JPMorgan suspends stock repurchase plans
Tuesday, May 22, 2012
NEW YORK (AP) — JPMorgan Chase is suspending plans to buy back its own stock, a little over a week after the bank posted a large trading loss.
The largest U.S. bank by assets disclosed the $2 billion trading loss on May 10 in a hastily-called conference call with investors and journalists.
The loss from an ill-timed trade on so-called credit derivatives has rattled investor confidence in JPMorgan Chase, leading to a 20 percent decline in the value of the stock since the disclosure, lopping off $30 billion of market value.
The loss has also hurt the reputation of CEO Jamie Dimon, who has since apologized to investors several times.
"It's an embarrassment, it's a black mark," Dimon said again Monday at a conference organized by Deutsche Bank.
Dimon said JPMorgan will continue to pay its quarterly dividend of 30 cents a share. But it will suspend plans to buy back shares because the bank is preparing for new international regulations that force banks to hold more capital to prepare for economic downturns.
Answering a question by an analyst on what made the company suspend its plans, Dimon said it was in response to regulators' requirements.
He said regulators need large banks like JPMorgan to not only pass the annual stress tests conducted by the U.S. Federal Reserve, but also "to be without stress in a normal environment." That's because regulators want banks to be able to easily comply with new international regulations that go into effect starting next year.
However, the large losses from it's the complex trade would make that difficult.
"We're obviously not going to be making as much money," said Dimon.
Dimon said he would like the bank to be on a "glide path" to be prepared for new regulatory capital requirements. But the level of risk has gone up from the trade, which affects how much capital the bank has to set aside for future losses.
Dimon has been trying to put out fires at the bank after making the announcement. Four days after the announcement the bank announced that Ina Drew, the chief investment officer for the bank and a 30-year veteran of the company who was responsible for the division that handled the trade, would retire.
JPMorgan's was scheduled to buy back $15 billion shares through the end of the first quarter of 2013.
JPMorgan's stock fell 3 percent to close at $32.51 Monday.
Dimon's announcement is an about-face from earlier statements. At a meeting with investors in February, Dimon had said buying back stock helps the company meet regulatory requirements quicker.
"I don't mind the low stock price," Dimon had said then. The bank had bought a lot of stock back in 2011 at $36.
Usually, the bank buys back the shares it issues for employee stock-based incentive awards.
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