JPMorgan slashes dividend to 5 cents
Banking giant cuts dividend by 87% and says move will give it an additional $5 billion a year.
NEW YORK (CNNMoney.com) -- JPMorgan Chase announced Monday that it had cut its quarterly dividend from 38 cents a share to 5 cents a share in an effort to preserve capital.
The banking giant said the dividend cut, which will take effect on the April 30 dividend payment, would enable the company to keep an additional $5 billion a year. JPMorgan said this capital will help act as a safety net in case the banking industry continues to erode.
"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," said Chief Executive Officer Jamie Dimon in a statement.
Having access to more capital is an advantage in the current economic environment, according to Jason Goldberg, analyst with Barclays Capital. The dividend stockholders normally get is being traded for the possibility of a higher return on that capital.
"A strong balance sheet and a strong capital position clearly gives them a leg-up," he said.
The move to cut its dividend comes as nationalization fears swirl around other big banks, most notably Citigroup (C, Fortune 500) and Bank of America (BAC, Fortune 500). Citi and BofA have each cut their dividends drastically in the past year in an effort to retain cash.
Over the past year, JPMorgan's cautious approach to banking has helped it perform better than its rivals. The company reported a surprise fourth-quarter profit last month, despite brutal hits to its investment business.
JPMorgan brought in 7 cents a share in the last quarter of 2008 - a 76% decline from the same period a year earlier. However, analysts were predicting the company would break even for the quarter.
Dimon added Monday that the dividend cut was not related to JPMorgan's acceptance of funds from the government's Troubled Asset Relief Program. The bank has received $25 billion as part of the bank bailout.
JPMorgan suggested that the dividend payout would return to normal once the banking system stabilizes.