2017 Stress Tests: JPMorgan Chase Cleared to Boost Dividend and Share Buybacks

The nation’s biggest bank by assets has cleared the 2017 stress tests.

John Maxfield
John Maxfield
Jun 28, 2017 at 6:09PM

On Wednesday, the Federal Reserve published the results from the second round of this year's stress tests, clearing JPMorgan Chase (NYSE:JPM) and 33 other banks with more than $50 billion in assets on their balance sheets to increase their dividends and buy back more stock.

JPMorgan Chase followed the news by saying that it will do just that, announcing that its board of directors intends to approve a 12% increase to its current quarterly payout. This marks the eighth year in a row that the nation's biggest bank by assets has done so. JPMorgan Chase also said that it will add $19.4 billion to its share-repurchase authorization.

"Given the financial strength of the company and the significant capital and liquidity advancements we have made over the last several years, we are pleased to further increase capital returns to our shareholders while continuing to invest in our businesses for long-term profitability," said Chairman and CEO Jamie Dimon.


2017 CCAR

2016 CCAR

Dividend per share



Stock buyback authority

 $19.4 billion

$10.6 billion

Data source: JPMorgan Chase. *Raised to $0.50 per share in March 2017. 

The Dodd-Frank Act stress tests

JPMorgan Chase's performance in the first round of this year's stress tests made today's announcement much less of a surprise. The results from the first round, referred to as the Dodd-Frank Act stress test, or DFAST, were published last Thursday. They showed that JPMorgan Chase has far more capital than required to survive a hypothetical economic downturn akin in severity to the crisis in 2008.

Jamie Dimon

JPMorgan Chase Chairman and CEO Jamie Dimon. Image source: JPMorgan Chase.

The controlling threshold in DFAST is a common equity tier 1 capital ratio, or CET1 ratio, of 4.5%. So long as a bank exceeds this through the test's nine-quarter time horizon, it passes. If it doesn't, it fails.

In JPMorgan Chase's case, it wasn't even close. Going into the test, its CET1 ratio was 12.5%. The figure dropped to 9.1% at the low point in this year's exercise, but that still more than doubled the regulatory minimum of 4.5%.

The second round of the stress tests, known as the Comprehensive Capital Analysis and Review (CCAR), takes the DFAST analysis one step further. It does so by giving the Federal Reserve authority over big-bank capital plans, allowing the central bank to approve or deny a bank's request to increase its dividend or replenish its stock-buyback authorization.

As the Fed explains:

When considering a firm's capital plan, the Federal Reserve considers both quantitative and qualitative factors. Quantitative factors include a firm's projected capital ratios under a hypothetical scenario of severe economic and financial market stress. Qualitative factors include the strength of the firm's capital planning process, which incorporate the risk management, internal controls, and governance practices that support the process. The Federal Reserve may object to a capital plan based on quantitative or qualitative concerns. If the Federal Reserve objects to a capital plan, a firm may not make any capital distribution unless expressly authorized by the Federal Reserve.

JPMorgan Chase has largely sailed through the CCAR in the past, and this year was no different. After factoring in its planned capital actions, its minimum CET1 ratio fell to 6.9%, still well over the 4.5% minimum.

The bank's shares climbed 2% on Wednesday in anticipation of the news. They added another 2% in after-hours trading.