JPMorgan Says Tax Changes Will Lead to Higher Profitability -- Update
February 27 2018 - 2:05PM
Dow Jones News
By Emily Glazer
JPMorgan Chase & Co. says it is optimistic about 2018 and
the impact the new U.S. tax law will have on its financial
outlook.
The largest U.S. bank by assets shared new targets and
expectations in its annual investor day presentation Tuesday, which
for the first time included benefits from changes to the tax
law.
Most notably, JPMorgan moved its medium-term target -- over the
next two to three years -- for return on tangible common equity, a
key profitability metric, to roughly 17% compared with its prior
target of 15%. That is in line with Credit Suisse analyst Susan
Katzke's 15% to 18% expectation, she wrote in a Tuesday research
note. Excluding tax reform, the bank said its return on tangible
common equity target over the next two to three years would be
around 15%.
Already, the bank's traders are off to a strong start this year.
Daniel Pinto, the bank's co-president and head of its corporate and
investment bank, said trading is expected to rise "mid to high
single digits" in the first quarter of 2018 compared with the same
period last year. He added that activity in the beginning of 2018
has been "strong" and that "markets are correcting quite fast after
the selloff" earlier this year.
Still, the bank noted "significant uncertainty around how
competitive dynamics evolve," and wrote that it expects "some
benefit to pass to customers over time," according to its
presentation for investor day, which was at the company's Park
Avenue headquarters in Manhattan.
The bank's chairman and chief executive, James Dimon, said his
biggest worry at the moment is the impact of policy and
geopolitics. "Brexit will have an effect...[and is] damaging to
countries," he said. He said other geopolitical surprises "will
catch us the most off-guard" compared with interest-rate moves.
Finance Chief Marianne Lake, who spearheaded the presentation
for the first year, said each of the bank's main businesses --
consumer banking, corporate and investment banking, commercial
banking and wealth and asset management -- has increased
medium-term targets "reflecting tax reform but also reflecting
growth."
The largest U.S. bank by assets said its medium-term, pretax
income is expected to increase to a range of $44 billion to $47
billion from $40 billion in 2017. JPMorgan also expects around 7%
noninterest revenue growth in 2018 and 3% compound annual growth
rate going forward, depending on market conditions.
The New York bank also said its capital ratio is expected to
fall to 11% to 12% in the "medium-term" from 12.1% currently.
Total costs also are expected to rise to around $62 billion in
2018 from $58.5 billion in 2017. The 2018 figure includes $10.8
billion in technology spending and $5.7 billion in marketing
costs.
Mr. Dimon also weighed in on JPMorgan, Berkshire Hathaway Inc.
and Amazon.com Inc.'s new health-care initiative, which he said
will "at a minimum have a much better outcome for our
people...probably lower costs...and at a maximum probably do
something better for the country overall."
Ms. Lake said she's hopeful about "more constructive regulatory
backdrop" and added that the bank's "investing capabilities are
limited only by the opportunities in front of us and our ability to
execute against them."
Write to Emily Glazer at emily.glazer@wsj.com
(END) Dow Jones Newswires
February 27, 2018 13:50 ET (18:50 GMT)
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