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2020 share buyback suspension concept

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JPMorgan Chase & Co and U.S. Bancorp Lead Share Buyback Suspension Spree in Banking Industry

Sam Bourgi Apr 13, 2020


The U.S. economy has grinded to a halt amid the coronavirus pandemic. As tens of millions of Americans line up to receive unemployment benefits, banks and other financial institutions have faced a barrage of scrutiny over their lucrative share buyback programs.

Let’s take a look at what is happening with the existing share buyback and dividend plans of the banking industry.


Big Banks Suspend Share Buybacks


JPMorgan Chase & Co (JPM) and seven other U.S. banks announced in March that they would suspend share repurchases and direct more capital toward helping individuals and businesses. Before suspending their buyback schemes, the banks were prepared to allocate $40 billion toward share repurchases. All combined, this freeze could support loans of up to $400 billion.

The following banks will join JPMorgan in suspending their buybacks through June: Bank of America Corp (BAC), Citigroup Inc (C), Wells Fargo & Co (WFC), Goldman Sachs Group Inc (GS), Morgan Stanley (MS), Bank of New York Mellon Corp (BK) and State Street Corp (STT).

As the pandemic continues to unfold, JPMorgan has announced that it would weigh suspending its dividend payments – but only under the most “extremely adverse” scenario. A dividend suspension would only be initiated when gross domestic product declines by 35% and unemployment reaches 14%, according to CEO Jamie Dimon.

For now, banks like Goldman Sachs, Morgan Stanley and Citibank say their dividends are safe. As such, they’ve refrained from issuing negative guidance around possible dividend suspensions. This could be because most of Wall Street’s major players have passed the Federal Reserve’s stress tests, even under the most adverse conditions. In other words, they seem to have learned their lesson since the 2008 financial crisis when big banks weren’t nearly as well capitalized.

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Besides, unlike in the European Union, the Fed is unlikely to force banks to cut their dividends during the crisis because the United States has different lending criteria and standards around a dividend payment’s share of capital distributions. America’s financial institutions also stand to benefit from President Trump’s record $2 trillion stimulus package due to the combination of regulatory easing, expanded deposit insurance, and new programs designed to make it easier for borrowers to access capital.

Of course things could change once the Federal Reserve finalizes its next stress test in June. Barring any significant changes to banks’ balance sheets, they’re likely to remain well-positioned to deal with major economic downturns or financial crises – at least, according to the Fed’s criteria.

But the Fed is already preparing for the worst. On April 9, the central bank rolled out a massive $2.3 trillion backstop to support the crisis-hit economy. The funds will be rolled out as loans geared toward individuals and businesses impacted by the financial crisis.

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Regional Banks Follow Suit


The suspension of share buybacks on Wall Street will likely be replicated by the smaller regional banks. In fact, the process is already under way with PNC Financial Services Group (PNC), U.S. Bancorp. (USB), Brookline Bancorp. (BRKL), BankUnited Inc. (BKU), Bank of Marin Bancorp. (BMRC) and First Choice Bancorp. (FCBP) all suspending their share repurchase schemes.

Besides suspending buyback schemes, smaller banks are actually better positioned to ride out the pandemic. For starters, regional banks have done a better job of controlling their net interest margin (NIM), which is critical in the wake of the Federal Reserve’s multiple rate cuts all the way back to zero.

Regional banks also cite a rosier outlook from the perspective of deposit cost and regulatory relief. On the topic of regulation, Congress passed Dodd-Frank relief legislation in 2017, which gives smaller banks more leeway on certain stress testing.

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The Bottom Line


America’s largest financial institutions seem well-positioned to ride out the coronavirus pandemic. Suspending share repurchases was a logical move by the major banks at a time when millions of people are losing their jobs due to nation-wide lockdown orders.

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