NEW YORK (TheStreet) -- Investors can expect more dividends and buybacks from
, CFO Doug Braunstein said in an investor presentation on Tuesday, keeping bank investors hopes up that other industry players will do the same.
The bank expects to comfortably pass the
stress test. Assuming analysts estimated dividends and share repurchases consistent with 2011, Basel I Tier 1 Capital would still come in at over 8% in 2012 and 2013 under a stressed scenario, significantly above the 5% required by the Fed.
In other words, JPMorgan could generate as much as $35 billion in excess of the regulator's 5% minimum.
Of course, the Fed could differ from analyst estimates.
JPMorgan plans to increase its dividend payout ratio to 30% of normalized earnings over time. The bank had a dividend payout ratio of 22% in 2011, although combined with buybacks its total payout exceeded 70%. JPMorgan spent nearly $9 billion in buying back stock in 2011. The board has authorized $15 billion in share repurchases.
JPMorgan will continue to deploy the capital remaining after dividends towards investments in organic growth, earmarking $1.9 billion in spending towards various growth initiatives. Acquisitions come next in priority, although given the current regulatory environment, deals are "reasonably unlikely", Braunstein said.
That leaves considerable room for buybacks, which is a "very attractive alternative to shareholders over the long run", the CFO said.
Many big banks including
are poised to return significant capital to shareholders in 2012.
Citi has said it expects to generate $65 billion in excess capital over the next few years which it hopes to return to shareholders starting modestly in 2012 and ramping up in 2013.
Wells Fargo has been snapping up assets but still says it intends to return more capital to shareholders. CEO John Stumpf said at the Goldman Sachs conference in December that the bank wants to return more capital to shareholders, even as they look to build more capital. "Our shareholders have been very patient with us. So I don't think it's one or the other. I think it's accomplishing both, and I think we can do both, get more capital returned, get to whatever that number is sooner and I think strong capital positions give you flexibility," he said.
Bank of America
has refrained from making any comments on its dividend plans ahead of the Fed's approval.
While investors cheer at the prospect of buybacks, the timing of these repurchases can be tricky and it may not always be the best use of capital.
JPMorgan CEO Jamie Dimon earned praise from none other than billionaire investor Warren Buffett recently, for his stance on buybacks. "One CEO who always stresses the price/value factor in repurchase decisions is Jamie Dimon at J.P. Morgan; I recommend that you read his annual letter," Buffett wrote in his latest annual letter.
In his annual letter last year, Dimon clearly said the bank would use capital to buy back stock only after exploring opportunities to invest in organic growth and make acquisitions. "As a discipline, we always will buy back the stock we issue for compensation," Dimon wrote. "However, we will buy back additional stock only when, looking forward, we see few opportunities to invest in organic growth and acquisitions. And we will buy back stock only when we believe it benefits our remaining shareholders - not the ones who are selling."
Still, Dimon ended up apologizing to shareholders in 2011 for ill-timed purchases. "It would have been wiser to wait," the CEO said in the third quarter conference call.
--Written by Shanthi Bharatwaj in New York
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