For instance, Citibank (NYSE: C), which failed to pass the stress tests last year, is set to raise its dividends by 400% to 5 cents after offering a token 1 cent dividend over the past year. Citi is also planning $7.8 billion in stock buybacks, the Wall Street Journal reports.
Other banks are also increasing dividends, including Morgan Stanley (NYSE: MS) by 50%, Regions Financial (NYSE: RF) by 20%, Discover Financial (NYSE: DFS) by 17%, State Street (NYSE: STT) by 13%, BB&T (NYSE: BBT) by 12.5%, American Express (NYSE: AXP) by 12%, JPMorgan (NYSE: JPM) by 10% and Goldman Sachs (NYSE: GS) by 8%, among others. [Bank ETF Dividends on the Rise]