During its investor day presentation Monday, JPMorgan Chase gave a rosier outlook for two key profitability measures.
It predicted its net interest income — the difference between what it pays for deposits and what it earns on loans and other assets — could exceed $56 billion in 2022, far surpassing the $50 billion it estimated in January. The revamped estimate supposes the Federal Reserve boosts short-term interest rates up to 3% by the end of 2022.
The bank also said it could achieve a 17% return on tangible common equity this year — a figure it previously only associated with a "medium term." CFO Jeremy Barnum warned investors in January that headwinds such as rising costs may keep the bank from hitting that benchmark this year and next.
CEO Jamie Dimon cemented that reversal in opening remarks Monday, saying “there's a very good chance this year" of reaching 17% — and surpassing the target in 2023, given a "benign" credit environment, according to CNBC.
The investor day — JPMorgan’s first since 2020 — allows Dimon in particular to address shareholder concerns over the bank’s spending plans.
But the bank on Monday also announced it would hire roughly 1,300 advisers over the next three years in an effort to drive its wealth-management assets past $1 trillion. The bank has added 1,100 advisers since 2017, Jennifer Piepszak, the bank’s co-CEO for consumer and community banking, said Monday, according to Bloomberg. Monday’s increase would boost the workforce to 6,000 advisers from about 4,700.
Meanwhile, the bank held fast to its estimate that it would log $77 billion in expenses this year — an 8.6% increase over 2021 — to boost its technology, compete for talent and build out its offerings.
That figure drew rebukes from analysts earlier in the year. "This issue is certain to us: front-loaded spending for less certain back-ended benefits," Wells Fargo analyst Mike Mayo wrote in a January note, according to CNBC. The $77 billion includes $15 billion for investment spending, which JPMorgan executives have since said needed more detailed explanation.
"This is a good start," Credit Suisse analyst Susan Roth Katzke wrote Monday, according to Reuters.
Investors’ trust in JPMorgan appeared shaken last week, when shareholders, in a nonbinding vote, gave just 31% support to the bank’s compensation plan, which included one-off awards worth tens of millions of dollars in restricted stock to Dimon and President Daniel Pinto. JPMorgan’s share value had dropped 28.4% since mid-January, according to Yahoo Finance, but was up more than 6% by the close of trading Monday, The New York Times reported.
Not every business venture will be immediately profitable, though. JPMorgan expects to lose $450 million this year on its U.K. consumer bank and similar amounts "for the next few years," Sanoke Viswanathan, chief executive of the bank's international growth initiatives, said Monday, according to the Financial Times. The bank expects its overseas digital efforts to break even by 2027 or 2028 and “generate significant income thereafter,” Viswanathan said.
“Historically, banks have struggled to do well in markets outside their home markets in retail banking. We think this is changing with digital,” he said.
JPMorgan's U.K. consumer bank, Chase, has amassed $10 billion in customer deposits since it launched eight months ago and has attracted 500,000 customers, Viswanathan said.
Dimon, however, quashed the idea that this would turn into a brick-and-mortar presence.
“There’s no chance that JPMorgan will put 100 branches in Mumbai or Hong Kong or London or anywhere and actually compete,” he said, according to the Financial Times.
Pinto, meanwhile, said the bank's investment-banking fees could sink roughly 45% this quarter from a year earlier.
“We are in a very challenging environment,” he said, according to The New York Times. “We are navigating things that we haven’t seen in a long, long time.”
Trading revenue, however, would probably likely jump 15% to 20% this quarter from a year earlier, the bank estimated.
Elsewhere, the bank indicated it is considering offering more home equity lines of credit (HELOCs), about two years after de-emphasizing the product, said Marianne Lake, co-CEO of consumer and community banking, according to American Banker.
"It is obviously a product that is gaining in appeal right now, and we are working on that,” Lake said, noting a 31% bump in year-over-year volume.
The lines of credit may not be available to more customers until the first half of 2023, a source familiar with the matter told the publication.
“We think we have huge opportunities, and we’re going to try to grasp them, which is what I think you want us to do,” Dimon said.
The bank expects its regulatory capital requirements to increase over the next two years, but will have $13 billion to $22 billion in excess capital in 2024's first quarter, Reuters reported.
Not every analyst appeared convinced of the math, however. "The bottom line is that you are still spending a lot of money this year," Matt O'Connor of Deutsche Bank told Dimon, according to Reuters. "Are you doing too much all at once?"
"We just spent the whole day trying to answer that question," Dimon replied.
The recession question
During his remarks, Dimon said a recession is possible but would be unique in its combination of economic factors.
“Strong economy, big storm clouds,” he said, according to Bloomberg. Dimon drew a distinction between storms and the clouds from which they originate, saying the clouds “may dissipate.”
But, he added, according to American Banker: “These things that we are seeing are as serious as you may see in your lifetime. They may mitigate, as opposed to, ‘It’s a tsunami.’"
About $3.1 billion of JPMorgan's expected $6.7 billion tech spend in 2022 would go toward the investment-banking division. But the bank could change some of its plans for 2023 investment spending, such as credit card marketing, depending on the economic environment, Reuters reported. JPMorgan said the growth rate for its investment spending "will moderate."
“We have always earned good returns while making investments,” Dimon said Monday, according to Reuters.