JP Morgan Chase 2010 Annual Report Download - page 106

Management’s discussion and analysis
106 JPMorgan Chase & Co./2010 Annual Report
Capital actions
Dividends
On February 23, 2009, the Board of Directors reduced the Firm’s
quarterly common stock dividend from $0.38 to $0.05 per share,
effective with the dividend paid on April 30, 2009, to sharehold-
ers of record on April 6, 2009. The action enabled the Firm to
retain approximately $5.5 billion in common equity in each of
2010 and 2009, and was taken to ensure the Firm had sufficient
capital strength in the event the very weak economic conditions
that existed at the beginning of 2009 deteriorated further.
JPMorgan Chase declared quarterly cash dividends on its com-
mon stock in the amount of $0.05 per share for each quarter of
2010 and 2009.
For information regarding dividend restrictions, see Note 23 and
Note 28 on pages 267–268 and 273, respectively, of this Annual
Report.
The following table shows the common dividend payout ratio based
on reported net income.
Year ended December 31, 2010 2009 2008
Common dividend payout ratio 5%
9% 114%
Issuance
On June 5, 2009, the Firm issued $5.8 billion, or 163 million
shares, of common stock at $35.25 per share. On September 30,
2008, the Firm issued $11.5 billion, or 284 million shares, of com-
mon stock at $40.50 per share. The proceeds from these issuances
were used for general corporate purposes. For additional informa-
tion regarding common stock, see Note 24 on page 268 of this
Annual Report.
Capital Purchase Program
Pursuant to the U.S. Treasury’s Capital Purchase Program, on Octo-
ber 28, 2008, the Firm issued to the U.S. Treasury, for total pro-
ceeds of $25.0 billion, (i) 2.5 million shares of Series K Preferred
Stock, and (ii) a Warrant to purchase up to 88,401,697 shares of
the Firm’s common stock, at an exercise price of $42.42 per share,
subject to certain antidilution and other adjustments. On June 17,
2009, the Firm redeemed all of the outstanding shares of Series K
Preferred Stock and repaid the full $25.0 billion principal amount
together with accrued dividends. The U.S. Treasury exchanged the
Warrant for 88,401,697 warrants, each of which is a warrant to
purchase a share of the Firm’s common stock at an exercise price of
$42.42 per share, and, on December 11, 2009, sold the warrants in a
secondary public offering for $950 million. The Firm did not purchase
any of the warrants sold by the U.S. Treasury.
Stock repurchases
Under the stock repurchase program authorized by the Firm’s Board
of Directors, the Firm is authorized to repurchase up to $10.0
billion of the Firm’s common stock plus the 88 million warrants sold
by the U.S. Treasury in 2009. During 2009, the Firm did not repur-
chase any shares of its common stock or warrants. In the second
quarter of 2010, the Firm resumed common stock repurchases, and
during the year repurchased an aggregate of 78 million shares for
$3.0 billion at an average price per share of $38.49. The Firm’s
share repurchase activities in 2010 were intended to offset share-
count increases resulting from employee stock-based incentive
awards and were consistent with the Firm’s goal of maintaining an
appropriate sharecount. The Firm did not repurchase any of the
warrants during 2010. As of December 31, 2010, $3.2 billion of
authorized repurchase capacity remained with respect to the com-
mon stock, and all of the authorized repurchase capacity remained
with respect to the warrants.
The Firm may, from time to time, enter into written trading plans
under Rule 10b5-1 of the Securities Exchange Act of 1934 to
facilitate the repurchase of common stock and warrants in accor-
dance with the repurchase program. A Rule 10b5-1 repurchase
plan allows the Firm to repurchase its equity during periods when it
would not otherwise be repurchasing common stock – for example,
during internal trading “black-out periods.” All purchases under a
Rule 10b5-1 plan must be made according to a predefined plan
established when the Firm is not aware of material nonpublic
information.
The authorization to repurchase common stock and warrants will be
utilized at management’s discretion, and the timing of purchases and
the exact number of shares and warrants purchased is subject to
various factors, including market conditions; legal considerations
affecting the amount and timing of repurchase activity; the Firm’s
capital position (taking into account goodwill and intangibles); inter-
nal capital generation; and alternative potential investment opportu-
nities. The repurchase program does not include specific price targets
or timetables; may be executed through open market purchases or
privately negotiated transactions, including through the use of Rule
10b5-1 programs; and may be suspended at any time.
For additional information regarding repurchases of the Firm’s equity
securities, see Part II, Item 5, Market for registrant’s common equity,
related stockholder matters and issuer purchases of equity securities,
on pages 13–14 of JPMorgan Chase’s 2010 Form 10-K.