Jamie Dimon gets his $30bn buyback wish

JPMorgan Chase & Co CEO Jamie Dimon made no secret that he wanted to buy back some of the bank’s stock before the roaring equity market rally took it too far. “I hope we can do it before it goes way up,” he said in July.
Five months later, right in the heart of the holiday season, the Federal Reserve made his wish come true. And he and JPMorgan could hardly wait to share the good news. After running a second round of stress tests, the central bank concluded that the biggest lenders could handle a severe economic shock, given their current capital levels, according to results. As a result, the Fed loosened its restrictions on cash distributions, which were put in place in the wake of the coronavirus pandemic. While the banks still can’t increase their dividends beyond what they paid out in the second quarter of 2020, they can now resume buybacks, provided the combined amount doesn’t “exceed an amount equal to the average of the firm’s net income for the four preceding calendar quarters.”
Just 10 minutes after the Fed’s stress tests were made public, JPMorgan announced a new $30 billion share buyback program starting in the first quarter; it also maintained its dividend of 90 cents a share. Shares climbed 5% in after-market trading.
“Our highest and best use of capital continues to be supporting our clients and driving an inclusive economic recovery,” Dimon said. “We will continue to maintain a fortress balance sheet that allows us to safely deploy capital by investing in and growing our businesses, supporting consumers and businesses, paying a sustainable dividend, and returning any remaining excess capital to shareholders.”
JPMorgan was first out of the gate but hardly the last. Waiting a half hour until after the stress-test results, Goldman Sachs Group Inc said it would also start buying back shares in the first quarter. Before the announcement, Wells Fargo analyst Mike Mayo suggested Bank of America Corp and Citigroup Inc would most likely be the greatest beneficiaries if the Fed allowed new buybacks, given that they trade close to or below book value.
Interestingly, leading up to the stress-test results, Mayo and his fellow analysts weren’t at all confident that the Fed would ease up on lenders, expecting that the optics around Wall Street stock buybacks in the midst of a resurgent Covid-19 pandemic would be too much for the central bank to withstand.
Instead, only Fed Governor Lael Brainard, who could be in line to succeed current Fed Chair Jerome Powell after his term is up, voted against the decision. “Prudence would call for more modest payouts to preserve lending to households and borrowers during an exceptionally challenging winter,” she said. Yet from a public perception standpoint, it doesn’t feel quite right to declare the good old days of bank buybacks are here again just as President-elect Joe Biden warns of a “dark winter” ahead and many families across the US are experiencing a challenging holiday season.
—Bloomberg