How the Fed Could Force JPMorgan Chase to Cut Its Dividend
As investors wonder whether banks will be able to keep paying their dividends during the COVID-19 pandemic, JPMorgan Chase (NYSE: JPM) CEO Jamie Dimon has maintained that dividends are a "drop in the bucket" relative to his bank's total capital. In other words, JPMorgan is unlikely to cut its dividend unless its capital falls below regulatory minimums and it's forced to.
But this could actually happen after the Federal Reserve releases results of this year's bank stress tests on June 25. Under the Dodd-Frank Act legislation for banks following the Great Recession, the Federal Reserve puts bank holding companies through various economic scenarios each year to determine whether they could maintain adequate capital if a severe recession were to occur. The tests also influence a bank's capital distribution plans, including share repurchases and dividends, because the Fed wants to ensure that a bank's capital distributions do not push bank capital levels below certain regulatory thresholds in an adverse scenario.
Let's take a look at how stress-test results could potentially force JPMorgan to cut its dividend.
Source Fool.com
