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The Big Questions JPMorgan Investors Have for Jamie Dimon
Investors are flocking to JPMorgan (Reuters)JPM) Manhattan campus on Monday to hear from CEO Jamie Dimon and his executive team, and they’ll be listening for answers to some important questions.
Who May Succeed Dimon, Longest-serving Head of Major U.S. Bank? Can JPMorgan continue to produce record profits? How do you plan to invest all your excess capital? How exactly do you plan to incorporate AI into your operations?
By virtually any measure, JPMorgan is currently in a class of its own when compared to the rest of the industry.
It is the country’s largest bank by assets, surpassed all its rivals again in the first quarter and its shares reached a new all-time high last week.
The concerns some have as they attend JPMorgan’s annual investor day on Monday have nothing to do with the present.
They have much more to do with the future.
Who takes Dimon’s place?
The biggest unknown for JPMorgan at the moment has to do with the plans of its 68-year-old CEO, the longest-serving head of a major bank and one of the best-known figures in the financial world.
Dimon has repeatedly dismissed retirement expectations, but at last year’s investor day he acknowledged he knows he can’t do the job forever.
“Succession is an issue no matter what,” said Mike Mayo, a banking analyst at Wells Fargo.
Mayo pressured Dimon on last year’s investor day about how many years he expected to remain CEO.
“Three and a half,” Dimon said before laughing. He added that “we have the same plan as we had before” without clarifying whether there was any truth to the number he mentioned.
He has an incentive to stay until at least 2026 through a special retention bonus of 1.5 million options the board granted him three years ago, and he is required to stay in the role that long to exercise the options.
Jamie Dimon, chairman and CEO of JPMorgan Chase, attends the final beam laying ceremony for JPMorgan Chase’s new global headquarters in New York City last November. (REUTERS/Brendan McDermid) (REUTERS/Reuters)
The retention plan has an interesting provision that allows Dimon to leave early. He will be able to exercise the options if he leaves for public office, according to a regulatory document – whether elected or not.
Investors will hear from many of the executives considered favorites for Dimon’s job on Monday.
One of the leading candidates is Jennifer Piepszak, who this year became co-CEO of a new division encompassing JPMorgan’s commercial and investment banking, along with Troy Rohrbaugh, previously co-head of securities markets and services.
Another is Marianne Lake, who oversees JPMorgan’s sprawling consumer unit.
JPMorgan President and COO Daniel Pinto is widely considered the person who would step in if Dimon had to leave suddenly and a new leader had to be named immediately.
The story continues
Analysts agree that JPMorgan has a deep bench of executive talent, but the transition will be challenging regardless of who takes over.
“When the announcement comes, the stock is going to fall because there are a lot of people who own it because of it,” Gerard Cassidy, a banking analyst at RBC, told Yahoo Finance.
What will JPMorgan do with its excess capital?
JPMorgan prides itself on being prepared for any unexpected shocks.
One measure of this preparation is capital, a reserve that protects the creditor against future losses. The lender currently has more of that capital on a relative basis than it has ever had in its history.
“Our capital cup is overflowing,” Dimon told analysts during an April earnings call.
For its regulators, this is a good thing. But having too much can be a bad thing as far as investors are concerned.
This is because it could mean that the company runs the risk of not performing as efficiently as it should, undermining certain measures that investors care a lot about. One such measure is the return on tangible common equity, or ROTCE.
JPMorgan’s Q1 ROTCE far surpassed rivals as well as its own target. But the concern is what will happen to this metric in the future as regulators ask JPMorgan and other big banks to further increase their capital levels.
“How long does JPM want to hold on to excess capital?” asked Morgan Stanley analyst Betsy Graseck.
JPMorgan Chase’s new headquarters at 270 Park Avenue is in midtown Manhattan. The bank’s annual investor day will be held in front of this new building, inside another property controlled by the bank. (Gary Hershorn/Getty Images) (Gary Hershorn via Getty Images)
There are ways for JPMorgan to deploy its extra capital. You can make new investments, such as buying another bank. You can also increase your dividends or share repurchases, returning more money to your shareholders.
But it will be politically difficult for JPMorgan, the most dominant U.S. bank, to get away with more acquisitions, such as the 2023 takeover of regulators’ failed First Republic.
More dividends and share buybacks are also not certain. Dimon poured some cold water on the idea of increasing JPMorgan’s share buybacks in April, saying “personally” that he didn’t want to buy JPMorgan shares at the April 12 price ($195.43). Now it’s over $200.
“Excess capital is not wasted capital, it is accumulated profit,” Dimon said in April. “We will roll it out in a very good way for our shareholders in due course.”
The issue of excess capital is “a nice problem to have, but it’s a challenge,” said RBC’s Cassidy.
How will AI transform JPMorgan?
Dimon didn’t hold back in its annual letter to shareholders last month when talking about the potential of artificial intelligence.
He compared it to “the printing press, the steam engine, electricity, computing and the Internet”, predicting that the consequences will be “possibly as transformative as some of the major technological inventions of the last few hundred years”.
So how will this change JPMorgan?
Dimon offered some details on this topic, citing more than 2,000 AI and machine learning experts and data scientists currently working for the bank and a new role called chief data and analytics officer who sits on the operating committee.
But some of the work remains a mystery. JPMorgan, he said, now has more than “400 use cases in production in areas like marketing, fraud and risk” and he sees AI helping the bank “reimagine entire business workflows” and “augment virtually every works”.
Investors will be watching for more details, both in terms of JPMorgan’s investments and potential savings over time.
Last year, JPMorgan budgeted $15.3 billion for technology, the highest amount ever and the largest annual spend among North American banks. Analysts expect the budget to be higher in 2024.
“I think JPMorgan could end up being the Nvidia of banking,” Mayo said in March, referring to the chipmaker that has benefited enormously from the AI boom.
“They have the resources, the spend, the data, the process and the people in place… They start from a position of strength, more so than any other bank.”
David Hollerith is a senior reporter at Yahoo Finance, covering banking, crypto and other areas of finance.
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