Financial stocks had a field day last Tuesday after JP Morgan Chase (JPM) announced that the Federal Reserve had given it clearance to increase its dividends by 20% (from 25 cents to 30 cents) and buy back $15 billion in shares, with up to $12 billion approved for 2012, and $3 billion for the first quarter of 2013.
The Federal Reserve had intended to release the results of its latest stress test on Thursday after market close but, once JP Morgan broke the news, they were forced to reveal their standings. The Fed “tested” 19 financial institutions on their abilities to weather a hypothetical drop in housing prices of over 20%, a rise in unemployment to 13%, and a more than 50% landslide in the Dow Jones Industrial Average, looking primarily at its high quality capital compared to its risk weighted assets. Passing marks meant that the bank had a Tier 1 common capital ratio of more than 5% and could start increasing its dividends and also start to buy back shares. Four missed the mark, including Citigroup (C).
JP Morgan said it was a “misunderstanding” that prompted the early release, but accidental or not, the effect was undeniable. Its shares went up over 7% by the end of trading Tuesday – and the increase has held. JP Morgan was trading at $40.54 when the markets closed on March 12, the day before the company’s big announcement; by the close of trading on the 15th, that number had increased to $44.70 a share – representing a total increase of over 10% – and there is no reason to think that it won’t continue to rise in price.To continue reading, click here.