Bloomberg News

JPMorgan Fines Seen by Portales as Jeopardizing Stock Buybacks

September 26, 2013

JPMorgan Chase & Co. Offices in New York

JPMorgan, the biggest U.S. bank by assets, won conditional approval of its buyback and dividend plan in March from the Federal Reserve, which required the company to “address weaknesses” in its planning process and threatened to modify the payouts if needed. Photographer: Victor J. Blue/Bloomberg

JPMorgan Chase & Co. (JPM:US)’s $6 billion share-repurchase program could be halted as fines and penalties imposed on the bank grow, Charles Peabody, an analyst at Portales Partners LLC, wrote in a research note yesterday.

Peabody cut his 2013 earnings estimate 12.5 percent to $4.90 a share, citing regulatory fines levied on the company and “material control and procedure violations that the bank must remediate,” according to the note.

JPMorgan, the biggest U.S. bank by assets, won conditional approval of its buyback and dividend plan in March from the Federal Reserve, which required the company to “address weaknesses” in its planning process and threatened to modify the payouts if needed. Since then, “there have been a myriad of additional regulatory violations that could lead to significant new levels of litigation costs,” Peabody wrote.

Brian Marchiony, a spokesman for the New York-based bank, declined to comment.

The company last week agreed to pay about $1.3 billion to resolve investigations into last year’s trading loss and to settle unrelated claims that it unfairly charged customers for credit-monitoring products.

The lender is trying to negotiate another deal this week, this time with federal and state officials to pay about $11 billion to close several probes of its mortgage-bond sales practices, a person familiar with the matter said yesterday. The final amount could change, two people briefed on the negotiations said.

Stock Impact

“Both the materiality of the potential litigation charges and the potential suspension of the share repurchase program could have a significant impact on JPM’s share price,” Peabody wrote, referring to the bank by its stock-market ticker symbol. Earnings estimates “could fall materially,” he added.

JPMorgan suspended a $15 billion buyback plan last year to boost its capital levels after a bad bet on credit derivatives in London that ultimately cost the firm more than $6.2 billion. The bank repurchased roughly $4 billion of the $15 billion originally approved by the Fed for 2012.

The lender overcame last year’s trading loss and earned a record $21.3 billion. The average estimate (JPM:US) of 18 analysts surveyed by Bloomberg is $23.4 billion in 2013.

JPMorgan agreed last week to pay $920 million to four regulators in the U.S. and U.K. and admitted it violated securities laws in last year’s trading debacle. Regulators said top managers engaged in a “pattern of misconduct” by maintaining poor internal controls, failing to keep their board informed and allegedly misleading regulators.

Inquiries Continue

The U.S. Securities and Exchange Commission, which fined the JPMorgan $200 million, said its investigation remains open. The bank said last week that it received notice from the Commodity Futures Trading Commission that its staff intends to recommend enforcement action. Prosecutors in Manhattan are continuing their probe after two of JPMorgan’s former London-based traders were indicted on charges including conspiracy and wire fraud.

The firm is facing an investigation of its hiring practices in Asia and a criminal inquiry into its energy trading business, among other issues.

“Both the qualitative and quantitative issues argue for a suspension of JPM’s current $6B share repurchase program,” Peabody wrote.

To contact the reporter on this story: Dawn Kopecki in New York at dkopecki@bloomberg.net

To contact the editors responsible for this story: Christine Harper at charper@bloomberg.net; David Scheer at dscheer@bloomberg.net


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Companies Mentioned

  • JPM
    (JPMorgan Chase & Co)
    • $59.59 USD
    • -0.15
    • -0.25%
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