Bank dividends could be at risk if America can’t return to work until summer, CNBC’s Jim Cramer said Thursday.
The “Mad Money” host made the comment in reaction to a projection by Jamie Dimon, the chief executive of J.P. Morgan Chase who said he doesn’t expect businesses will be able to call their now-remote employees back into the workplace until June at the earliest.
“I know they’ve already volunteered to get rid of their buybacks, but if Dimon’s right, they may need to say goodbye to their dividends, too,” Cramer said. “It wouldn’t shock me if the government says the banks need enough capital to cope with a three-month hiatus on debt repayments.”
Tens of millions of workers have been laid off in recent weeks and millions of others furloughed, due to economic shutdowns across the country to slow the spread of the deadly coronavirus. Countless nonessential businesses were forced to close their doors and others, like restaurants, to cut costs in hopes to come out on the other side.
Dimon, on a conference call with analysts earlier this week, suggested that industries would have to open their stores and offices in phases with public health in mind.
“A rational plan to get back to work is a good thing to do, and hopefully it will be sooner rather than later,” Dimon said. “But it won’t be May. We’re talking about June, July, August, something like that.”
Big banks decided a month ago to forgo stock buybacks during the current quarter, due to the coronavirus pandemic. Among them are JPMorgan Chase, Bank of America, Citigroup and Morgan Stanley, among others.
Bank stocks have taken a big hit this year as the global outbreak took its hold on the global economy. Stock buybacks, a controversial topic amid the severe downturn, issued by companies tend to boost equity prices and return value to shareholders.
The SPDR S&P Bank ETF, or KBE, which tracks U.S. banking stocks, is down more than 44% this year.
The longer the health crisis drags keeps businesses on ice, the tougher it will get for financial institutions looking to collect mortgage, credit card and other bill payments from clients, Cramer said.
“[I]f there is a prolonged lockdown, then I think the banks are in trouble,” Cramer said. “Their bountiful reserves really aren’t that bountiful in a multi-month quarantine where millions of Americans simply don’t have the money to pay their debts.”
Disclosure: Cramer’s charitable trust owns shares of Citigroup and JPMorgan.