Hmm. Wonder what's next.

Discussion in 'Wall St. News' started by ljyoung, Feb 24, 2009.

  1. This from the FT:

    JPMorgan cuts dividend by 87%
    By Julie MacIntosh and Francesco Guerrera in New York

    Published: February 24 2009 01:20 | Last updated: February 24 2009 01:20

    JPMorgan Chase surprised investors late on Monday by slashing its quarterly dividend by 87 per cent to preserve capital, saying that “extraordinary times call for extraordinary measures”.
    The bank said that it had cut the dividend from 38 cents a share to 5 cents a share to shore up its balance sheet against a potential “highly stressed environment”.

    The move will save $5bn a year.

    JPMorgan, which has accepted $25bn in capital from the US government, said it had been “solidly profitable” in the first quarter to date and had $81bn of tangible common equity on its balance sheet. Its tier 1 capital ratio was 10.9 per cent, well above the regulatory requirement. Its tangible common equity ratio, a measure of health that the government might use in its stress tests of US banks, sits at 6.5 per cent, above most of its competitors.

    Shares of the bank, which had a $24bn allowance for credit losses at the end of last year, rose more than 5 per cent in after-hours trading.

    Jamie Dimon, chief executive, said the company had been under no pressure from the government to cut the dividend. “No one asked us to do it,” he said.

    However, he added that under the rules for companies that had received government aid, JP_Morgan would not be allowed to raise the payout until it had repaid the $25bn in federal funds it had received. He acknowledged public anger at the use of taxpayers’ money to bail out banks. However, he reiterated that JPMorgan did not need the funds and only accepted them to help out the US banking system.

    “The people who took [the funds] and didn’t need it maybe should be treated differently from everybody else,” he said.

    JPMorgan’s definition of a highly stressed environment included the potential for a two-year recession, an unemployment rate of 10 per cent or higher, and a decline of 40 per cent in housing prices from peak to trough. It was not predicting such a situation, however.

    About halfway through the first quarter of the year, the bank said that its quarterly outlook was roughly in line with analysts’ expectations. It cited strong trading results in its investment bank, but said that it could realise credit costs and markdowns of about $2bn.

    JPMorgan reported modest deterioration in home lending and credit deterioration in its card services operation, and predicted that it would need to take additional reserves in both areas.

    It is also of note that since late last year JPM's credit card services department have been increasing the rates on purchase and cash advance debt for holders of business (typically small business) credit cards and is set to put the second round of increases into effect March 1. These increases have nothing to do with the credit-worthiness of the cardholders but rather reflect efforts to spread the misery resulting from the problems noted above.

    Dimon's comments about 'not needing the government's money' and then suggesting that JPM should 'be treated differently' are a further tell, IMO.

    So we see.