To hear the management at JPMorgan (JPM) talk, the bank does not have to cut its dividend, but it would be nice to keep the extra money each quarter, just in case things do not go as planned. The reasoning is a little thin, but that does not mean that the bank is being sinister.
In a statement released after the market closed, JPM said its payout would go from $.38 to $.05. The firm said that this would allow it to keep an extra $5 billion a year. In addition, JPM said that the current quarter is running in line with expectations.
The part of the company’s announcement which might cause some anxiety was “While our performance and capital are already strong, today’s action provides us with maximum flexibility to protect our company in a more highly stressed environment and to continue to build and invest in our market-leading businesses.” In other words, things could get much worse, and we want to have as much dry powder on hand as possible.
What the bank’s management knows but it is not willing to say is that things are going to get much worse. News that the government might shore up Citigroup (C) did not help the markets today and they cascaded more rapidly each hour as they moved toward the close.
The JPM decision is a not terribly subtle admission that even the best run big bank in the country is settling in for a long siege and even a $5 billion buffer may not be enough. The credit markets are going to hell too fast.
Douglas A. McIntyre