Monday, February 23, 2009

JP Morgan's Dividend Cut Announcement cites Unemployment Rate & House Price Decline Estimates

This afternoon JP Morgan announced that it is cutting its dividend from $0.38/share per quarter to $0.05/share per quarter. What is interesting what they shared as their rationale for cutting the dividend.

Below, I have attached Slide #2 from the presentation in which JP Morgan provides a "highly stressed environment" in which they model a:
  • 2 Year Recession
  • 10% Unemployment Rate
  • 40% Decline in Housing Prices (Peak to trough)

Click for a Larger Image (Red highlight box, added for emphasis)

Should this "stress case" come to a reality, many more mortgages will be underwater and millions more homeowners will lose their income and possibly lose their homes---This will cause the mortgages and mortgage securities that JP Morgan holds to lose value a pressure their capital base.

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