US banks won’t resume their share buyback programmes until executives can see “the white of the eyes of the recovery” and they will not return to pre-coronavirus levels, JPMorgan Chase chief executive Jamie Dimon warned on Tuesday.
The head of America’s largest bank predicted another big provision for loan losses in the second quarter, on top of that taken earlier this year as JPMorgan braced for defaults from borrowers hit by the coronavirus crisis, although he added that the lender was also continuing to experience a boom in its trading business.
Mr Dimon’s cautious tone on buybacks, during an appearance at a Deutsche Bank financial services conference, came as bank stocks were staging a powerful rally on signs of the US economy reopening. JPMorgan’s shares were up more than 7 per cent from Friday’s close.
Eight top US banks voluntarily suspended buybacks in the middle of March as the Covid-19 crisis threatened hefty loan losses and outsize demands for additional credit. The eight companies spent $108bn between them on buybacks last year.
It was “a little premature” to begin a conversation about resuming those payments, which made up the vast majority of the cash returned to shareholders, Mr Dimon said.
“You’ve got to see the whites of the eyes of the recovery before you start to make buybacks,” he said. “If [banks] are all of a sudden retaining a lot of capital and they’re earning more money and reserves are coming down, I think you may see people start them but they probably won’t be the size you saw before.”
0.15% the share of JPMorgan’s capital base accounted for by quarterly dividends
Outside the US many banks have also suspended dividend payments and there have been calls from former regulators and politicians for similar curbs in the US.
Mr Dimon said “mature” bank boards would have to look at their dividend payments if the economy worsened “dramatically” but he insisted that JPMorgan could continue to make the payments since the bank would earn “quite a bit of money this year”. The quarterly dividend was a “drop in the bucket” that accounted for just 0.15 per cent of JPMorgan’s capital base, he said.
Banks would know much more about the outlook by the end of the second quarter, Mr Dimon said, as the impact of the coronavirus crisis on borrowers became clearer.
JPMorgan is expecting a “substantial increase” in credit reserves in the second quarter which could be equal to the $8.3bn of loan loss provisions the bank took in the first quarter.
Mr Dimon said provisions could normalise thereafter, adding that consumers might resume normal loan repayments faster than in previous crises. Some customers who initially requested forbearance never actually used it, while others saw the measures as an “entitlement” and were found to have asked for relief even though they had $5m-$10m in cash at their disposal, he said.
On the trading side Mr Dimon said activity in the second quarter was so far “just as strong as last quarter” when JPMorgan had a 34 per cent rise in fixed-income trading revenues year-on-year and a 28 per cent rise in equities trading revenues on the same basis.
Earlier at the conference, Deutsche Bank’s chief executive Christian Sewing said “positive momentum” in trading revenues continued in the second quarter, particularly for fixed income and currencies.