Jamie Dimon verges on overprotecting his fortress

Tiers for fears. How much capital is too much? The question doesn’t seem to be weighing on JPMorgan boss Jamie Dimon, but it probably will soon enough. The longer the mega-bank he runs keeps pumping out prodigious earnings without any sign of a financial crisis, the more likely he will have to consider using a slug of the stockpile to write a big check to shareholders.

For now, Dimon is happy to keep the fortress secure. JPMorgan said on Friday that it generated about $13 billion of profit in the three months to Sept. 30, imputing a juicy 19% return on tangible equity. Rather than use the money to fund a lending spree, extra investment, acquisitions or share buybacks, Dimon is stashing it on the balance sheet. The bank’s common equity Tier 1 capital ratio, the key regulatory measure of solvency, stands well beyond 15%. Back in 2022, before the hoarding started, it was around 13%.

There are good reasons to be cautious, with what Dimon estimates is an extra $30 billion buffer or more. The U.S. Federal Reserve and other agencies have yet to release details of a new capital regime, known as the Basel Endgame, even though the central bank’s supervisory chief recently indicated the outcome will be less severe than banks feared. It also would be risky to seek out more borrowers with recession fears lingering. Moreover, JPMorgan’s equity looks rich at 2.3 times tangible book value, which makes repurchasing shares uneconomic. Many potential takeover targets, including in financial technology, look similarly pricey.

Finally, Dimon is clearly fretting about the world. He described the geopolitical situation as “treacherous” and voiced concerns about fiscal deficits. The bank must be prepared for any environment, he said, while noting that billionaire investor Warren Buffett also has been hungrier for cash.

If the economy keeps chugging along and JPMorgan can reap more than $10 billion of quarterly earnings, the bank will end up with far more capital than it could spend even in a nasty downturn or emergency. In such a scenario, most uses for the funds would be unpalatable, adding appeal to the idea of a generous special dividend. Even if Dimon doesn’t start addressing the question of excess capital, his shareholders almost certainly will.

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JPMorgan on Oct. 11 reported earnings per share of $4.37 for the third quarter of 2024, a 1% increase from a year earlier and 10% more than analysts were expecting, according to Visible Alpha. Net interest income, or the revenue from loans and securities minus the cost of liabilities, which includes deposits, was $23.5 billion, about 3% higher than both consensus forecasts and last year’s third quarter. JPMorgan shares were up about 3.4% to $220 as of 0945 ET on Oct. 11.