JPMorgan Shares Jump on Dividend, Buyback

  • JPMorgan Chase raises quarterly dividend by 5 cents to 30 cents per share.
  • Board authorizes $15 billion buyback, of which $12 billion for 2012.
  • Fed does not object to firm's proposed capital plans, bank says.

NEW YORK ( TheStreet) -- JPMorgan Chase ( JPM) said Tuesday that it has received the Federal Reserve's approval for its capital deployment plans for 2012.

The bank said it will raise quarterly dividend to 30 cents per share from 25 cents per share earlier. It also authorized a new share repurchase program of $15 billion, of which up to $12 billion is approved for 2012 and up to an additional $3 billion is approved through the end of the first quarter of 2013.

The bank's announcement came as a surprise, as the Fed was expected to announce the results of its annual Comprehensive Capital Analysis and Review only after the bell on Thursday.

But JPMorgan said the regulator had informed the bank that it had completed its review and did not object to its proposed capital distribution plans that it had submitted under the CCAR.

"We are pleased to be in a position to increase our dividend and to establish a new equity repurchase program. We expect to generate significant capital and deploy that capital to the benefit of our shareholders," CEO Jamie Dimon said in a statement.

Dimon stressed that the bank will continue to invest in organic growth opportunities and will buyback shares "only when we are generating capital in excess of what we need to fund our organic growth and when we think it provides excellent value to our existing shareholders."

JPMorgan spent nearly $9 billion in repurchasing shares in 2011. The strategy did not succeed in boosting the stock's flagging market price however, leading the CEO to apologize for the ill-timed repurchases.

Still, the CEO recently earned praise for buyback strategy from none other than Warren Buffett. The legendary investor singled out Dimon's annual letter from 2011, which outlined a strategy of prioritizing growth over buybacks.

Still, shares were soaring 7% to $43.41 following the announcement, as investors cheered the bank's buyback and dividend increase. The broader market also jumped on the news, with the Dow Jones Industrial Average up 188 points.

Most analysts had pegged JPMorgan to be a big winner in the Fed's stress tests given its sound capital position and superior profitability. The bank said in its investor day last month that it would be able to raise dividend and maintain a buyback program consistent with that of 2011, and still achieve a Basel 1 Tier 1 Capital ratio of more than 8% in 2012 and 13 in a stressed scenario, well above the Fed's minimum requirement of 5%.

Still, the buyback plan submitted by the JPMorgan seems to be well ahead of expectations at $15 billion. KBW analysts had said that any buyback program greater than $9 billion would be a surprise.

--Written by Shanthi Bharatwaj in New York

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Disclosure: TheStreet's editorial policy prohibits staff editors and reporters from holding positions in any individual stocks.

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