Dimon Says JPMorgan Is Looking ‘Aggressively’ at Acquisitions
Jamie Dimon sees competition everywhere he looks, so he’s vowing to be creative with what he can buy to stay ahead.
(Bloomberg) -- Jamie Dimon sees competition everywhere he looks, so he’s vowing to be creative with what he can buy to stay ahead.
JPMorgan Chase & Co. is looking “aggressively” at acquisitions across its businesses and could buy anything that’s not another U.S. bank, the chief executive officer said at the firm’s investor day in New York Tuesday. The bank has a greater appetite for deals than in previous years, helped by regulators who are more accommodative, he said.
Coming off the most profitable year in U.S. banking history, Dimon attempted to push down expectations, saying last year’s bonanza was helped by unusually low credit costs and flagging 2020 as a “tougher year.” The bank’s presentation touted how it’s outperformed rivals in recent years, but also struck a cautious tone on challenges it faces from a series of industry trends that aren’t going away.
“You’re going to get some form of competition from Apple, Amazon, Facebook, Google, WeChat, Alipay; you’re going to get it across payments, white label, black label and bank-in-a-box and marketplaces, and that’s the world we’re going to face,” Dimon said. “When it comes to M&A, we should be very, very creative.”
One big change is in regulators’ attitudes toward letting big banks get bigger.
“Now they’re giving more of a green light,” Dimon said. “The door is open for people to be a little more ambitious and aggressive with how they deploy capital in acquisitions.”
In updating its outlook for 2020, the bank maintained its return on tangible equity target at 17%, and said its overhead ratio would be below 55% in the medium term. It expects net interest income to fall slightly to $57 billion this year as lower interest rates squeeze traditional lending businesses.
Interest rates holding near multiyear lows will continue taking a bite out of revenue, it said.
“Rates are much lower than expected both on the short and long end” than the bank forecast a year ago, Chief Financial Officer Jenn Piepszak said. While the firm expects NII to grow again in 2021, “all of this is market dependent, and yesterday’s volatility is a good reminder of that,” she said, referring to the stock-market tumble.
“It’s gonna be a much tougher year in 2020,” Dimon said. While the bank is prepared for an economic downturn, “a lot of our managers haven’t been through one, so I do worry about that.”
On other fronts, Dimon and Piepszak said JPMorgan plans to borrow from the Federal Reserve’s discount window from time to time. The facility is meant to provide emergency liquidity to banks that otherwise have healthy balance sheets. In a cash crunch, banks can pledge collateral to the Fed in return for cash. But lenders have been reluctant to use the window, in case investors interpret it as a sign of financial weakness.
“We think this is an important step for us to take to break the stigma here,” Piepszak said.
For the first quarter, net interest income will likely be $14.2 billion, slightly higher than previous estimates. And trading revenue for the period will probably increase by a percentage in the “mid-teens” compared with the same period last year, according to Daniel Pinto, co-president of the corporate and investment bank. The market is doing “pretty well” so far this year, Pinto said.
Cost cuts have been a major focus, including shifting thousands of jobs out of the New York area to cheaper locations domestically and abroad over the past few years. Still, JPMorgan said expenses could jump 2.5% this year to around $67 billion. The bank said it would spend $500 million more on technology investments.
Shares of the company fell 2.8% to $128.43 at 1:18 p.m. in New York, compared with a 3.1% decline for the KBW Bank Index.
The bank also said it would help finance about $200 billion related to sustainable business practices and other green initiatives, up from $175 billion last year. It expects to use renewable energy for all its global power needs by the end of 2020.
“There’s no meeting where this issue isn’t coming up,” Pinto said. “This situation is evolving so fast that whatever target you put for the next 10 years most likely will be obsolete.”
Among other major initiatives is a national branch expansion, a push into China, investments in wholesale payments and a deeper effort to advise high-net-worth individuals.
On the branch expansion, JPMorgan said it has $1.5 billion in deposits and investments from new markets, including Boston, Philadelphia and Washington D.C. New branches are reaching the break-even point seven months faster than the average six years ago, the company said.
To contact the reporter on this story: Michelle F. Davis in New York at mdavis194@bloomberg.net
To contact the editors responsible for this story: Michael J. Moore at mmoore55@bloomberg.net, Steve Dickson, Dan Reichl
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