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JPMorgan Cautiously Returns Capital

Zacks Equity Research

The Federal Reserve has confirmed that it has approved JPMorgan Chase & Co.’s (JPM) capital deployment plan, submitted under the 2013 Comprehensive Capital Analysis and Review (CCARF) or the stress test, subject to certain conditions. Hence, the company announced its plan to hike dividend and authorized a new share repurchase program.

JPMorgan announced a $6 billion stock repurchase program, 60% lower than that of the last year. The company intends to buyback shares from the second quarter of 2013 through the first quarter of 2014.

Moreover, JPMorgan announced that it plans to increase its quarterly cash dividend by 26.7% to 38 cents per share from the second quarter of 2013. The increased dividend will be paid on Jul 31 to the shareholders of record as of Jul 5. For the first quarter, JPMorgan will be paying quarterly dividend of 30 cents per share, which it intends to announce on Mar 19.

This is the third time that JPMorgan will be increasing its dividend since the financial crisis. In 2012, the company had raised its quarterly dividend by 50% to 30 cents per share, following the Fed’s approval. Further in 2011, the company hiked its quarterly dividend fivefold to 20 cents.

However, the Fed has asked JPMorgan to re-submit its capital plan by Oct 31, 2013, tackling the issues raised by the former. Following its review, the company might have to adjust its capital deployment program.

Under the provisions of the Dodd-Frank financial reform law, large US banks (with total assets of $50 billion or above) are required to demonstrate that they have adequate capital to address potential losses under several stressful scenarios. Hence, in Jan 2013, JPMorgan, along with 17 other large US banks including The Goldman Sachs Group, Inc. (GS) and Bank of America Corporation (BAC), submitted its capital plan to the Fed for the fifth round of stress tests.

With the announcement of the results, only two banks – BB&T Corporation (BBT) and Ally Financial – did not get approval for capital plans. Further, similar to JPMorgan, Goldman has been given a conditional approval.

With JPMorgan clearing the stress test and announcing new capital deployment plans, it is for sure that the company will be able to withstand another financial crisis and continue to boost investors’ value.

Currently, JPMorgan retains a Zacks Rank #3 (Hold).

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