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JPMorgan Halts Buybacks While Keeping Payout, Dimon Says

Dimon Sees No ‘Disaster’ Scenario for JPMorgan CIO Trading Loss
JP Morgan Chase & Co. headquarters in New York. Photographer: Peter Foley/Bloomberg

JPMorgan Chase & Co. suspended its daily stock repurchase program because the bank needs money to meet international capital rules, not because of the size of trading losses, Chief Executive Officer Jamie Dimon said.

The quarterly dividend won’t change, Dimon said during an investor conference today in Manhattan where analysts peppered him with questions about how the New York-based firm’s chief investment office racked up at least $2 billion in losses since March.

JPMorgan agreed with regulators to increase capital levels to “what we think our Basel III target will be,” Dimon said, referring to international bank rules that require the largest global financial companies to maintain higher capital levels. While Dimon said he intends to restart buybacks, he won’t say when. “We want to box those things first,” he said.

JPMorgan, the biggest U.S. bank by assets, is under pressure from investors and regulators to explain how the chief investment office, which is assigned to manage excess cash while minimizing risk, made wrong-way bets on illiquid credit derivatives, some of them so large that they distorted market prices. While the loss may increase, the affair is an “isolated event” and the ensuing investigations aren’t likely to find any big surprises, Dimon said.

Carried Away

“There’s no outcome that will be a disaster for this company,” Dimon said. “I am not sitting here worried about the ultimate loss on this thing.”

JPMorgan dropped 2.9 percent to close at $32.51 in New York, erasing the last of this year’s gains. The shares have fallen 20 percent since the loss was disclosed on May 10 and are trading below tangible book value, which is the estimated value of the company if it had to be liquidated today.

“It is likely JPMorgan was told to stop buying back stock by its primary regulator, the Federal Reserve,” said Ed Najarian, head of bank research at International Strategy & Investment Group Inc., an independent research firm in New York. “Based on Dimon’s previous comments, this is a price where he would like to be buying back the stock.”

Dimon also told investors today that the CIO losses won’t do any long-term damage to the company. “If that’s true and you’d like to buy back stock at this price, the only reason not to is because regulators told you to stop,” Najarian said in an interview.

‘Economic Animals’

The $350 billion portfolio managed by the CIO has a very short duration and an average credit rating of AA designed to “very conservatively handle” interest-rate risks, Dimon said. The synthetic credit derivatives at the heart of the losses were “a part” of the broader portfolio, he said.

Dimon wouldn’t elaborate on holdings that caused the losses beyond the $2 billion already disclosed. The CIO has $7 billion in unrealized gains that may be used to offset the damage, he said. To book those profits, JPMorgan would have to sell those assets and close out the positions.

“It’s just not tax-efficient,” Dimon said. “Being economic animals, we’re going to be very economic in how we handle CIO.”

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