JPMorgan Chase: Buyback Winner
Banks led a broad market rally, after JPMorgan announced that the Federal Reserve "did not object to the Firm's proposed capital distributions submitted" as part of its annual data submission for the stress tests. The company announced a five-cent increase in its quarterly dividend, to 30 cents a share, and also said it had "authorized a new $15 billion equity repurchase program."
The The KBW Bank Index (I:BKX) rose 5% to close at 47.49, with all 24 index components showing gains of over 1%.
JPMorgan's shares have now returned 32% year-to-date, following last year's 20% decline.
The company said its new buyback program would include "up to $12 billion" in share repurchases during 2012, "and up to an additional $3 billion is approved through the end of the first quarter of 2013."
CEO James Dimon said that the company expected "to generate significant capital and deploy that capital to the benefit of our shareholders," while continuing "to invest in our substantial organic growth opportunities as our top priority and best use of capital."
Dimon added that JPMorgan Chase expected "to repurchase, at a minimum, approximately the same amount of shares that we issue for employee stock-based incentive awards," and that the company intended "to repurchase equity only when we are generating capital in excess of what we need to fund our organic growth and when we think it provides excellent value to our existing shareholders."
Of course, some investors may have appreciated more of a dividend increase, in light of Dimon's comment that the buybacks would, at a minimum, cover the same amount by which the company would dilute the shares through employee stock awards.
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JPMorgan's announcement prompted the Federal Reserve to move up its stress test result announcement from Thursday to Tuesday, at 4:30.
The Wall Street Journal reported that Bank of America (BAC) had passed the stress tests, sending the company's shares up over 6%, to close at $8.49.
Bank of American didn't request permission from the Fed to increase dividends or conduct buybacks, but investors were no doubt breathing a sigh of relief. KBW analyst Jefferson Harralson on Monday said that Bank of America's estimated Basel 1 Tier 1 common equity ratio could have wound up at 4.66% according to the Fed's stress test scenario, which could have brought pressure on the shares.
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