* Dimon says bank wants to build capital for new rules
* Bank will maintain dividend
* Move seen as blunting criticism
* Stock down more than 3 percent
By David Henry
NEW YORK, May 21 JPMorgan Chase & Co CEO
Jamie Dimon took another step that showed humility and caution
in the wake of a stunning $2 billion loss, or more, on
derivatives by announcing on Monday that the company will quit
spending capital on stock buybacks.
The company will suspend for now a $15 billion share
repurchase plan that Federal Reserve regulators had just
approved in March after running stress tests on the bank's
capital, Dimon said at an investor conference.
The move will give JPMorgan added protection against having
to reduce its quarterly dividend of 30 cents a share, which
Dimon said the bank will maintain. It also gives Dimon a hedge
against the long-shot chance that the bank's cash payouts might
equal its reported earnings in a quarter.
Dimon's latest move reflects his strategy of handling the
embarrassment from the loss by trying to get ahead of criticism.
"By getting ahead of the issue, JPMorgan is reducing the
pressure on Capitol Hill for more severe responses, such as
cutting the dividend," said Jaret Seiberg, a senior policy
analyst in Washington for Guggenheim Securities.
"The further ahead you can get, the more you can mitigate
the response and I think that is what we are seeing at play,"
When JPMorgan disclosed the losses on May 10, Dimon called
the bank's handling of the credit derivatives portfolio "stupid"
and said "egregious mistakes" were made with the trades.
JPMorgan shares fell as much as 3.6 percent after Dimon
began speaking as the market opened. The shares were down 3.2
percent at $32.43 in afternoon trading in New York.
Dimon normally relishes the chance to buy back shares at
prices below $45, he said in early April in his annual letter to
shareholders. Paying prices that are lower than what he believes
is the company's true value increases the value of remaining
shares held by investors, he explained. He complained last fall
that regulators would not allow the bank to buy back more stock
at low prices under a prior capital plan.
But without suspending the current repurchases, or booking
gains on asset sales to offset the derivatives losses, JPMorgan
would have run a heightened risk of paying out as much cash for
shares and dividends as it reports in profits in a quarter.
That would have looked bad at a time when regulators want
banks to continue building up capital to become safer.
The company has already paid out $2.1 billion this
quarter,$1 billion for buybacks and $1.1 billion for dividends,
according to Morgan Stanley analyst Betsy Graseck's
That would be as much as net earnings if the loss from the
derivatives trade reaches $5 billion, before taxes, by end the
of June, Graseck said.
Other analysts also have said the losses could reach $5
billion by year-end. Dimon has said the $2 billion in losses as
of May 10 could rise another $1 billion or more.
Dimon said at Monday's conference that the bank is holding
off on buybacks to make sure it stays on its planned "glide
path" to reach rising capital requirements being imposed under
so-called Basel 3 standards.
JPMorgan already had many ways to keep its reported profits
above its payouts, Graseck said. She listed them in a report:
selling assets to book gains, cutting costs, and drawing down on
reserves already taken for bad loans.
Dimon said Monday the bank has made progress working down
the losing trades. "We are going to wrestle the problem down,"
JPMorgan's stock has lost more than 20 percent, or $30
billion, of market value since the trading losses were
Dimon said the bank intends to restart stock buybacks once
it has replenished the lost capital. The bank is capitalized
well enough to withstand the losses, analysts said. It had $190
billion of shareholder equity supporting $2.32 trillion in
assets at the end of March.
The faulty portfolio was built of layers of supposedly
offsetting bets with credit derivatives tied to corporate bonds,
both investment grade and junk. A model for measuring risk in
the portfolio was changed sometime during the first quarter. The
change made the portfolio look less dangerous than it would have
under an older risk model the bank had used for years.