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J.P. Morgan’s Dividends Increase in 1Q15

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10% dividend increase

Following the approval of J.P. Morgan’s (JPM) capital plan by the Fed, the bank announced its intention to increase its quarterly dividend by 10% to $0.44 per share. It also announced its intention to repurchase shares worth $6.4 billion gross.

The Federal Reserve approved capital plans of 28 banks earlier in March. While J.P. Morgan, Citigroup (C), and Wells Fargo (WFC) got unconditional approval, the Bank of America (BAC) received a conditional non-objection based on qualitative grounds. Together, these four banks form ~27% of the Financial Select Sector SPDR ETF (XLF).

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Margins to remain compressed

The bank expects deposit margins to remain pressured as interest rates continue to remain low. Consumer Bank’s revenues are consequently expected to be down. The bank further expects net interest income (or NII) in dollars to be stable to slightly up, even if rates don’t rise until the end of 2015. This is expected to be due to growth in the bank’s interest-earning assets.

The bank expects a significant rise in NII when rates rise. Net interest margin (or NIM) is also expected to remain relatively stable and rise when the rates rise. The bank’s NIM has been declining over the last couple of years on account of a significant increase in cash. The bank intends to reduce non-operating deposits going forward.

The above chart provides highlights of J.P. Morgan’s outlook companywide and for various segments.

Outlook for mortgage banking and Asset Management

In mortgage banking, J.P. Morgan expects revenues to be down approximately $1 billion for 2015. This is due to lower-than-expected servicing revenues and lower repurchase benefit. In Asset Management, the bank expects the full-year pretax margin and ROE (return on equity) to be at the low end of the cycle target range.

Expense reduction

The bank intends to reduce expenses by about $2 billion in 2017 relative to 2014 and achieve a portion of this target during 2015.

Peer bank Citigroup (C) will release its first quarter results on April 16.

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