JPMorgan Chase, Wall Street’s biggest lender, said it plans to sharply increase spending on technology and talent to strengthen its competitive position, raising investor concerns about US banks’ earnings in 2022.
as reported Registration earnings last year, JPMorgan surprised analysts with a forecast that expenses would rise 8 percent this year to around $77 billion, meaning it would likely miss a key profitability target in 2022 and possibly 2023.
Some of the elevated expenses come from higher salaries, with an additional $2.5 billion going to compensation and travel expenses. But JPMorgan also said it planned to increase new investment this year by $3.5 billion, or 30 percent, to nearly $15 billion. Technology spending in 2022 will reach $12 billion in 2022, he said.
“Global technology spending of around $12 billion is a staggering number,” said James Shanahan, an analyst at Edward Jones. “That will probably ruin the cumulative dollar value of the investment of all the fintechs in the world that are trying to disrupt them.”
JPMorgan shares, which have nearly doubled since the depths of the pandemic, fell more than 6 percent on Friday. This also weighed on share prices of other major banks set to report earnings next week, with Morgan Stanley down 3.6 percent, Goldman Sachs down 2.5 percent and Bank of America down 1.7 percent.
Jamie Dimon, 65, who has built a reputation for cost control as JPMorgan’s chief executive since 2005, told analysts the bank would need to “spend a few bucks” to beat its competitors.
However, the spending plans prompted Mike Mayo, a Wells Fargo banking analyst who has recommended JPMorgan to clients for the past seven years, to downgrade the bank’s stock, with no performance metric associated with the increase. of spending.
“Even Jamie Dimon, one of the best bankers of his generation, doesn’t get a free pass to halve investment spending for three years without elaborating on expected benefits,” Mayo said.
JPMorgan is ramping up spending just as a surge in trading activity that produced record investment banking revenue is beginning to run out of steam. Investors had hoped that rising interest rates, and higher lending rates, would help compensate, but instead much of this profit will now go to fund new investment.
The large spending reflects pressure on banks to compete with financial technology companies such as payment processor Stripe, installment lender Affirm and challenger bank Chime.
Jeremy Barnum, JPMorgan’s chief financial officer, said the bank was in a “time of acceleration” in investment spending. “Part of the reason for this is the amount of competition that’s out there in the market,” Barnum said on a call with reporters, “especially from new entrants.”
JPMorgan is earmarking new funds for data centers and cloud computing as a sale for expansion into new markets such as the UK and marketing costs.
Executives say today’s technology investments will ultimately result in lower operating costs. But it could take years to realize those savings, and the lack of granular detail is a source of frustration for investors.
“You, as a shareholder, as an outsider, will never be able to tell the difference between investment spending and simple spending until three years later. So you just have to take it on faith,” said Chris Kotowski, a banking analyst at Oppenheimer & Co.
Following fourth-quarter earnings at Citigroup, which has already been spending heavily to bolster its technology under regulatory pressure following mishaps at the bank, CFO Mark Mason called the technology a “very important growth line.” in the base of bank expenses, without giving an iota of importance. specific prognosis.
The bank’s shares closed down 1.25 percent on Friday.
Meanwhile, shares of Wells Fargo rose 2 percent after the bank reported revenue rose 12 percent in the fourth quarter as it sought to recover from a fake account scandal. The bank said its expenses would likely be lower than in 2021, even as it plans an additional $1.2 billion in technology and compensation investments.