The biggest US banks on Monday announced plans to pay investors an extra $2bn of dividends next quarter after the Federal Reserve loosened restrictions on payouts to shareholders imposed during the Covid-19 pandemic.

The move underscored the confidence of large US lenders, which think they can return more capital to shareholders and still remain comfortably above the levels mandated by the Fed.

The Fed last Thursday released the results of its “stress tests” for lenders, which prompted the US central bank to ease restrictions on dividends and buybacks.

Morgan Stanley announced that it would double its quarterly dividend to 70 cents a share and boost the size of its share buyback programme from up to $10bn to as much as $12bn.

James Gorman, chief executive, said Morgan Stanley had “accumulated significant excess capital over the past several years and now has one of the largest capital buffers in the industry”.

Other large banks also announced higher shareholder payouts, but only a handful followed Morgan Stanley by increasing the size of their buyback programmes.

Goldman Sachs raised its dividend to $2 from $1.25, JPMorgan Chase increased its payout to $1 from 90 cents and Bank of America boosted its dividend to 21 cents from 18 cents.

Wells Fargo doubled its dividend to 20 cents, though the bank had slashed the dividend a year ago from 51 cents. Similar to Morgan Stanley, the bank said it also planned to spend about $18bn in the year starting in the third quarter to buy back its own stock.

Bar chart of Many of the biggest US banks increased their payouts following Fed stress tests showing Dividend delights

For the 13 banks that updated investors on Monday, the increased dividends will result in shareholders receiving an extra $2.08bn in the third quarter, according to calculations by the Financial Times based on the companies’ most recent share counts.

Buying back their own stock is more expensive for the banks than it would have been when the Fed imposed the pandemic restrictions, because their shares have become more expensive. Stock prices have rallied since September, in some cases to highs, on the back of a boom in trading and dealmaking activity as well as on the brightening outlook for the US economy.

Many banks had already announced large share repurchase programmes since the last round of stress tests in December, including JPMorgan, which signed off on one of $30bn, and Bank of America, which approved $25bn.

Relative to analysts’ consensus, Morgan Stanley and Goldman were the most ahead of expectations with their planned payouts, Barclays wrote in a note.

Shares in Morgan Stanley gained 2.5 per cent in after-hours trading in New York and Goldman was up 0.6 per cent, while other large bank stocks were flat. Wells’ stock was down 0.7 per cent.

Jamie Dimon, JPMorgan chief executive, said: “Our longstanding capital hierarchy remains the same — invest in and grow our market-leading businesses . . . pay a sustainable dividend, and return any remaining excess capital to shareholders.”

David Solomon, chief executive of Goldman Sachs, said: “We are encouraged by the progress in reducing the capital intensity of our business as reflected in the recent stress test results.”

The Fed’s analysis last week concluded that the 23 banks included in the exercise could suffer almost $500bn in combined losses and still comfortably meet capital requirements.

Additional reporting by Colby Smith in New York