JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon personally stands to miss out on about $1.39 million a year if the Federal Reserve decides last week’s stress-test results don’t justify a dividend increase.
That’s how much extra income Dimon could get from his stake of about 6 million shares if his New York-based bank raises its payout as much as analysts predict. The sum dwarfs the combined $73,300 of new annual dividends at stake for his CEO peers at Bank of America Corp., Goldman Sachs Group Inc. and Wells Fargo & Co., based on forecasts compiled by Bloomberg.
Bankers will find out whether they get any boost tomorrow when the Fed announces which capital plans at the 18 largest U.S. lenders won approval. Regulators have pressed firms since the 2008 credit crisis to give executives more stock and less cash to align their interests with those of shareholders. CEOs are poised to get a windfall if payouts increase and shares rise -- or to suffer with their investors if results sputter.
“There’s a very clear message in last week’s stress test that the banks are going to have to raise capital, particularly the largest banks,” said Nancy Bush, an analyst and contributing editor at SNL Financial LC, a bank-research firm in Charlottesville, Virginia. “They will be able to raise their dividends, but not in any kind of an aggressive fashion.”
Banks are required to pass stress tests run by the Fed and submit capital plans that include any changes in dividends or stock-buyback programs. The four lenders haven’t disclosed how big a raise they’re seeking, while New York-based Citigroup Inc. and Morgan Stanley have said they didn’t ask for increases.
Dimon would get his extra $1.39 million if JPMorgan raises its quarterly payout from the current 30 cents to 36 cents, the average estimate of 14 analysts surveyed. He could reap as much as $2.3 million extra a year if the dividend hits 40 cents, the high end of the range from three analysts who follow JPMorgan, the largest U.S. bank by assets.
Using the average forecast, the new dividend would deliver $8.3 million in annual income to Dimon, 57, and his wife, who own about 5.78 million shares of the New York-based lender’s common stock, according to his latest regulatory filing. That’s on top of his $11.5 million compensation package, which included a $1.5 million salary.
Every 1-cent increase in JPMorgan’s dividend is worth about $38 million to the bank’s shareholders.
Bank of America CEO Brian T. Moynihan, 53, would forgo $36,932 from his 485,950 shares, and possibly as much as $77,752, if the lender can’t raise its quarterly payout from 1 cent. That’s where the dividend has been stuck since the Charlotte, North Carolina-based firm was bailed out during the financial crisis.
The average estimate from analysts for the new dividend is 2.9 cents, with a maximum of 5 cents. An increase would repair some of the damage to the bank’s reputation from the 2011 stress tests, when Moynihan came under fire for raising expectations of a higher dividend before being blocked by regulators.
Lloyd Blankfein, 58, would receive an extra $17,292 if the new Goldman Sachs dividend matches the average estimate of 50.2 cents, little changed from the current 50 cents. At the top estimate of 52 cents, Blankfein could get $172,917 from his almost 2.2 million shares of the New York-based firm.
For John Stumpf at San Francisco-based Wells Fargo, who owns 956,038 shares, a new dividend matching the average estimate of 25.5 cents would earn him an extra $19,121. The current payout is 25 cents. The highest estimate of a 30-cent dividend would add $191,208 a year to Stumpf’s wallet.
A bigger beneficiary may be billionaire Warren Buffett, whose Berkshire Hathaway Inc. is Wells Fargo’s largest stakeholder. With 456.2 million shares, according to the Omaha, Nebraska-based company’s annual report, Berkshire stands to gain an extra $9.1 million a year.
Spokesmen for the four banks declined to comment on the stakes in relation to dividend increases. Top bankers including Blankfein, Dimon and Stumpf have additional equity stakes in their companies through stock options or restricted stock units granted in compensation packages that weren’t included in the calculations, which reflect estimates as of yesterday’s close.
Any income boost will be tempered by higher federal taxes that took effect this year. Congress increased the maximum levy on qualified dividends Jan. 1 to as much as 23.8 percent for high earners, including a tax tied to the new national health-care program, from 15 percent in 2012.
The tax bite this year means Dimon could pay more than $700,000 on the 1.9 million shares he owns directly if the quarterly dividend increased to the highest estimate. He also holds shares indirectly through entities including trusts and a 401(k) retirement account in which payouts may be treated differently for tax purposes, the filings show.
JPMorgan scaled back its $15 billion share-buyback program by at least 20 percent and hopes to boost the bank’s 30-cent quarterly dividend, Dimon said earlier this year.
The bank’s case may have been undermined by the so-called London Whale episode last year, in which a massive wrong-way bet on derivatives by a U.K. trader led to a record $6.2 billion trading loss. Dimon’s compensation package was cut in half by the board, which held him partly responsible.
Dimon probably would prefer share buybacks if he had his “druthers,” according to Bush of SNL Financial.
“Dividends are not their big thing,” she said of the biggest banks’ CEOs. “They want the stock to go up. They want to at some point trade it in for big capital gains.”