JPMorgan Chase & Co. (JPM), the biggest U.S. bank, raised its quarterly dividend more than most analysts estimated to 38 cents and expanded stock buybacks after the Federal Reserve conditionally approved the firm’s proposal to return more of its profit to shareholders.
JPMorgan’s new dividend for the second quarter beat the 36- cent average prediction of analysts surveyed by Bloomberg. The New York-based bank said in a statement today it would buy back as much as $6 billion more of its own stock, after scaling back a $15 billion repurchase program approved last year.
Regulators intent on preventing a repeat of the 2008 financial crisis have run annual stress tests on the largest lenders to see how they might fare in a recession or economic shock. JPMorgan was among the bottom four performers last week in the Fed’s initial test of strength, which showed the bank had submitted more optimistic estimates of its capital levels in a severe recession.
While that was still good enough to pass, the Fed also required the 18 firms to submit plans for managing their capital, which could include buying back shares and boosting payouts. The central bank then gauged how strong each firm would be with the funds that remained.
Today’s approval indicates JPMorgan’s capital may stay above the minimum 5 percent threshold after accounting for proposed dividends and buybacks. Chief Executive Officer Jamie Dimon and Chief Financial Officer Marianne Lake had signaled the bank would request a higher dividend and lower buyback amount earlier this year.
The central bank said in a report today that JPMorgan and Goldman Sachs Group Inc.’s plans were conditionally approved because of weaknesses in their planning processes. Projections of losses and revenue were the issue, according to a Fed official. The banks can immediately implement dividend and buyback plans, and must fix the weaknesses and resubmit by the end of the third quarter, the official said.
“JPMorgan Chase is fully committed to meeting all of the Fed’s requirements,” Dimon said in the statement.
JPMorgan fell 2.5 percent to $49.75 at 5:08 p.m. in New York. The lender had gained 17 percent in the year through the close of normal trading today, compared with the Standard & Poor’s 500 Index’s 12 percent advance.
JPMorgan projected its key capital ratio wouldn’t fall below 7.6 percent, compared with 6.3 percent estimated by the Fed. The lender said pretax losses through 2014 would total $200 million while the Fed said they would be $32.3 billion.
The bank also was more optimistic than the central bank in estimating net revenue, loan losses and provisions it would need to cover those losses.
The Fed’s decision gives a boost to Dimon, 57, whose reputation suffered during last year’s London Whale episode in which JPMorgan’s U.K.-based chief investment office lost more than $6.2 billion with a wrong-way bet on credit derivatives.
Former Chief Investment Officer Ina Drew and other current and former executives are scheduled to testify tomorrow at the Senate Permanent Subcommittee on Investigations about the loss.
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