Dimon counsels against bank stock buybacks; Texas banks call off merger

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Buyback warning

JPMorgan Chase CEO Jamie Dimon said American banks “won’t resume their share buyback programs until executives can see ‘the white of the eyes of the recovery’ and they will not return to pre-coronavirus levels,” the Financial Times reported. “Dimon’s cautious tone on buybacks, during an appearance at a Deutsche Bank financial services conference, came as bank stocks were staging a powerful rally on signs of the U.S. economy reopening.”

“Eight top U.S. banks voluntarily suspended buybacks in the middle of March as the Covid-19 crisis threatened hefty loan losses and outsize demands for additional credit. The eight companies spent $108 billion between them on buybacks last year. It was ‘a little premature’ to begin a conversation about resuming those payments, which made up the vast majority of the cash returned to shareholders, Dimon said.”

Dimon also said he expects JPMorgan Chase "will boost its credit reserves again in the second quarter by an amount ‘roughly equivalent’ to the $7 billion it added in the first quarter to protect the bank from a potential wave of loan defaults,” Reuters reported. The bank's "first-quarter profits plunged by roughly two-thirds because it put aside $7 billion in reserves for outstanding loans to customers.”

“Since CECL is very forward looking, I think that banks will have to put up a lot more credit reserves this quarter,” Dimon said, referring to the new accounting rule that requires banks to provision for loan losses as they make loans. “We would have a substantial increase in credit reserves in the second quarter.”

Wall Street Journal

Fraud surges

“There has been a big jump in attempted credit- and debit-card fraud since coronavirus shut down the U.S. economy earlier this year,” the Journal reports, as “the dollar volume of attempted fraudulent transactions rose 35% in April from a year earlier, a trend that appears to be continuing in May,” according to Fidelity National Information Services.

“Fraudsters are increasingly using pilfered credit-card numbers and phishing attacks to prey on overwhelmed consumers and banks. Most of the fraudulent transactions were caught before they hit cardholders’ accounts, FIS said, but the spike in attempts presents another challenge for consumers and their lenders muddling through the worst economic crisis since the Great Depression.”

Financial Times

Don’t dawdle

HSBC CEO Noel Quinn “should harden his resolve” and get moving on the massive restructuring he announced in February but then paused when the coronavirus struck, the FT says. “Covid-19 is only adding to the problems HSBC faces. The bureaucratic bank can ill-afford to dilly-dally on cost-cutting. Slowing growth in Asia threatens its biggest profit center. Uncertainties over the future for Hong Kong, given China’s increasingly hardline approach, are a further reason to fret. To top that off, add negative interest rates and rising bad loan provisions.”

“The U.S. retail banking business has been a dog for years,” the paper added. “Even at a covid-depressed price, HSBC would do well to have the unit off its hands. Still, the 35,000 job cuts [companywide] are needed too. Despite round after round of redundancies since the financial crisis, none has gone far enough. By pausing the current program too long, HSBC risks losing important momentum.”

Elsewhere

Canceled

Texas Capital Bancshares and Independent Bank Group “called off their merger on Tuesday, saying the coronavirus pandemic has hit markets too hard and crushed the benefits of tying up,” Reuters reported. “The merger of these two Texas lenders would have created the second-largest bank by assets in the Lone Star state.”

“While Texas has been looser than other states in applying quarantine measures, it still faces a sharp uptick in unemployment, with its energy sector hit hard by plunging oil prices. Among U.S. banks, Texas Capital has one of the highest concentrations of oil and gas loans in its loan book. Texas Capital Chief Executive C. Keith Cargill stepped down on Tuesday, with Chairman Larry Helm taking over his role until a permanent successor is appointed.”

At least four mergers have been terminated since COVID-19 was declared a global pandemic,” American Banker’s Jim Dobbs reported. “More deals will likely fall through, even as coronavirus worries stymie new mergers, industry experts said. So it could be a while before any of the impacted banks find new partners.”

Texas Capital now finds itself at a crossroads, American Banker’s Jon Prior writes: Find a buyer or a new CEO?

Quotable

You’ve got to see the whites of the eyes of the recovery before you start to make buybacks. If [banks] are all of a sudden retaining a lot of capital and they’re earning more money and reserves are coming down, I think you may see people start them, but they probably won’t be the size you saw before.” — JPMorgan Chase CEO Jamie Dimon on the prospects of U.S. banks resuming stock buybacks.

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Buybacks Coronavirus Restructuring M&A Card fraud Jamie Dimon JPMorgan Chase
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