JPMorgan Chase & Co.
) has postponed its massive buyback plan yet again. This is the
second time that the company has delayed its share repurchase
program. The clean up of the multi-billion-dollar trading loss is
cited as the reason for this delay.
GOLDMAN SACHS (GS): Free Stock Analysis Report
JPMORGAN CHASE (JPM): Free Stock Analysis
US BANCORP (USB): Free Stock Analysis Report
To read this article on Zacks.com click here.
In March, after passing the stress test, JPMorgan and other major
banks, such as
The Goldman Sachs Group Inc.
) received clearance for implementing their capital deployment
actions. JPMorgan had announced a new equity repurchase program
under which the company was authorized to buyback $15 billion worth
of common stock. Out of the approved $15 billion, $12 billion was
authorized for FY12 and an additional $3 billion for the first
quarter of 2013.
In May, JPMorgan's chief investment office (CIO) incurred
substantial mark-to-market losses in an index of credit default
swap (a type of derivative), which was to protect the company
against potential losses on its large holdings of loans and bonds.
However, the company's strategy backfired as the repositioning of
the credit portfolio was poorly monitored and executed, thereby
resulting in a loss of $2 billion.
Immediately, following the fiasco, JPMorgan's CEO announced the
suspension of the company's $15 billion share repurchase program.
The primary reason for this was the fact that it did not want any
glitches in the path of meeting the Basel III capital requirements.
The company assured the investors of restarting the program once it
is able to rebuild the lost capital.
Last month, when JPMorgan declared its quarterly results, the CEO
was hopeful of recommencing the buyback plan in the fourth quarter
of this year. However, he remained skeptical of the ongoing
investigation of the trading loss dubbed as the "London Whale."
JPMorgan has decided to further delay the share repurchase program
up to the first quarter of 2013 as the investigation not yet over
and the losses are gradually increasing. Moreover, the company is
yet to submit its revised capital plan to the Fed, seeking approval
for restarting the share buyback program.
The trading debacle and delay of share buyback have dented
investors' confidence on JPMorgan's balance sheet position.
However, JPMorgan has no plans to suspend or cut down its quarterly
dividend and this will surely please the investors.
The company's diversified revenue base, global footprint, stable
capital position and continuously improving credit quality are
expected to enable it to post strong results going forward.
Moreover, these factors are anticipated to help it withstand the
huge trading loss and resume its share repurchase activity.
Currently, JPMorgan retains a Zacks #3 Rank, which translates into
a short-term Hold rating. Considering the fundamentals, we are
maintaining a long-term Neutral recommendation on the stock.