Maybe you’re wondering why shares of JPMorgan Chase (JPM) were up 3.4% on September 13?
The whole banking sector was up that day, of course, because the announced Basel III new banking regulations aren’t as strict as some investors had worried they would be. That’s a big deal for stressed European banks and smaller U.S. banks that might have been in real trouble if regulators had forced them to raise capital over night. (For more on the good news for banks from Basel III, see my post https://jubakpicks.com/2010/09/16/what-a-surprise-basel-iii-bank-regulations-arent-as-strict-as-fear-and-bank-stocks-rally/ )
The ADRs (American Depositary Receipts) of Credit Agricole (CRARY), for example, soared 6.8% on September 13. The French bank could have been hit really hard by a tighter deadline and higher capital ratios in the regulations. And Regions Financial (RF), a still struggling U.S. regional bank, popped 5.7% on the day.
But for the shares of one of the strongest U.S. banks, one with no discernable capital ratio problems or need to raise capital to jump 3.42% on the day is still pretty impressive. It’s a better gain than that showed by shares of large bank peers Wells Fargo (WFC), Bank of America (BAC), and Citigroup (C) that, at first glance at least, gain more from the compromises in Basel III.
It’s a puzzle, no?
Not if you remember dividends. Investors didn’t forget those handy payments of real cash today in bidding up stocks such as JPMorgan Chase, U.S. Bancorp (USB) and Northern Trust (NTRS). The latter two were up 3.3% and 2.7% today, respectively.
The belief is, and it’s one I agree with, that the release of the Basel III rules removes one of the last major sources of uncertainty preventing banks like JPMorgan Chase from re-instating their dividends at something like pre-financial crisis levels.
In 2008 the bank paid an annual dividend of $1.52 a share. In 2009 as part of the price for government capital, the bank cut its dividend to just 20 cents a share. At today’s share price of $41.12 a dividend of $1.52 would give the bank’s shares a yield of 3.7%.
Not a bad jump from today’s yield of 0.4%.
I suspect that some investors are also already looking forward to the company resuming its pre-financial crisis history of raising dividends. The bank raised its dividend 2.7% from 2007 to 2008 and 8.8% from 2006 to 2007.
Of course, investors wouldn’t be thinking about the company raising dividends if the bank hadn’t come out of the financial crisis as one of the strongest U.S. banks and if it didn’t look like the bank was among the leaders in reducing its credit losses and its loan loss reserves.
But that position of relative strength was a well known story before today.
The action on September 13 was mostly about the dividend. Seems reasonable to me.
I’m adding the shares to Jubak’s Picks with this post. (I’ll be buying for the portfolio tomorrow.) I’m setting a target price of $55 a share by June 2011.
Full disclosure: I don’t own shares of any company mentioned in this post.
jamba,
I’ll second what Karl said, although I will say I am not really looking at any software companies at the moment. The ones who would benefit from the recession already have. For now, it’s just wait until the economy turns around for most of them.
No appetite for any of the “too big to fails”, even though it may be the “last standing” one.
Gracie,
If I may……. The bet you place on a company like Chase really boils down to, will the Govt make/let them go bankrupt, before we grow/inflate/print our way out of our current pickle? To me, it’s clear the answer is no for all the big banks. Except for Citi, but that’s another story.
I haven’t bought a bank stock in 4 years but I took the plunge today. Yes, by my accounting Chase is “bankrupt” if you had to mark assets to their real value. But no one’s incented to do so. But, the Gov. is incented BIG TIME in Chase’s prosperity. Look for Gov. “assistance” on Chase’s HELOC/2nd TD problem next.
I can’t believe I just invested in a bankrupt company……… I’m either crazy or a sell out. I hope it’s the latter.
I can’t stand Chase due to them buying my mortgage 3 years ago. Last year was months of bickering over them changing the rate on the loan before the ARM was set to adjust and then the following month decreasing the rate when the ARM actually adjusted. Now I have a surplus in the property tax escrow fund and they want me to write a check to cover the difference for a negative amount. If I pay the negative check, my payment goes down.
I think I’ll hold onto USB.
As I understand it, Jim has liquidated most of his holdings and placed the money in the fund. Buys in Jubaks Picks are likely but not certainly in the fund. If you subscribe to JAM you will have a better idea of what is in the fund itself. His disclosure statement concerns his personal holdings and has nothing to do with what is in the fund.
Your disclosure mentions not owning shares of any stock mentioned in this column. I thought you previously bought USB in the high 20s.
Without a doubt disclosures like this get really hard when you bring a mutual fund into play. For instance say someone owned a mutual fund (index) that covered the whole stock market, would you expect them to declare that they owned Cisco stock (through the fund)?
What about the recent news that FHA says that
“the four largest U.S. banks could book losses of up to $42 billion if Fannie Mae and Freddie Mac force them to take back troubled mortgages they made. It also estimated that JPMorgan Chase & Co., Citigroup Inc., Bank of America Corp. and Wells Fargo & Co. could record $17 billion in losses if they repurchase a quarter of the mortgage giants’ seriously delinquent loans. ”
Would this reduce the value of JPM share price?
http://www.huffingtonpost.com/2010/09/15/fha-banks-share-fannie-freddie-bailout-costs_n_718826.html
Actually that’s a good question Algalli. I’m wondering if any of these JubakPicks will be included in his mutual fund. I’m guessing not.
Has anyone heard him mention this before.
Sorry I just read the last line of your post which answered my question
Jim
When you say you do not own any stock in the company Does that include your mutual fund? I am not at all clear about disclosure rules
@jamba,
Might be easier and more effective to ask at Ed at his website…
http://edstalkingstock.wordpress.com/
instead of on Jim’s. Just a thought…
Ed,
If I read in previous post you are in the IT industry. Is there any software stocks that catch your attention both in the value area and also maybe in the small cap area?
Thank you