Personal Finance

2017 Stress Tests: JPMorgan Chase Cleared to Boost Dividend and Share Buybacks

Jamie Dimon

On Wednesday, the Federal Reserve published the results from the second round of this year's stress tests, clearing JPMorgan Chase (NYSE: JPM) and 33 other banks with more than $50 billion in assets on their balance sheets to increase their dividends and buy back more stock.

JPMorgan Chase followed the news by saying that it will do just that, announcing that its board of directors intends to approve a 12% increase to its current quarterly payout. This marks the eighth year in a row that the nation's biggest bank by assets has done so. JPMorgan Chase also said that it will add $19.4 billion to its share-repurchase authorization.

"Given the financial strength of the company and the significant capital and liquidity advancements we have made over the last several years, we are pleased to further increase capital returns to our shareholders while continuing to invest in our businesses for long-term profitability," said Chairman and CEO Jamie Dimon.

Metric 2017 CCAR 2016 CCAR
Dividend per share $0.56 $0.48*
Stock buyback authority $19.4 billion $10.6 billion

Data source: JPMorgan Chase. *Raised to $0.50 per share in March 2017.

The Dodd-Frank Act stress tests

JPMorgan Chase's performance in the first round of this year's stress tests made today's announcement much less of a surprise. The results from the first round, referred to as the Dodd-Frank Act stress test, or DFAST, were published last Thursday. They showed that JPMorgan Chase has far more capital than required to survive a hypothetical economic downturn akin in severity to the crisis in 2008.

Jamie Dimon

JPMorgan Chase Chairman and CEO Jamie Dimon. Image source: JPMorgan Chase.

The controlling threshold in DFAST is a common equity tier 1 capital ratio, or CET1 ratio, of 4.5%. So long as a bank exceeds this through the test's nine-quarter time horizon, it passes. If it doesn't, it fails.

In JPMorgan Chase's case, it wasn't even close . Going into the test, its CET1 ratio was 12.5%. The figure dropped to 9.1% at the low point in this year's exercise, but that still more than doubled the regulatory minimum of 4.5%.

The second round of the stress tests, known as the Comprehensive Capital Analysis and Review (CCAR), takes the DFAST analysis one step further. It does so by giving the Federal Reserve authority over big-bank capital plans, allowing the central bank to approve or deny a bank's request to increase its dividend or replenish its stock-buyback authorization.

As the Fed explains:

When considering a firm's capital plan, the Federal Reserve considers both quantitative and qualitative factors. Quantitative factors include a firm's projected capital ratios under a hypothetical scenario of severe economic and financial market stress. Qualitative factors include the strength of the firm's capital planning process, which incorporate the risk management, internal controls, and governance practices that support the process. The Federal Reserve may object to a capital plan based on quantitative or qualitative concerns. If the Federal Reserve objects to a capital plan, a firm may not make any capital distribution unless expressly authorized by the Federal Reserve.

JPMorgan Chase has largely sailed through the CCAR in the past, and this year was no different. After factoring in its planned capital actions, its minimum CET1 ratio fell to 6.9%, still well over the 4.5% minimum.

The bank's shares climbed 2% on Wednesday in anticipation of the news. They added another 2% in after-hours trading.

10 stocks we like better than JPMorgan Chase

When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor , has tripled the market.*

David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and JPMorgan Chase wasn't one of them! That's right -- they think these 10 stocks are even better buys.

Click here to learn about these picks!

*Stock Advisor returns as of June 5, 2017

John Maxfield has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

In This Story


Other Topics


Latest Personal Finance Videos

The Motley Fool

Founded in 1993 in Alexandria, VA., by brothers David and Tom Gardner, The Motley Fool is a multimedia financial-services company dedicated to building the world's greatest investment community. Reaching millions of people each month through its website, books, newspaper column, radio show, television appearances, and subscription newsletter services, The Motley Fool champions shareholder values and advocates tirelessly for the individual investor. The company's name was taken from Shakespeare, whose wise fools both instructed and amused, and could speak the truth to the king -- without getting their heads lopped off.

Learn More