US Banks Pass 2025 Stress Tests with Strong Capital, BAC $40B Buybacks and GS Dividend Up 33%

Major U.S. banks have emerged from the Federal Reserve’s 2025 stress tests with robust capital positions, paving the way for substantial shareholder returns through dividend increases and share buybacks. This development underscores a broader theme of financial sector resilience, where institutions like Citigroup, Goldman Sachs, and Bank of America stand to benefit from enhanced capital efficiency and operational leverage amid recovering deal-making and trading activities.

Stress Test Outcomes Signal Capital Strength

The 2025 stress tests, conducted by the Federal Reserve, evaluated 22 systemically important banks under a severe hypothetical scenario that included a 10% unemployment peak, a 30% decline in commercial real estate prices, and a 50% drop in equity markets. All participating banks passed, with an aggregate Common Equity Tier 1 (CET1) ratio holding at 11.6%—marking the smallest decline of 1.8 percentage points since the regime’s inception post-2008 financial crisis. This outcome reflects improved risk management and capital buffers, allowing banks to deploy excess capital more aggressively.

For investors, this translates into a compelling narrative of capital returns. Banks can now boost dividends and repurchase shares without breaching regulatory thresholds, potentially enhancing earnings per share and supporting stock valuations. Analyst sentiment, as reported by sources like Reuters and AInvest, leans positive, with many viewing the results as a green light for sustained payouts despite lingering risks in commercial real estate and regulatory changes.

Bank of America’s Aggressive Buyback Authorisation

Bank of America has positioned itself as a leader in capital deployment, authorising a $40 billion share repurchase programme following the stress test clearance. This move aligns with its strong CET1 ratio performance, enabling the bank to return value to shareholders while maintaining a conservative balance sheet. As of the latest session close, Bank of America’s stock traded at $46.94, reflecting a modest 0.73% increase over its 50-day moving average of $46.60. The bank’s forward P/E ratio stands at 12.83, suggesting room for valuation expansion if earnings growth accelerates.

Historically, Bank of America has navigated economic cycles with a focus on consumer banking and wealth management, which provide stable revenue streams. The 2025 test results reinforce this stability, with analysts at RBC Capital Markets noting that the bank’s capital position supports flexible returns. Forward EPS estimates for the current year are $3.67, and with a book value of $37.13, the price-to-book ratio of 1.26 indicates a reasonable premium for its growth prospects.

Citigroup’s Turnaround Momentum

Citigroup’s performance in the 2025 stress tests highlights a tightening turnaround story, characterised by a reduced Stress Capital Buffer (SCB) and CET1 requirements. The bank improved its CET1 ratio to 10.4%, surpassing its 2024 result and signalling progress in its restructuring efforts. This capital relief allows Citigroup to prioritise dividend hikes—from $0.56 to $0.60 per share, according to announcements reported by AInvest—and potential buybacks, bolstering investor confidence in its operational overhaul.

Trading at $93.69 in the most recent session, Citigroup’s shares have climbed 6.96% above their 50-day average of $87.59, with a forward P/E of 13.03. The bank’s market capitalisation exceeds $172 billion, supported by a book value of $106.94. Analysts rate it a 1.9 (Buy) on average, with forward EPS projected at $7.19. Posts on X reflect mixed sentiment, with some highlighting liquidity concerns like elevated short-term borrowings, but the stress test success counters this by affirming Citigroup’s ability to withstand severe downturns.

Citigroup’s strategy emphasises simplifying its global operations, divesting non-core assets, and focusing on high-return businesses. This operational leverage could amplify earnings as economic conditions stabilise, with deal-making cycles expected to rebound in 2026 based on analyst models from firms like Oppenheimer.

Goldman Sachs’ Earnings Power Revival

Goldman Sachs demonstrated capital efficiency with a 12.3% CET1 ratio in the stress tests, enabling a significant dividend increase from $3 to $4 per share. The bank’s earnings power is reemerging, driven by resurgent investment banking and trading revenues amid improving market conditions. Shares closed at $730.72, up 5.60% from the 50-day average of $691.95, with a forward P/E of 17.58 and current-year EPS estimates at $46.63.

With a market cap over $221 billion and a book value of $376.89, Goldman Sachs trades at a price-to-book of 1.94, reflecting its premium positioning in volatile but high-margin activities. Analyst ratings average 2.6 (Hold), tempered by regulatory scrutiny on derivatives exposure, as noted in reports from The Washington Post dating back to 2022, which highlighted how real-world stresses like rising rates can curb buybacks more than tests predict.

The bank’s deal and trading cycles are poised for growth, with projections from Benzinga suggesting Wall Street’s collective payouts could exceed $100 billion in 2025. This capital return focus, combined with operating leverage from fixed-cost efficiencies, positions Goldman Sachs to capitalise on any uptick in mergers and acquisitions.

Broader Implications for the Financial Sector

The Financial Select Sector SPDR Fund (XLF), tracking the sector, closed at $52.46, up 0.98% from its 50-day average, with a market cap of about $46 billion. This ETF’s performance mirrors the optimism surrounding stress test passers, as it includes heavyweights like the aforementioned banks.

• Capital Return Potential: Aggregate buybacks and dividends could reach record levels, with JPMorgan and others leading the charge, per Yahoo Finance reports.
• Risks to Monitor: Commercial real estate exposure remains a concern, potentially pressuring CET1 ratios in prolonged downturns.
• Analyst Forecasts: Models from HSBC and Citigroup itself project S&P 500 targets around 6,400-6,600 for 2025, implying modest upside but resilient earnings.

In a landscape where banks have fortified their positions since the 2008 crisis, the 2025 stress tests affirm a sector ready for prudent growth. Investors eyeing capital returns and operational leverage may find opportunities in these names, though vigilance on macroeconomic headwinds is essential.

References

• AINvest. (2025). Big banks’ stress test triumphs: Green light for dividends, regulatory watch continues. https://www.ainvest.com/news/big-banks-stress-test-triumphs-green-light-dividends-watch-cre-regulation-2506/
• AINvest. (2025). Major banks boost dividends, launch buybacks after stress tests. https://ainvest.com/news/major-banks-boost-dividends-launch-buybacks-fed-stress-tests-2507
• AINvest. (2025). Stress test triumphs signal golden era for dividends and buybacks. https://www.ainvest.com/news/banks-stress-test-triumphs-signal-golden-era-dividends-buybacks-2507
• Benzinga. (2025). Wall Street’s $100 billion payout parade. https://benzinga.com/news/financing/25/07/46213890/wall-streets-100-billion-payout-parade-jpmorgan-morgan-stanley-goldman-lead-capital-return-wave-af
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• Reuters. (2025). Biggest US banks hike dividends, announce share buybacks after acing stress tests. https://www.reuters.com/sustainability/boards-policy-regulation/biggest-us-banks-hike-dividends-announce-share-buybacks-after-acing-stress-tests-2025-07-01/
• Reuters. (2025). US banks rise as Fed stress test success clears path for payouts. https://www.reuters.com/sustainability/boards-policy-regulation/us-banks-rise-fed-stress-test-success-clears-path-payouts-2025-06-30/
• Washington Post. (2022). Real-world stress hurts bank buybacks more than Fed’s tests. https://www.washingtonpost.com/business/real-stress-hurts-bank-buybacks-more-than-feds-test/2022/06/23/3f1a1bc4-f33f-11ec-ac16-8fbf7194cd78_story.html
• Yahoo Finance. (2025). JPM and others likely to hike dividends. https://finance.yahoo.com/news/jpm-others-likely-hike-dividends-141700103.html
• Yahoo Finance. (2025). Major banks pass 2025 stress tests. https://finance.yahoo.com/news/major-banks-pass-2025-stress-150700139.html
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