Chase CEO Jamie Dimon looks on as he attends the seventh ‘Choose France Summit’, aimed at attracting foreign investors to the country, at the Chateau de Versailles, outside Paris, on May 13, 2024.
Ludovic Marin | Via Reuters
JPMorgan Chase Executives said the bank would increase share buybacks so its pile of tens of billions of dollars in excess cash doesn’t grow further.
JPMorgan has just completed a record year in terms of profit and revenue and is facing questions about which CFO Jeremy Barnum admitted it was a “major 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 stop growing from here,” Barnum told analysts on Wednesday. “Given the amount of organic capital generation we are producing, this means that – unless we find near-term opportunities for organic deployment or otherwise – this means more capital return through buybacks.”
The bank has heard from investors and analysts who want to know what JPMorgan will do with the money. The largest US bank by assets has been stockpiling profits in preparation for Basel 3 regulations that would have required more capital, but Wall Street analysts now believe the new Trump administration is likely to propose something much milder.
When the question came up at his bank’s annual investor day in May, CEO Jamie Dimon responded to the idea of scaling up the purchase of his shares, which were then at a 52-week high of $205.88.
“I want to make it very clear, OK? We’re not going to buy back many shares at these prices,” Dimon said at the time.
That’s because the company’s valuation was too high, even in his own eyes, Dimon said: “Buying back shares of a financial company that amounts to much more than twice its tangible book is a mistake. We’re not going to doing.”
The bank’s shares have only increased in value since then, with a stock now trading for 22% more than when Dimon made these comments.
In fending off calls to reduce the cash pile further than deemed necessary, JPMorgan has hinted at the risk that tough times lie ahead. Dimon and others have been warning since at least 2022 about the possibility that a recession is on the horizon, but it has yet to come, meaning the end of an economic cycle is still in sight.
Barnum returned to the topic on Wednesday, telling reporters that there was 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.
According to analyst Charles Peabody of Portales Partners, a sharp economic downturn would give the bank the opportunity to deploy more of that estimated $35 billion in excess cash through loans.
“I think JPMorgan will be disciplined not to siphon off capital,” Peabody said. “The best time to gain market share is at the end of a recession, because your competitors are somewhat weakened. And I expect he will scale back his buybacks from current levels, despite shareholder pressure to do more.”
