JPMorgan Warns on FY 2020 Earnings, May Suspend Dividend

JPMorgan Warns on FY 2020 Earnings, May Suspend Dividend
April 8, 2020

 

The Chairman and CEO of JPMorgan Chase & Co (NYSE: JPM), Jamie Dimon, stated that he anticipates the COVID-19 issue to cause a “bad recession” and display characteristics of financial stress similar to 2008 global downturn. Dimon, in his yearly letter to shareholders, cautioned that the bank might have to consider the option of terminating its dividend in case the economy hits an “extremely adverse” situation. The bank has consistently increased its dividend in the last few years, achieving a quarterly payment of $0.90 per share. The stock gained 1.32% or $1.18 per share to close at $90.64.

Dimon, who heads the biggest US bank, stated that even though the bank remains financially strong and prepared to face the issue, the coronavirus outbreak is creating scenarios that are “dramatically different” from the stress tests conducted by the Federal Reserve on the banks.

As the economy deteriorates and loan losses increase, rules established after the 2008 financial crisis could increase the pressure on the bank, Dimon cautioned. He revealed that the bank would continue to take part in government-run programs. Dimon said that even though JPMorgan “will participate in government programs to address the severe economic challenges, we will not request any regulatory relief for ourselves.”

Regarding the bank’s future prospects, Dimon’s annual shareholder’s letter reads as follows: “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. Our bank cannot be immune to the effects of this kind of stress.”

The lender posted record revenues and earnings last year. However, moving forward, Dimon opined that the bank’s profit “will be down meaningfully in 2020” because of the COVID-19 outbreak. He also cautioned that in a worse economic downturn, the bank would likely look at the option of terminating its dividend to protect capital.

Dimon pointed out that the bank’s 2020 document related to the yearly Fed stress trial shows that even under worst circumstances, the bank will be able to provide $150 billion in loans to customers. The New York-headquartered bank has liquid assets worth $500 billion. Additionally, it has the ability to borrow $300 billion from Fed sources, if necessary.

Notably, only a week before, Dimon, aged 64, has returned to office after undergoing an urgent heart operation. Despite the rapid spread of coronavirus disease, JP Morgan has managed to preserve roughly 4,000 branches open, with a major portion of ATMs loaded with cash.

However, the bank is showing signs of pressure, with many call centers shut down due to pressure from local governments. This has resulted in longer waiting times.

The bank is allowing a grace period of 90 days to those who have taken mortgage and auto loans. Additionally, the late fee charge on credit cards is also waived. Major customers have made use of roughly $50 billion worth credit lines in the past and have accessed another $25 billion in fresh credit in March.

Dimon opined that regulatory restrictions could increase the stress on the bank despite its financial strength. He said, “As we get closer to the extremely adverse scenario, current regulatory constraints will limit additional actions we can take to help clients, in spite of the extraordinary amount of capital and liquidity we could deploy.”

He lauded the Fed’s measures to alleviate stress in financial markets and pointed that the central bank has the ability to initiate additional measures such as roll out new lending facilities and easing liquidity and capital requirements to improve the system, if necessary.

Dimon ended with the following optimistic statement: “We have the resources to emerge from this crisis as a stronger country. America is still the most prosperous nation the world has ever seen.”

The bank’s earnings warning and likely dividend suspension are expected to keep the stock range-bound with a bearish bias.

The historical price chart indicates that the stock has bounced off the support at 80. The next resistance is anticipated near 110. Additionally, the stochastic RSI indicator is in the oversold region. Therefore, we are expecting the stock to move up in the days ahead.

jpm - technical analysis - 8th April 2020

Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.

Janine

Janine

Janine is our editor for related stock market news. Andrew and Janine will be focusing on providing the latest trends and where the next hit could be


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