Update: As expected, it's not just JPM, but all major US banks which are ending stock buybacks, with the Financial Service Forum which represents eight of the nation's largest banks including JPM, BofA, Citi, Goldman and others are done repurchasing stock until at least the end of Q2.
The forum said its members will use their funds to help businesses through the tough times ahead. 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; the FSF said. The decision is consistent with actions by the Federal Reserve, the administration, and the Congress, the statement read.
Full FSF statement below:
The Financial Services Forum announced that its eight members decided today to temporarily suspend share buybacks for the remaining period of the first quarter and the second quarter of 2020.
The COVID-19 pandemic is an unprecedented challenge for the world and the global economy and the largest U.S. banks have an unquestioned ability and commitment to supporting our customers, clients and the nation.
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. The decision is consistent with actions by the Federal Reserve, the administration, and the Congress.
Financial Services Forum member institutions are Bank of America, Bank of New York Mellon, Citigroup, Goldman Sachs, JP Morgan Chase, Morgan Stanley, State Street, and Wells Fargo.
Each member institution retains the ability to reinstate its buyback program as soon as circumstances warrant. The Forum members have apprised the Board of Governors of the Federal Reserve System of their decision.
Members of the Financial Services Forum, who are subject to the Large Institution Supervision Coordinating Committee supervisory program, remain strong and well-capitalized. They collectively have increased their capital, which acts as a buffer in times of stress, by more than 40 percent in the past 10 years to $914 billion. The members of the Forum have repeatedly passed the Federal Reserve’s annual stress tests, showing they are able to continue to lend and support the economy even during a severe economic downturn.
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Last week it was the oil and energy companies. This week it will be the banks.
Moments ago the largest US bank by assets and market cap, JPMorgan, announced that it is suspending its stock repurchase, in a move that will i) spark concerns about JPM's liquidity state and ii) trigger a kneejerk reaction as all other banks follow suit, and the bank sector plunges tomorrow as the biggest buyer of bank stocks is no longer there.
The question, of course, is whether the buyback suspension will end with US banks, or if all US companies will follow suit in a panicked scramble to preserve liquidity, something which already started in recent months, as we reported previously in "Stock Buybacks Crash Just As Markets Need Them Most."
That the disappearance of buybacks is a problem is an understatement: as we reported recently for the past decade, the only source of buying have been companies themselves, repurchasing their stock.
Ironically, while companies should have stopped repurchasing their stock a long time ago, buyback appetite remained strong in recent weeks, and in the final week of February, when the S&P 500 tumbled the most since 2008, Goldman’s corporate clients snapped up their own shares at the fastest rate in two years, with volume running at 2.3 times the average in 2019. Unfortunately, it now appears they used up much of their dry powder just as stocks were about to take another leg lower.
And here is a modest proposal: instead of rushing to bail out all these companies that repurchased trillions in stock in the past decade, lifting their stock price to all time highs, making their shareholders and management extremely rich at the expense of corporate viability (corporate debt is at an all time high) while leaving rank and file workers out to dry, how about forcing companies to shore up liquidity by selling their stock now, as the party of the last decade ends with a bang.