CORRECTED-UPDATE 2-Morgan Stanley, JPMorgan, Bank of America, Goldman Sachs hike shareholder payouts

(Corrects to show dividend was expected to be boosted to 50, not by 50, in 2nd paragraph)

June 28 (Reuters) - Morgan Stanley, JPMorgan Chase & Co, Bank of America Corp. and Goldman Sachs Group said on Monday they were hiking their capital payouts after the U.S. Federal Reserve gave them a clean bill of health following their annual “stress tests” last week.

Morgan Stanley delivered one of the biggest surprises to investors by announcing it would double its dividend to 70 cents a share in the third quarter. Some analysts had been expecting a boost to about 50 cents a share from the current 35 cents.

The bank also said it would increase spending on share repurchases, and the Wall Street giant’s shares rose as much as 3.7% in after-market trading following the announcement.

Morgan Stanley CEO James Gorman said in the announcement that the bank could return so much capital because of the excess it has accumulated over several years. The action, he said, “reflects a decision to reset our capital base consistent with the needs we have for our transformed business model.”

Bank of America said it will increase its dividend by 17% to 21 cents a share beginning in the third quarter of 2021, and JPMorgan said it will go to $1.00 a share from 90 cents for the third quarter.

Goldman Sachs said it planned to increase its common stock dividend to $2 per share from $1.25.

Bank of America’s shares were flat in after hours trading, Goldman Sachs’ shares were up 0.6%, while Citigroup’s and JPMorgan’s were down 0.9% and 0.3% respectively.

Large banks no longer face pandemic-era restrictions on how much they can spend buying back stock and paying dividends, the Fed said on Thursday after finding the firms would remain well capitalized in its latest stress tests.

The central bank said the test found 23 of the largest firms would suffer a combined $474 billion in losses under a hypothetical severe downturn, but would still have more than twice as much capital required under Fed rules. (Reporting by Niket Nishant in Bengaluru; Editing by Sriraj Kalluvila and Dan Grebler)