JPMorgan backtracked on main target, says it could hit 17% returns this year

Jamie Dimon, CEO of JPMorgan Chase speaks to the Economic Club of New York in New York, January 16, 2019.

Carlo Allegri | Reuters

JPMorgan Chase on Monday reversed course based on the guidance it provided in January, saying the bank could meet a key performance target this year after all.

The lender said a 17% return on tangible common stock “remains our target and achievable in 2022,” according to a presentation. That’s a turnaround from earlier this year, when CFO Jeremy Barnum warned that headwinds, including rising costs, would cause the bank to miss its target for the next year or two.

“There is a very good chance this year” of meeting the target and exceeding it next year if there is a “benign” credit environment, CEO Jamie Dimon told investors Monday in opening remarks to the bank’s investor day meeting.

JPMorgan shares rose 6.2 percent.

JPMorgan is holding its first investor day since 2020 to answer questions from investors and analysts about the bank’s strategy and investments. The bank’s shares began falling in January after it revealed an unexpected jump in fourth-quarter expenses and management said it likely missed its 17% target for returns.

On Monday, the bank said that while guidance on 2022 expenditures remains unchanged at around $77 billion, expectations for increased interest rates as the Federal Reserve battles inflation may prove to be strengthening. The bank said net interest income in 2022 could exceed $56 billion, well above the $50 billion estimate made in January.

By the fourth quarter, the bank will generate net interest income of $66 billion annually, more than $20 billion above the 2021 level, on higher rates and loan growth.

Barnum told analysts that the US economy remains strong and that borrowers of all kinds have continued to repay their loans at a high rate. He said the “extraordinarily low” level of credit card debits will continue into next year.

Ahead of the investor meeting, analysts wanted more detail about the types of investments in technology, employees, and acquisitions included in expectations of an 8% increase in expenses this year to $77 billion.

“This issue is certain for us: pre-charged spending for unlimited benefits,” veteran banking analyst Mike Mayo wrote in a January note downgrading his recommendation for JPMorgan shares.

Since then, JPMorgan executives have realized they erred in not releasing more disclosures about their business plans, which include nearly $15 billion in investments for 2022 alone, according to a person familiar with the bank.

In recent years, the largest US bank by assets has invested aggressively in technology and staff to compete with both traditional and emerging players in the fintech space. This helped gain market share in business lines from credit cards to deposits to Wall Street trading.

Aside from Damon and CFO, department heads including Daniel Pinto, Marian Lake and Jennifer Pepszak performed on Monday.

Pinto said the slowdown in mergers and securities issuance this year is hitting Wall Street hard, with an expected 45% drop in investment banking fees for the second quarter from a year earlier. He said trading activity, on the other hand, was higher than expected, rising by 15% to 20%.

Executives have announced several new product offerings, from installment loans to better compete with Buy Now, Pay Later players to a new remote wealth management offering called JPMorgan Personal Advisors.

Shares of JPMorgan were the worst performer among the six largest US banks, having fallen about 26% this year before Monday and outpacing the KBW Bank’s 19% decline.

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