JPMorgan eyes US$1.4b in cost savings
JPMorgan Chase said it aims to save about US$1.4 billion in annual expenses, mainly in consumer and investment banking, as a proposed government requirement to hold more capital is expected to pinch profits.
The largest US bank by assets expects expenses next year to fall to roughly US$57 billion from US$58.4 billion this year, JPMorgan said at its annual investor day. Shares rose 2.5 per cent to US$60.82, reaching their highest since the beginning of January.
JPMorgan is looking to lower expenses by US$2.8 billion in its investment bank, excluding legal costs, and by about US$2 billion in its consumer bank. Some savings will be offset by investments elsewhere in the company.
Just over half the investment banking expense reductions will come from simplifying businesses, but JPMorgan will also look to cut technology and operational costs in that division by US$1 billion and front-office personnel costs by US$300 million.
Daniel Pinto, chief executive for JPMorgan's corporate and investment bank, said that personnel cost cuts would come from job cuts and pay cuts. The bank has not determined how many jobs will be eliminated.
"We are working through the process," Pinto said on the sidelines of the conference at the company's headquarters on Park Avenue. It had become easier for JPMorgan to pay its market employees less and still compete with rivals because trading revenues had been shrinking across the industry, he added.
The changes are necessary because of weak revenue and higher regulatory burdens on the investment bank. "You have no choice," Pinto said. New information systems would help lower tech costs by reducing processing times for trades and other transactions, Pinto said.
Chief executive Jamie Dimon told analysts the latest cost cutting was in line with continuing efforts to keep a lid on expenses. But some analysts said they left the conference believing Dimon and his lieutenants were pushing harder than ever.
"It feels as though they are turning up the intensity on efficiency" after three years of no real progress reducing costs relative to revenue, CLSA analyst Mike Mayo said. He said JPMorgan must act aggressively because more investors are asking whether the bank should be split up if it cannot deliver expected savings.
In a presentation, finance chief Marianne Lake said that if JPMorgan split itself into two, it would have to duplicate its finance, risk, and audit divisions, among others, at great expense.
Executives gave more details about how JPMorgan has been achieving its goal of eliminating US$2 billion of retail bank expenses. For instance, the bank took out 20,000 phone lines that were not being used, said Gordon Smith, chief executive over branch banks, cards and mortgages. Hotel nights were reduced 25 per cent and use of "black car" transportation was cut 40 per cent, Smith said.
It cut 23,200 jobs from the retail bank last year, about 7,000 more than its originally announced goal. The company plans to eliminate 300 of its 5,600 branches by the end of 2016.