Financials – Revisiting Captured Capital and Shareholder Friendly Activity
The reporting of 3Q21 earnings kicked off in haste today (10/13) with JPMorgan (JPM) leading the largest U.S. banks. JPM recorded $2.1bn of net reserve releases and a total net benefit to credit costs of $1.5bn. Combined with a strong balance sheet and a robust liquidity profile these trends helped aid in the distribution of $8bn+ of capital in the quarter.
This exemplifies the continuation of a theme a year ago we thought likely to pass—the release of captured capital across the marketplace as company footings and outlooks become more solid in the aftermath of the 2020 Pandemic. We anticipate we will receive similar news from other financial institutions as the earnings season kicks into full gear.
Beyond banks, the 3Q21 earnings season will unearth more detailed information around the evolution of capital structures and the excess liquidity available for shareholder friendly activity – a theme we expect to be very vibrant over the next several quarters. Will additional pent-up and/or captured capital make its way into the marketplace via increases in shareholder benefits, one-time special dividends, debt reduction, or M&A? We think so.
Ultimately, we will continue to direct attention toward shifts in capital structures, capital allocation priorities, and subsequently how these changes will impact the balance and benefit of creditors and/or equity shareholders.
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