US banking giant JPMorgan Chase said on Monday that it was drastically cutting its dividend payments to shareholders to save an estimated US$5 billion in capital per year.
The bank’s board said it would cut the quarterly common stock dividend from US$0.38 to US$0.05 per share, effective for the dividend payable on April 30.
“The board anticipates maintaining this level for the time being,” the company said.
“This action will enable the company to retain an additional US$5 billion in common equity per year.”
Amid extreme turmoil in the sector, JPMorgan said its first-quarter financial performance “is solidly profitable even after significant additions to reserves and the outlook for the quarter is roughly in line with analyst expectations.”
“While we recognize our tremendous obligation to shareholders to maintain dividend levels, we also understand that extraordinary times require extraordinary measures,” chief executive Jaime Dimon said.
“Our action today is being done as a strong precautionary measure to help ensure that our fortress balance sheet remains intact — even if conditions worsen significantly. As always, our highest obligation during an economic crisis is to keep our company and franchise healthy, vibrant and strong for the future,” Dimon said.
The action is not directly related to government capital injections. JPMorgan said it accepted capital from the Troubled Asset Relief Program (TARP) “to help stabilize the banking system and economy.”
“The decision to retain additional common equity does, however, help position our company to repay TARP as soon as is prudent — and still maintain a strong capital position,” it said. The group has received US$25 billion in capital from the government program.