JPM Profit Increase Inspires Confidence, Dividends

JPM Profit Increase Inspires Confidence, Dividends

$17.4 billion. That’s JPMorgan Chase’s 2010 profit, up 47% from the previous year. While “billion” is rather an abstract concept to those of us not managing thousands of employees and scores of investors as one of the country’s biggest banks, the news is good.

Profits Could Spark Dividends.

JPMorgan was the first of the big banks to announce its 2010 profit, and will be followed in the next week by Bank of America, Citigroup, Goldman Sachs (we can’t imagine that they’re doing too poorly), and Wells Fargo. If the news continues to be good, it will mean the “second straight year” of rising profits, and that after a three-year break, banks will resume dividend payouts to their investors.

Dividends Could Inspire Confidence.

The NY Times quotes an analyst who declares: “The return of dividends signals that the banks are back, and the Federal Reserve wants to inspire confidence in the marketplace so that banks lend more.” The Fed certainly wants to inspire confidence, but it doesn’t want that confidence to be false. For that reason, they’re conducting “stress tests” on the country’s banks to make sure they’re capable of accommodating dividend payments and of repaying any money given to them by the federal bailout program in the past few years. If a bank can satisfy both of these requirements and still remain “financially healthy,” dividends get the green light.

Confidence Could Indicate Recovery.

As we know, dividends are periodic payments to a company’s (or bank’s) investors to keep them both interested and invested. In the supremely depressing past three years, where banks only made the news for scandals and public shaming, payments were suspended as banks gathered kept their dwindling funds close to the chest. The return of payments is proof of  both of recovering funds and banks’ shifting focus back to its investors from its investigators. And we, for one, are encouraged.

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