Jamie Dimon has earned his credibility from investors, running one of the tightest ships in the banking sector and delivering on targets repeatedly over the years. But as JPMorgan Chase gets set to release one of the bellwether earnings reports of the season this week, the long-time Wall Street CEO is busy trying to win a messaging war that the bank has struggled with in recent months. After its last earnings, when JPMorgan revealed it was spending billions of dollars more than it had previously forecast, up to $3.5 billion more, analysts and shareholders were unsettled.
In his closely read annual letter to shareholders released last week, Dimon provided his latest defense of bank spending, and in particular, technology spending, writing of the existential threat to the traditional banks from fintech rivals and market giants like Walmart and Apple encroaching on its turf.
The threat is an issue Dimon has opined on at length in recent years — he called one section of the letter “Competitive Threat Redux” — and the spending issue related to it isn’t likely to go away. Dimon wrote in the letter the spending will continue, and the Wall Street pushback which began last quarter is likely to continue as well.
The gap between investors and JPMorgan may not be possible to resolve in any CEO letter or quarterly report. Technology investments need to be made, but tech is an area of spending in which it is difficult to determine return on investment in the short term. And last quarter, the $3.5 billion on top of an already increasing investment profile was a lot to take, even from a management team that has proven its ability to generate returns on investment.
“None of these things happen in a vacuum and the management team has a history of execution,” said Jim Mitchell, Seaport Global financial services sector analyst in an interview after the last earnings. “The management team does matter … so there should be willingness to give them some credibility for spending all that money, but from the investor standpoint, it is a big step up in spend,” Mitchell said.
And it came on top of multiple times the bank raised expense guidance last year. “The magnitude was more than people expected,” he said.
The banking sector has been in the red this year, and JPMorgan’s roughly 17% year-to-date decline is among the larger losses in the big bank group.
There is a “little bit of near-term purgatory,” Mitchell said. “It was all just up. I was a little surprised they didn’t have a better answer other than ‘we need to do it.'”
Dimon’s letter to shareholders did attempt to expand on that answer, by first repeating his warning from recent years that the technology threats are everywhere.
“Last year alone, $130 billion was invested in fintech, allowing them to speed things up — and at scale,” Dimon noted. “The pace of change and the size of the competition are extraordinary,…
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