JPMorgan Boosts Shareholders' Value - Analyst Blog


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On Tuesday, the Federal Reserve informed JPMorgan Chase & Co. ( JPM ) that its capital deployment plan, submitted under Comprehensive Capital Analysis and Review (CCAR) or the stress test, has been approved. Consequently, the company announced a dividend increase and a new share repurchase authorization.

JPMorgan increased its quarterly dividend 20% to 30 cents per share. The dividend is payable on April 30 to the shareholders of record at the close of business on April 5. Hence, the annual dividend payable to the shareholders comes to $1.20 per share.

This is the second time that JPMorgan has hiked its dividend since the financial crisis. In 2011, the company had raised its quarterly dividend fivefold to 20 cents per share, following the Fed's approval. In the midst of the financial crisis, JPMorgan had to slash its quarterly dividend to 5 cent per share and take bailout money from the government to stabilize its financials.

JPMorgan also announced a $15 billion stock repurchase program. Out of this, up to $12 billion of common stock buyback is approved for 2012 and remaining $3 billion has been agreed for the first quarter of 2013.

Under the provisions of the Dodd-Frank financial reform law, the large US banks (with total assets of $50 billion or above) are required to demonstrate that they have adequate capital to address potential losses under several stressful scenarios. The hypothetical scenarios included rise in the unemployment rate to about 13%, a more than 50% decline in the Dow Jones Industrial Average and a drop of more than 20% in home prices.

Hence, in January, JPMorgan along with other large US banks such as Bank of America Corp. ( BAC ), Morgan Stanley ( MS ) and Goldman Sachs Group Inc. ( GS ) had submitted their capital plans to the Fed for the fourth round of stress tests. The banks were required to prove their financial stability by keeping their core Tier I common equity above 5% under stressful conditions.

Moreover, the six big U.S. banks - Citigroup Inc. ( C ), Bank of America, JPMorgan, Morgan Stanley, Goldman and Wells Fargo & Company ( WFC ) -had an even higher stumbling block to clear as they have significant exposure to the stressed European countries - Greece, Ireland, Italy, Portugal and Spain - known as the GIIPS.

With the announcement of the results, out of these six firms, only Citigroup failed to clear the stress test. The bank has been asked to resubmit its revised capital plan to the Fed, later this year.


The economic benefits of the stress tests are immense. These would keep the banks on their toes. Due to this, the banks would perform under pressure and try to rebuild their weak capital structure. The whole idea of the stress test could ultimately translate into less involvement of the taxpayers' money for bailing out troubled financial institutions.

Also, from investors' point of view, with JPMorgan clearing the stress test, it is for sure that the company will be able to withstand another financial crisis.

Currently, JPMorgan retains a Zacks #3 Rank, which translates into a short-term Hold rating. Also, considering the fundamentals, we are maintaining a long-term "Neutral" recommendation on the stock.

BANK OF AMER CP ( BAC ): Free Stock Analysis Report
CITIGROUP INC ( C ): Free Stock Analysis Report
GOLDMAN SACHS ( GS ): Free Stock Analysis Report
JPMORGAN CHASE ( JPM ): Free Stock Analysis Report
MORGAN STANLEY ( MS ): Free Stock Analysis Report
WELLS FARGO-NEW (WFC): Free Stock Analysis Report
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Business , Stocks
More Headlines for: BAC , C , GS , JPM , MS

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