JPMorgan Revs Up Acquisitions in Dimon’s Quest to Stay Dominant

(Bloomberg) -- JPMorgan Chase & Co. hadn’t set out to buy a restaurant guide when it bought The Infatuation. 

The platform popular with foodies was seeking a fresh round of cash when senior JPMorgan executives decided that its dining expertise could help the lender’s card business reel in new customers, according to people with knowledge of their thinking. The bank agreed to buy the whole venture.

Add to that a forest and timberland investor in Portland, Oregon, a college financial-planning platform, stakes in a Luxembourg-based car-payments firm and a digital bank in Brazil -- plus a variety of other targets -- and JPMorgan has had its most prolific year for hunting acquisitions and investments since at least the financial crisis. More are likely to follow. 

The group of purchases may seem random, but behind the deals lies an urgent push to fend off fintech startups, augment customer perks, build out hot businesses such as environmental and social investing and develop other novel ways of catering to the wealthy. Chief Executive Officer Jamie Dimon has made no secret of his concern about competitive threats and his willingness to spend whatever it takes to stay ahead. Privately, he’s stressed the bank needs to be disciplined in its choices, people familiar with the matter said.

“It’s quite logical for JPMorgan Chase to be buoying their capabilities around offering their services through different distribution channels than those that are traditionally thought of as banking channels,” said Adam Dell, whose fintech startup was acquired by Goldman Sachs Group Inc. in 2018. “Very few consumers wake up in the morning and say, ‘I feel like doing some banking.’”

Altogether, JPMorgan has made 24 acquisitions or so-called strategic investments this year alone -- many unnoticed because they were either small or niche. But certainly not all of them: The firm spent more than $1 billion to acquire a 40% stake in Brazilian bank C6, the people familiar with the acquisitions said. 

The bank will likely continue to make deals across that broad price range and is constantly sizing up opportunities, the people said, asking not to be identified discussing confidential discussions. 

Industry veterans might be reminded of the freewheeling shopping sprees some banks went on before the 2008 financial crisis, which left cleanup crews at the likes of Citigroup Inc. trying to dispose of odds-and-ends, such as a Japanese ski resort. But Dimon, who avoided those mistakes, is pressing his executives to stay focused, screening for deals that strengthen existing capabilities, reduce pain points or add innovative technology.

A spokesperson for the company declined to comment.

Self-Critical

The hottest front in the battle is over consumers. When the pandemic closed stores and bank branches, millions of people were coaxed to try online banking and payments systems, often finding them more convenient. That’s helped fuel non-traditional financial ventures like digital payments firm Square Inc., buy-now, pay-later company Klarna Bank AB and PayPal Holdings Inc. Meanwhile, titans like Amazon.com Inc. and Apple Inc. have also expanded their financial services.

Such innovations have set off some introspection at JPMorgan, despite its status as the largest and most profitable U.S. bank. Dimon said in June the company needs to take a moment to be self-critical, noting it “could have done what Square did and we didn’t.” 

JPMorgan’s September deal for The Infatuation is part of its effort to ensnare more consumers with the kinds of perks and experiences increasingly offered by other credit-card giants. Its purchase of financial-planning platform Frank allowed it to strike relationships with students that it hopes will last well beyond college.

The bank also set its sights on international consumers. It agreed in June to purchase U.K. digital wealth manager Nutmeg to bolster offerings there, and it announced the stake in C6 that same month.  

Read more: JPMorgan Buys Stake in Digital Bank C6 in Brazil Retail Push

The flurry of deals comes amid pressures beyond fintech competition. Investors are clamoring for more signs of growth -- even after the bank reported record revenue from advising other companies’ deals in the most recent quarter. Lending has remained sluggish as government stimulus kept new borrowing at bay, with loans in the consumer and community bank shrinking 2%.

Investors also want to see the flood of deposits JPMorgan attracted during the Covid crisis put to work. Those holdings surged to $2.4 trillion at the end of the third quarter, up $840 billion since the end of 2019. JPMorgan sent nearly $500 billion of that increase straight to central bank deposits, which keeps them safe but earns scant income. 

To deploy some of its own cash pile, the bank has been buying back shares after the Federal Reserve lifted pandemic-era restrictions on the measure. But buybacks aren’t popular with Dimon, who prefers to spend money growing businesses, nor with some shareholders who’ve helped to bid the stock up to fresh highs, the people said. 

That combination of pressures has ramped up JPMorgan’s effort. In addition to fintech, it struck transactions in the environmental, social and governance and wealth management spaces. In June, the bank agreed to buy Campbell Global, the forest-management company, as well as ESG-focused fintech startup OpenInvest in an effort to add low-carbon credentials. 

“At some point they have to grow their top line,” said David Donovan, who leads the Americas global financial-services practice for Publicis Sapient. “JPMorgan is going to invest in fintech, beef up asset and wealth management, which is an area where they feel like they let competition get ahead of them. And also they need to deploy capital because they’re not lending.” 

Read more: JPMorgan Dealmakers Provide Cover for Idle Cash

The current mandate for deals has been in place since 2019, but was derailed by the outbreak of the pandemic and then reshaped accordingly, one of the people familiar with the push said.  

Under new Chief Financial Officer Jeremy Barnum, an internal team led by Brian Bessey is dedicated to JPMorgan’s own acquisitions and strategic investments. Dimon has encouraged segment leaders to pitch deals, and they often call Bessey up with ideas. 

Transactions that become likely are put before the bank’s operating committee for sign-off.

Much like the deal for The Infatuation, JPMorgan hadn’t exactly set out to buy a chunk of a German carmaker’s digital-payments arm. But that’s what happened after Volkswagen AG offered the bank a look at its technology for handling transactions, people familiar with the talks said. JPMorgan, seeing an opportunity to create a utility that could serve the broader auto industry, ended up purchasing a 75% stake in September.

“They get where the world is headed and are bolstering their capabilities to execute” in that world, said Dell, who left Goldman Sachs and is now co-founder and CEO of fintech Domain Money. “Banking isn’t a discrete function but embedded in the experiences that consumers are interested in having, whether that be travel or to buy something or to get a new home.”

©2021 Bloomberg L.P.