JPMorgan Chase boosting buybacks after Dimon called stock expensive

JPMorgan Chase executives said the bank would step up share purchases so that a growing pile of tens of billions of dollars in excess cash would no longer grow.

Fresh a record year for profit and revenue, JPMorgan is facing questions about which CFO Jeremy Barnum admitted it was a “high class problem”: the bank has, by some estimates, about $35 billion in cash that it does not need to satisfy regulators, or what analysts call “excess capital.”

“We wouldn’t like the excess to grow from there,” Barnum told analysts on Wednesday. “Given the amount of organic capital generation that we’re producing, it means that – unless we find opportunities in the short term, opportunities for organic deployment or otherwise – it means more return on capital through buybacks.”

The bank heard from investors and analysts who want to know what JPMorgan intends to do with the cash. The largest US bank by assets has piled on earnings in preparation for Basel 3 regulatory rules that would require more capital, but Wall Street analysts now believe the incoming Trump administration is likely to propose something . much kinder.

Back in May, when the question came up at the annual investor day of his bank, CEO Jamie Dimon bristled at the notion of scaling up purchases of his stock, which was then trading near a 52-week high of $205.88.

“I want to do it really clear OK? We’re not going to buy a lot of stock at these prices,” Dimon said at the time.

It is because the valuation of the company was too rich, even in his eyes, Dimon said: “Buy back stock of a financial company much more than twice tangible book is a mistake. We will not do it.

The bank’s shares have only appreciated since: A share exchanges hands for 22% more now than when Dimon made these remarks.

In fending off calls to reduce its cash pile by more than it deems necessary, JPMorgan hinted at the risk of rockier times go ahead. Since at least 2022, Dimon and others have warned of the possibility of a recession just ahead, but it has not yet arrived, leaving the end of an economic cycle still on the horizon.

Barnum returned to the subject 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.

A sharp economic downturn would give the bank the opportunity to deploy more than the estimated $35 billion in excess liquidity through loans, according to Portales Partners analyst Charles Peabody.

“I think JPMorgan will be disciplined not to squeeze capital,” Peabody said. “The best time to take market share is coming out of a recession, because your competitors are a little weakened. And I hope that he will withdraw to the buybacks from the current levels, despite the pressure from shareholders to do more “.