NY Attorney General Files Lawsuit Against JP Morgan Chase Over Bear Stearns Fraud...NEW YORK, NY - OCTOBER 02: People pass a sign for JPMorgan Chase & Co. at it's headquarters in Manhattan on October 2, 2012 in New York City. New York Attorney General Eric Schneiderman has filed a civil lawsuit against JPMorgan Chase alleging widespread fraud in the way that mortgages were packaged and sold to investors in the days that lead-up to the financial crisis. The allegations, which were filed in New York State Supreme Court, concern business that transpired during 2006 and 2007 at a now-defunct Bear Stearns, the failed Wall Street firm which was purchased in 2008 by JPMorgan Chase. (Photo by Spencer Platt/Getty Images)
The share buyback announcement was aimed at instilling investor confidence in America's biggest banks © Getty

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Eight of America’s biggest banks are suspending their multibillion-dollar share buyback programmes until at least July, citing the “unprecedented challenge” from the coronavirus pandemic. 

The Financial Services Forum announced the move by Bank of America, Bank of New York Mellon, Citigroup, Goldman Sachs, JPMorgan Chase, Morgan Stanley, State Street and Wells Fargo on Sunday evening, hours after the Federal Reserve cut rates by 1 percentage point and unveiled a range of other measures to boost the economy and banks’ liquidity.

The banks are the eight US institutions deemed to be “globally systemically important” by the Basel Committee on Banking Supervision.

The move is aimed at demonstrating that the banks will maintain ample capital and liquidity at a time of deep economic uncertainty.

“The Covid-19 pandemic is an unprecedented challenge for the world and the global economy,” the statement said. “The decision on buybacks is consistent with our collective objective to use our significant capital and liquidity to provide maximum support to individuals, small businesses, and the broader economy through lending and other important services.” 

Patrick Kaser, a portfolio manager at Brandywine Global Investment, which owns shares in several of the eight banks, noted: “It really looks like a [JPMorgan chief executive] Jamie Dimon-led move, in terms of exercising leadership in trying to instil confidence in the banks.

“If you remember in 2008-09, JPMorgan did not really need to take Tarp [troubled asset relief program] funds, but he felt it was important that all the banks take them” to send a positive signal.

Banks have already announced a range of measures such as fee waivers and payment holidays to help individuals and businesses whose incomes are hit by coronavirus. The outbreak threatens swaths of the economy as sick and self-isolating people stop spending, while travel bans and shutdowns push airlines, travel and hospitality companies to the brink.

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“Even if circumstances get dramatically worse, we have the capabilities and balance sheet to support the financial system and all of our constituencies,” JPMorgan Chase, America’s biggest bank by assets, said in a statement. The bank’s dividend policy remains unchanged.

In 2019, the eight banks repurchased a total of $108bn in shares, led by Bank of America’s $28bn in buybacks.

Bank dividends and share buybacks are authorised annually by the Federal Reserve, as part of their July stress tests.

“Each member institution retains the ability to reinstate its buyback programme as soon as circumstances warrant,” the FSF said at the time, adding that the banks had collectively increased their capital by more than 40 per cent in the past 10 years. 

The share price of each of the eight banks has been hit hard over the past month, falling 28 per cent on average, as Federal Reserve rate cuts threaten to compress already slender lending margins.

Share buybacks contribute more to earnings per share as share prices fall, and as a result the suspension of repurchases may not prove popular with investors.

Mr Kaser praised the move as a confidence-instilling decision that could prove prudent if the worst-case scenario plays out, but said that “as a shareholder in Citibank, I want them to be buying back as many shares as possible”.


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