JPMorgan Chase (JPM) - Get Report CEO Jamie Dimon said Monday that the bank could consider suspending its dividend under an "extremely adverse" coronavirus recession and cautioned that earnings will be down 'meaningfully' this year as a result.
In his annual letter to shareholders published Monday, Dimon said that while the bank could boost its capital and liquidity buffers by restricting certain activities, such as dividend reductions, there is no intent at the moment to make those decisions.
Still, "out of extreme prudence", and under an "extremely adverse scenario", the board could suspend the regular quarterly dividend, Dimon cautioned, while noting that loan commitments are likely to accelerate in order to support the real economy and that 2020 earnings will fall "meaningfully' from last year's $36.4 billion total.
"We have run an extremely adverse scenario that assumes an even deeper contraction of gross domestic product, down as much as 35% in the second quarter and lasting through the end of the year, and with U.S. unemployment continuing to increase, peaking at 14% in the fourth quarter," Dimon said.
"Even under this scenario, the company would still end the year with strong liquidity and a CET1 ratio of approximately 9.5%," he added. "This scenario is quite severe and, we hope, unlikely. If it were to play out, the Board would likely consider suspending the dividend even though it is a rather small claim on our equity capital base. If the Board suspended the dividend, it would be out of extreme prudence and based upon continued uncertainty over what the next few years will bring."
JPMorgan shares were marked 6.3% higher in early trading Monday to change hands at $89.43 each. That move would still leave the stock with a year-to-date decline of around 36.6%.
U.S. banks are under pressure to both increase loans to small businesses and households in order to cushion the economic impact of the coronavirus outbreak and maintain robust capital buffers in order to satisfy banking regulators and Federal Reserve overseers.
Dimon said that, under its base case for 2020 -- which is also very close to the "extremely adverse" scenario that could result in a dividend suspension -- the bank will likely lend an additional $150 billion into the U.S. economy.
"I would like to point out that, 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," Dimon said.
"We are working closely with all levels of government during this crisis - and while we will participate in government programs to address the severe economic challenges, we will not request any regulatory relief for ourselves," he added.