It’s only two cents. But it could signify a lot more than that.
On Tuesday afternoon, the biggest bank in America, JPMorgan Chase, announced that it would increase its quarterly dividend from 48 cents to 50 cents.
On the face of it, it’s not a big move: the payout has been rising pretty steadily since a trough of 5 cents after the crisis – even through the tricky “London Whale” episode of 2012. But this is the first out-of-cycle increase in a long time. Normally, JPMorgan likes to lift the payout then keep it there for at least four quarters.
This time it’s only three quarters since the last bump. Just ten months after the board approved a rise from 44 to 48 cents, it’s ready to give shareholders “a little extra,” according to a person familiar with its thinking.
The move is consistent with remarks last month by Marianne Lake, chief financial officer, who said she felt the bank had reached “an inflection point in capital.” She noted that banks such as her own have spent the years since the crisis building up equity under the close watch of the Federal Reserve in Washington.
But the time is now right, she said — more than eight years on from the worst of the financial crisis — to allow the banks to hand back more cash in the form of higher dividends and buybacks.
She noted that JPMorgan expected to have equity capital equivalent to 12.5 per cent of risk-weighted assets — at the top of its target range — within a quarter or two. “Based on what we know today, over time — and I’d emphasise, over time — there is no good reason why we would not want to move down” closer to 11 per cent, the lower end of the range, she said.
Moves like this to raise payouts won’t be popular all over. One faction of the Republican party is currently pushing a new regulatory framework that would force the big banks to boost equity capital to at least 10 per cent of gross assets – much higher than JPMorgan’s current levels – if they want some relief on supervision and enforcement. Neel Kashkari, president of the Minneapolis Fed, is also calling for banks to boost capital.
But in the meantime, other banks could be seeking permission to nudge payouts higher. According to a recent Morgan Stanley research note, the biggest banks in the US have at least $120bn of capital in excess of minimum levels laid down by global regulators and the Fed.
“I think we’d end up with too much capital, and I have always been worried about this,” said Jamie Dimon, JPMorgan’s chairman and chief executive, at the same investor presentation last month.
He argued that JPMorgan now had enough equity to absorb the stress-test losses of “all major banks in the United States of America” – plus Credit Suisse, UBS, Barclays and Deutsche Bank.
“People just [want to] have a rational calibration,” he said.