Despite a very difficult month for the banking sector in March, JPMorgan Chase (JPM -0.92%) had a blowout quarter.
The bank generated diluted earnings per share of $4.10 on total revenue of more than $38.3 billion. Earnings beat the consensus estimate by $0.73, while revenue beat it by almost $2.6 billion.
The bank also raised its full-year guidance pretty significantly. But if there was one downside from JPMorgan's earnings report, it would have to do with the bank's plans for share repurchases. Let me explain.
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Share repurchases may slow
While it looks like JPMorgan Chase is prepared to keep buying back stock, the pace of share repurchases may continue to slow from what was already a slower projected pace this year.
The bank conducted $1.9 billion of net share repurchases in the first quarter. Prior to this quarter, it had guided for about $12 billion of share repurchases this year after not buying back any stock in the back half of 2022. But on the company's earnings call, JPMorgan CEO Jamie Dimon seemed a little noncommittal when asked about guidance for share repurchases moving forward.
I think we've told you that we're kind of penciled in $12 billion for this year. Obviously, capital is more than that, but -- and we did a little bit of buyback this quarter -- we're going to wait and see. We don't mind keeping our powder dry. And you've seen us do that with investment portfolios, and we're also willing to do with capital.
It's a little surprising to hear this considering the bank significantly built capital in the quarter. JPMorgan's common equity tier 1 (CET1) capital ratio, which measures core capital expressed as a percentage of risk-weighted assets such as loans, jumped from 13.2% to 13.8% in the quarter.
JPMorgan's regulatory requirement for its CET1 is 12%. Banks can use excess capital above this threshold to pay dividends and buy back stock. Since JPMorgan has $227 billion of CET1 capital and is expected to generate healthy earnings, which will help to replenish regulatory capital, a 1.8% buffer is a lot of excess capital.
But the bank is dealing with a number of variables including the likelihood of higher regulatory capital requirements next year and, as Dimon described it, "a little bit of a storm cloud" from heightened recession risks. The recent bank failures also make it likely that JPMorgan will face a high assessment fee at some point this year from the Federal Deposit Insurance Corporation (FDIC) because the Deposit Insurance Fund needs to be replenished after these recent bank failures.
It makes sense to be conservative right now
I am definitely a little surprised to see share repurchases potentially slowing given the recent capital build. JPMorgan is also expecting higher earnings this year and credit still looks quite healthy. Share repurchases are also a big reason that investors buy money-center bank stocks.
But there was just a banking crisis, credit is expected to normalize further, a recession could be on the horizon, and JPMorgan is looking at a sizable FDIC assessment fee due to the recent bank failures. Additionally, large banks are still waiting on final regulatory capital rules, which are expected to increase regulatory requirements next year.
So it probably makes sense for the bank to lean conservative with capital returns until there is more clarity, even if it is a little disappointing for investors.
