“Our Bank Cannot be Immune”, Says JP Morgan’s Jamie Dimon In Annual Shareholder Letter

According to Dimon, JP Morgan entered this crisis in a position of strength. “2019 was another strong year for JPMorgan Chase, with the firm generating record revenue and net income, as well as setting numerous other records across our lines of business” he wrote. Notably, the company earned $36.4 billion in net income on revenue of $118.7 billion, reflecting strong underlying performance across the business.

“We now have delivered record results in nine of the last 10 years and are confident we will continue to do so in the future, though it should be expected that our earnings will be down meaningfully in 2020” says Dimon.

As a result, the company has stopped buying back stock- even though he continues to believe that “the highest and best use of our equity is to reinvest it in our own business.”

Dimon explains the rationale here: “Halting buybacks was simply a very prudent action – we don’t know exactly what the future will hold – but… we assume that it will include a bad recession combined with some kind of financial stress similar to the global financial crisis of 2008.” He concludes: “Our bank cannot be immune to the effects of this kind of stress.”

Indeed, in an extremely adverse scenario (i.e. a deep contraction of gross domestic product to 35% in Q2 through to the end of the year, and with increasing US unemployment), 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” he added.

Dimon also uses the opportunity to emphasize that the bank will not request any regulatory relief for itself. However, the company is working closely with the government to address the country’s severe economic challenges, and to ensure that its customers can take advantage of new government support programs.

Overall, JPM receives a Moderate Buy consensus from the Street. Its average analyst price target of $127 indicates 51% upside potential from current levels. (See JPM’s stock analysis on TipRanks)

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