Jpmorgan suspends share buybacks

Jpmorgan suspends share buybacks

By: IEkaterina Date of post: 14.06.2017

NEW YORK Big U.

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N and Citigroup Inc C. Much of the money for buybacks and higher dividends is coming from the banks issuing securities known as preferred shares. These shares are a type of equity that pays regular, relatively high dividends.

To investors they look a lot like bonds that pay interest. But for regulators, preferred shares serve as a cushion against any future losses, in part because they never have to be repaid. Critics of the strategy question how sustainable it is, as banks essentially take money from one set of investors and give it to another, and at an added cost. Issuing preferred shares to pay for common share dividends and buybacks is a symptom of a "zombie banking system," said veteran banking analyst David Hendler of independent research firm Viola Risk Advisors.

Income has been falling or stagnant at the biggest Wall Street banks, thanks in part to big legal settlements stemming from the financial crisis. To be sure, the steps banks are taking are within regulators' rules. The Federal Reserve allows banks to use preferred shares for at least part of their capital.

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Selling preferred shares to boost payouts to common shareholders can't go on forever without banks improving their results enough to boost their capital levels significantly. Mayo expects that next year Citigroup will come up with additional excess capital from a planned sale of assets, including its OneMain personal lending unit.

JPMorgan said in February that the sales will go toward satisfying pending requirements that big banks have enough capital to absorb losses in a financial crisis.

Bank executives started publicly toying with the idea of issuing preferred shares a few years ago as they looked for ways to meet higher capital requirements that are being phased in through The money wasn't cheap.

Dividends on five of the six issues topped 6 percent as of the end of December, according to the company's annual filing with the U. Securities and Exchange Commission.

JPMorgan Chase Plans $ Billion Capital Repurchase Program

Bank debt would, though, be paid out before preferred shares in the event of a bank liquidation, making it a safer bet for investors. That in itself can hold back a bank's share price. Buyers of preferred shares are attracted by the high dividends. They take a sizeable risk because often the bank will never redeem the shares, and they can only be sold to other investors.

Dividends may also be suspended on the securities. The shares wouldn't have the same appeal if yields on bank debt weren't so low, he added. A decision by Goldman Sachs Group Inc last year to move an investment banking veteran to Seattle, as well as Evercore Partners Inc's hiring of a top banker defending companies against activist investors, has paid off handsomely.

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jpmorgan suspends share buybacks

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jpmorgan suspends share buybacks

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