Investors gathered at JPMorgan's (JPM) Manhattan campus on Monday to hear from CEO Jamie Dimon and his management team, seeking answers to some key questions. There is.
Who will replace Mr. Dimon, the longest-serving boss at a major U.S. bank? Will JPMorgan be able to continue generating record profits? How will it utilize its excess capital? How will the company incorporate AI across its operations?
By almost any measure, JPMorgan is currently in a class of its own when compared to other companies in the industry.
The company, the nation's largest bank by assets, again outperformed all of its rivals in the first quarter and its stock hit a new high last week.
The fears of some attending JPMorgan's annual Investor Day on Monday aren't about the present.
They have a lot more to do with the future.
Who will be Daimon's successor?
The biggest unknown for JPMorgan right now involves the plans of its 68-year-old CEO, the longest-serving head of a major bank and one of the most famous figures in finance.
Mr. Dimon has repeatedly declined expectations of retirement, but at last year's Investor Day he acknowledged he knew he couldn't keep this job forever.
“No matter what, it's about succession,” said Mike Mayo, a banking analyst at Wells Fargo.
Mr. Mayo asked Mr. Dimon at an investor day last year how many more years he intended to remain CEO.
“Three and a half years,” Dimon said with a laugh. He did not say whether there was any truth to the numbers he cited, adding that he “plans the same as before.”
He has an incentive to stay on until at least 2026 thanks to a special retention bonus of 1.5 million options granted to him by the board three years ago, which requires him to remain responsible for that period before he can exercise his options.
There is one interesting clause in the Remain plan that could allow Dimon to leave office early. Regulatory filings say the option can be exercised if a candidate leaves to take up a public service job, whether elected or not.
Investors will hear Monday from a number of executives considered the top candidates for Dimon's job.
One of the clear front-runners is Jennifer Piepszak, who this year joined Troy Rohrbaugh, previously co-head of markets and securities services, to co-head a new division that includes commercial and investment banking at JPMorgan. Appointed CEO.
The other is Marianne Lake, who oversees JPMorgan's vast consumer division.
Daniel Pinto, JPMorgan's president and chief operating officer, is widely considered to be the person to fill in if Dimon were to suddenly resign and a new leader had to be quickly named. .
Analysts agree that JPMorgan has deep leadership talent, but whoever takes over will have a difficult transition.
“If this announcement happens, the stock price will go down because there are a lot of people who own the stock because of him,” Gerald Cassidy, a banking analyst at RBC, told Yahoo Finance.
What will JP Morgan do with excess capital?
JPMorgan prides itself on being prepared for unexpected shocks.
One measure of that preparedness is capital, a buffer that protects lenders from future losses. Lenders currently hold more capital, relatively speaking, than at any time in history.
“Our capital cup is maxed out,” Dimon told analysts during an April earnings call.
For regulators, that's a good thing. But as far as investors are concerned, having too much can be a bad thing.
That could mean the company is at risk of not being as efficient as it could be and delaying certain initiatives that investors are very interested in. One such measure is return on tangible common capital (ROTCE).
JPMorgan's first quarter ROTCE significantly exceeded its competitors' and its own targets. But the concern is what this metric will do in the future as regulators push JPMorgan and other big banks to raise their capital levels even further.
“How long is JPM going to remain overcapitalized?” asked Morgan Stanley analyst Betsy Grasek.
There are ways for JPMorgan to utilize its excess capital. You can make new investments, such as acquiring another bank. They can also increase dividends and share buybacks to return more money to shareholders.
But it will be politically difficult for JPMorgan, the most dominant U.S. bank, to get away with more acquisitions, such as taking failed First Republic from regulators in 2023.
Further dividends and share buybacks are also not certain. Mr. Dimon poured cold water on the idea of increasing JPMorgan's share buybacks in April, saying he “personally” did not want to buy JPMorgan stock at its April 12 price ($195.43). It's currently over $200.
“Excess capital is not wasted capital, it's accumulated profits,” Mr. Dimon said in April. “We intend to roll it out in a very good way for our shareholders over time.”
RBC's Cassidy said the problem of too much capital is “a good problem to have, but it's also a challenge.”
How will AI transform JPMorgan?
Dimon didn't hold back when talking about the potential of artificial intelligence in his annual shareholder letter last month.
He likened it to “the printing press, the steam engine, electricity, computing, the Internet” and predicted that the result “will probably be as transformative as any major technological invention of the past few hundred years.” .
So how will JPMorgan change?
Dimon cited the more than 2,000 AI and machine learning experts and data scientists currently working at the bank, as well as a new position called chief data analytics officer who is part of the steering committee. provided details.
However, some works remain a mystery. He said JPMorgan currently has “more than 400 use cases in production across areas such as marketing, fraud and risk,” and that the bank is “rethinking its entire business workflow” and “strengthening virtually every business.” He believes that AI will be useful in this area.
Investors will likely hear more specific information from JPMorgan, both in terms of their investments and potential long-term savings.
Last year, JPMorgan budgeted $15.3 billion for technology, a record high and the largest annual spending of any U.S. bank. Analysts expect the 2024 budget to be even larger.
“I think JPMorgan could end up being the NVDIA of banking,” Mayo said in March, referring to chip makers that have benefited greatly from the AI explosion.
“They have the resources, spend, data, processes and people in place and are starting from a stronger position than any other bank.”
David Hollerith is a senior reporter at Yahoo Finance, covering banking, cryptocurrencies, and other financial areas.
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