By Emily Glazer
James Dimon maintains that J.P. Morgan Chase & Co. doesn't
need to get radically smaller, just much leaner.
The chief executive of the nation's biggest bank by assets
pushed back against calls to break up the firm on Tuesday, even as
he and other J.P. Morgan executives outlined a fresh spate of
cost-cutting measures and a plan to shed as much as $100 billion in
certain deposits.
At J.P. Morgan's annual investor day in Manhattan, Mr. Dimon
defended his belief that the bank benefits from its scale and
sprawling global presence. J.P. Morgan has $2.57 trillion in total
assets and has operations in more than 60 countries, according to
the bank.
"We still want that pre-eminent position, and we're not going to
give that up for anyone," he said, adding that the bank's many
pieces work well together. "We're not a conglomerate" of unrelated
businesses.
Yet Mr. Dimon conceded that the bank faces higher compliance and
other costs as a result of its size. "It's our job to get [those
costs] down," he said.
Mr. Dimon and his deputies detailed measures to trim expenses,
including cutting roughly 300 branches--or about 5% of its
total--by the end of 2016, as well as some employees.
Bank tellers, whose ranks have thinned in recent years, will
continue to be replaced by mobile banking and more elaborate
automated teller machines. Instead, Chase retail branches will
continue adding offices for customer advice and private bankers to
provide more extensive service to more affluent customers.
J.P. Morgan expects expenses to drop to around $57 billion in
2015, from $58.4 billion in 2014.
In perhaps the biggest shift, J.P. Morgan announced that it aims
to reduce certain deposits by as much as $100 billion by year-end
and is preparing to charge large institutional customers for some
deposits, thanks to new rules that make holding money for the
clients too costly.
The new fees will vary by client, depending on such factors as
their overall relationship with the bank and the size of the
account, Chief Financial Officer Marianne Lake said, detailing a
plan reported Monday by The Wall Street Journal.
The plan won't affect the bank's retail customers, but some
corporate clients and especially an array of financial firms,
including hedge funds, private-equity firms and foreign banks, will
feel the impact, according to an internal bank memo. The bank is
focusing on about $200 billion of certain "excess" deposits from
financial institutions out of a total $390 billion of
financial-institution deposits, according to Tuesday's
presentation.
The Journal reported in December that J.P. Morgan and several
other major banks had spoken with clients to inform them that new
regulations and low interest rates are making some deposits less
profitable.
But industry experts say J.P. Morgan's public pronouncement will
set off a scramble among institutional clients to find other places
to invest their cash.
"The world has changed," said Jerome Schneider, managing
director at Newport Beach, Calif., asset manager Pacific Investment
Management Co. "Investors who want their cash to be safe no longer
have a free ride."
Mr. Schneider said investors will need to determine which of
their needs demand immediate access to cash and manage their funds
according to new liquidity tiers. "Clients have been acknowledging
that [deposit fees] may happen. Now it has," he said. "You're going
to see [clients] move from dialogue to implementation over the next
few months."
Investors welcomed J.P. Morgan's approach. Shares rose 2.5% to
$60.82, outpacing many other bank stocks.
Since the financial crisis, rules have been put into place that
require banks to maintain enough high-quality assets that could be
converted into cash during a crisis to cover a projected flight of
deposits over 30 days. Because large, uninsured deposits would be
expected to leave most quickly, the rules will require that banks
maintain reserves for those deposits that they can't use for
profitable activities like making loans. That makes it much less
efficient or profitable for banks to hold these deposits.
Write to Emily Glazer at emily.glazer@wsj.com
The firm's head of consumer and community banking, Gordon Smith,
detailed areas where J.P. Morgan took further steps to avoid other
potential regulatory problems, including closing more than 100,000
accounts through anti-money-laundering screening and cutting ties
with over 5,000 individuals that also pose risks.
For investors weary of the persistent focus on regulation, Mr.
Dimon cast an optimistic tone, a departure from comments earlier
this year when he said the bank was at times "under assault" from
regulators.
On Tuesday, Mr. Dimon said his firm was dealing effectively with
regulators "left and right...if regulators want more, we can do
that too." He said he believes most regulatory rules stemming from
the financial crisis will be finalized within two years and "a lot"
of the firm's legal costs will drop once that is complete.
Mr. Dimon, who last year battled throat cancer, also hinted he
might stay in the job for the foreseeable future. In a discussion
about the firm's stock price, he said he sees value in the firm's
shares at the current price and would be a buyer if the government
allowed him to be.
"I may be standing here in four years talking about" similar
issues, he said.
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