Shares of the country’s biggest bank are up on headlines that it plans to buy back an enormous amount of stock over the next 12 months.
It wasn’t a shock when JPMorgan Chase (NYSE: JPM) announced it had raised the size of its share buyback authorization. The surprise came then the amount of the increase was disclosed.
Bank 2017 Buyback Authorization
JPMorgan Chase $19.4 billion
Citigroup $15.6 billion
Bank of America $12 billion
Morgan Stanley $5 billion
After passing both courses of this year’s stress tests, the country’s biggest bank by assets said its committee had cleared a $19.4 billion addition to its common stock repurchase plan – almost twice the amount that JPMorgan Chase’s board authorised last year. It also exceeds the scope of similar programs at other major banks.
If JPMorgan Chase administers on its repurchase program, which it’s likely to do, the New York-based bank could reduce its outstanding share by roughly 6%, based on its current market capitalization. That’s a significant percentage when you take into account JPMorgan Chase’s size — it has more than $2.5 trillion worth of assets on its balance record.
Jamie Dimon, Chairman and CEO of JPMorgan Chase, said, “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.”
The bank’s actions come on the heels of the Federal Reserve’s decision on Wednesday that all 34 of the country’s biggest banks passed this year’s Comprehensive Capital Analysis and Review, or CCAR. This is the second phase of the yearly stress tests, the first being the Dodd-Frank Act stress tests or DFAST.
Banks with bigger than $50 billion in assets on their balance sheets must take stress tests annually to assess whether they have enough high-quality, highly liquid capital to endure a severe economic downturn similar to the financial crisis. In this year’s test, the Fed estimated that the unemployment rate doubles to 10%, gross domestic product contracts by more than 6%, and real estate prices fall by between a quarter and a third.
JPMorgan Chase had no problem fulfilling these contingencies through both stages of this year’s stress tests. Its CET1 ratio at the low period of DFAST dropped to 9.1%. This declined to 6.9% under CCAR.The report that JPMorgan Chase has substantially scaled up its repurchase authorization, in addition to a 12% dividend hike, it sent shares of the bank up on Wednesday and Thursday. For the month of June, they’ve climbed not less than 10%.