Chase CEO Jamie Dimon looks on as he attends the seventh “Choose France Summit”, aimed at attracting foreign investors to the country, at Chateau de Versailles, outside Paris, on May 13, 2024.
Ludovic Marin | Via Reuters
JPMorgan Chase executives said the bank would increase share buybacks to keep its pile of tens of billions of dollars of excess cash from growing.
Fresh a record year for profits and revenues, JPMorgan faces questions about what the CFO Jeremy Barnum admitted it was a “high-class problem”: the bank has, by some estimates, roughly $35 billion in cash it doesn’t need to satisfy regulators, or what analysts call “excess capital.”
“We would like to see the surplus not grow from here,” Barnum told analysts on Wednesday. “Given the amount of organic capital generation that we’re producing, that means that — unless we find organic deployment opportunities in the near term or otherwise — that means a higher return on capital through buybacks.”
The bank heard this from investors and analysts who want to know what JPMorgan intends to do with the cash. The largest U.S. bank by assets piled on earnings in preparation for Basel 3 regulatory rules that would require more capital, but Wall Street analysts now believe the new Trump administration is likely to propose something much gentler.
Back in May, when the question came up at his bank’s annual investor day, the CEO Jamie Dimon shuddered at the thought of increasing purchases of its shares, which were then trading near a 52-week high of $205.88.
“I want to succeed really clear ALL RIGHT? “We’re not going to buy back a lot of shares at these prices,” Dimon said at the time.
That’s because the company’s valuation was too high, even in its own eyes, Dimon said: “It’s a mistake to buy back shares of a financial company that greatly exceeds two times tangible books. We’re not going to do that.”
The bank’s shares have only risen since then: The stock is now trading 22% higher than when Dimon made those remarks.
Refusing calls to reduce its cash pile by more than it deems necessary, JPMorgan hinted at the risk of rocky times forward. Since at least 2022, Dimon and others have warned of the possibility of a recession ahead, but it has yet to come, leaving the end of the economic cycle still on the horizon.
Barnum returned to the topic on Wednesday, telling reporters that there is a “tension” between risks in the economy and high asset prices in the market; the bank therefore had to prepare for a “wide range of scenarios”, he said.
A sharp economic downturn would give the bank an opportunity to use more of that estimated $35 billion in excess cash through loans, according to Portales Partners analyst Charles Peabody.
“I think JPMorgan will be disciplined not to burn capital,” Peabody said. “The best time to take market share is coming out of a recession, because your competitors are somewhat weakened. And I expect it to pull back with buybacks from current levels, despite shareholder pressure to do more.”
