JPMorgan Reduces Cash on Its Way to Lower Capital Requirement

  • Biggest U.S. lender cuts required capital ratio by 1 point
  • Bank's balance sheet shrunk as cash dropped by $151 billion

It’s amazing what discarding some cash can do.

JPMorgan Chase & Co. faced investor pressure and even calls for a breakup last year after the Federal Reserve’s newest capital rules determined it to be by far the most systemically important bank and required the firm to maintain a capital ratio of 11.5 percent, a full point more than any other lender. A year later, JPMorgan has trimmed that requirement to 10.5 percent, in part by purging about $200 billion of deposits and shrinking its trading book.

The biggest U.S. bank also has built capital at a faster rate than it predicted, boosting its primary ratio to 11.6 percent at the end of 2015 from 10.2 percent a year earlier. Its required minimum under the Fed’s rule was based on a formula that took into account size and complexity.

JPMorgan’s score on that measure was helped as Chief Executive Officer Jamie Dimon trimmed the balance sheet by about $221 billion in 2015, the biggest drop in his 10-year tenure. The majority of the decline was a $151 billion reduction in cash as deposits exited.

The reversal in the bank’s capital picture could free up about $15 billion to return to shareholders through dividends and stock buybacks, depending on whether regulators would approve such measures in the annual stress test. For now, Chief Financial Officer Marianne Lake said the bank plans to keep its target of a 12 percent ratio that it set last year as it waits for more clarity on the stress test.

The bank succeeded in bringing down its capital requirement while other lenders expressed doubt on their ability to do so. Citigroup Inc. CFO John Gerspach said in July that lowering his bank’s regulatory minimum was “not necessarily something that you’re going to be able to do in a short timeframe.”

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