JPMorgan Chase could suspend its dividend for the first time in its history if the coronavirus crisis triggers the kind of sharp recession that some economists now expect, chief executive Jamie Dimon warned on Monday, striking a more cautious tone on payouts than its Wall Street rivals.
In his annual letter to shareholders, Mr Dimon said JPMorgan was “not immune” to the coronavirus crisis and is exposing itself to “billions of dollars of additional credit losses” as it lends to businesses and individuals in need.
The bank’s board — which continued to approve shareholder payouts throughout the 2007/8 financial crisis and its aftermath — would “likely consider suspending the dividend” in an “extremely adverse scenario”, where the US economy contracts by 35 per cent in the second quarter and unemployment rises to 14 per cent, Mr Dimon told investors.
“This scenario is quite severe and, we hope, unlikely,” he added.
Analysts at Goldman Sachs last week said the US economy could shrink 34 per cent in the second quarter, while analysts at Morgan Stanley estimated it could contract by 38 per cent. Official figures show that US unemployment rose to 4.4 per cent in March, up from a 50-year low of 3.5 per cent in February.
Mr Dimon also cautioned that it “should be expected that our earnings will be down meaningfully in 2020”, following JPMorgan’s record profits last year.
While stopping short of suspending its dividend for now, the tone from the chief of America’s most profitable bank is at odds with his US counterparts, who last week offered a staunch defence of their plans to continue making payouts.
Goldman Sachs chief David Solomon last week told CNBC that dividends made up a much smaller part of capital return for American banks than for their European peers, who have been ordered by regulators to halt payments. “It’s my expectation we’ll pay our dividend return,” he added.
Meanwhile, Morgan Stanley chief James Gorman told CNBC that suspending dividends would be a “very poor thing to do” and would be “destabilising”, while Citigroup boss Mike Corbat told the same channelthe bank’s dividend was “sound and we intend to keep paying it”.
The top eight US banks have already voluntarily suspended their share buyback programmes, which account for more than two-thirds of their shareholder payouts.
Mr Dimon, who returned to work last week after life-saving heart surgery on March 5, also used the missive to take aim at a familiar target for him: post-crisis regulation.
“We are now seeing the impact of poorly co-ordinated, poorly calibrated and poorly organised rulemaking,” he said. “After the crisis subsides (and it will), our country should thoroughly review all aspects of our preparedness and response.”
He said the Federal Reserve could improve the flow of capital to the real economy by making “changes to capital and liquidity requirements”, expanding its balance sheet and offering additional lending facilities. “These actions would bolster the US economy with no impact on safety, soundness or regulatory oversight.”
JPMorgan has made $650m of new loans to small businesses, and approved more than $25bn of new credit extensions in March alone, according to Mr Dimon. The bank also loaned $1.9bn to hospitals and healthcare companies in March, as well as $360m to non-profit organisations and $240m to state and local governments. It is planning to lend an additional $150bn to clients.
Mr Dimon added: “Recognising the extraordinary extension of new credit . . . and knowing there will be a major recession means that we are exposing ourselves to billions of dollars of additional credit losses as we help both consumers and business customers through these difficult times.”