Jamie Dimon has put his own money where his mouth, institutionally speaking, has long been. The JPMorgan chief executive on Thursday bought more than $25 million of his bank's stock. It's a personal extension of his mantra that lenders do best buying back stock is when it is near book value, and right now, JPMorgan carries a roughly 10 percent discount. This vote of confidence is also an important counterweight to the panic gripping investors in US financial institutions.
The S&P 500 banks index has crashed 23 per cent this year. Of America's six largest banks, only Wells Fargo trades above the value of its assets minus liabilities. All the others bar JPMorgan trade below tangible book value, an even lower hurdle. Such levels were last hit during the global financial crisis.
There are faint echoes of the run-up to the previous crash. Several lenders, for example, have tried to reassure investors by saying oil and gas loans account for just a few percent of total lending. Similar claims were made for subprime mortgages in 2007. And some other businesses, like auto loans, also look worrying. What's more, banks were already struggling to lift earnings. If the Federal Reserve now stops raising rates, one of the few levers for increasing profit will disappear.
But overall, balance sheets are strong, and there are no signs that banks are storing up the kinds of systemic risk that would justify such depressed valuations. Further cost cuts could help shore up profitability, too.
Dimon's decade running JPMorgan makes him one of the most successful bank bosses in an exceptionally challenging era. If anyone can encourage a reality check, maybe he can.
