Jamie Dimon says under ‘extremely adverse’ scenario, JPMorgan might consider suspending dividend

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KEY POINTS
  • Jamie Dimon said that in a “extremely adverse” downturn in the U.S. economy, JPMorgan Chase would probably consider suspending its dividend to preserve capital.
  • If a more severe “extremely adverse scenario” happens with a 35% decline in gross domestic product and unemployment at 14%, the bank would face tough decisions.
  • “If it were to play out, the Board would likely consider suspending the dividend even though it is a rather small claim on our equity capital base,” Dimon said
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Jamie Dimon said Monday that in a “extremely adverse” downturn in the U.S. economy, JPMorgan Chase would probably consider suspending its dividend to preserve capital.

The biggest U.S. bank by assets has entered the coronavirus-induced crisis from a position of strength and has shown in previous Federal Reserve stress tests that it can weather a recession, Dimon said in an annual shareholders letter. But if a more severe “extremely adverse scenario” happens with a 35% decline in gross domestic product and unemployment at 14%, the bank would face some tough decisions.

“If it were to play out, the Board would likely consider suspending the dividend even though it is a rather small claim on our equity capital base,” Dimon said. “If the Board suspended the dividend, it would be out of extreme prudence and based upon continued uncertainty over what the next few years will bring.”

The message is likely to reverberate among bank investors and analysts. Executives including the heads of Citigroup and Goldman Sachs have said in CNBC interviews that while the biggest U.S. banks voluntarily pulled back on share repurchases at the outset of the crisis, their dividends were safe. Now, with the leader of the world’s most valuable bank by market capitalization broaching the topic of a dividend suspension, it would seem that most banks could also be vulnerable if the economy doesn’t eventually recover this year.

JPMorgan has steadily raised its dividend in recent years, reaching a quarterly payout of 90 cents a share.

“We don’t know exactly what the future will hold — but at a minimum, we assume that it will include a bad recession combined with some kind of financial stress similar to the global financial crisis of 2008,” Dimon said. “Our bank cannot be immune to the effects of this kind of stress.”

 

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