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JPMorgan may hold steady on cost target despite low interest rates
[NEW YORK] At JPMorgan Chase & Co's annual investor day on Tuesday, one big question will be at the top of attendees' minds: How can the bank keep a tight lid on costs without hurting its ability to grow revenue?
JPMorgan's chief executive, Jamie Dimon, and at least five of his top executives are expected to give presentations on the bank's diverse range of businesses at the day-long event, with forecasts on revenue, expenses and shareholder returns.
They're also expected to offer some fresh details on how the bank is using technology to improve operations and slash costs - an initiative Mr Dimon and his deputies have long been touting.
But for the first time in years, JPMorgan is not expected to expand further its cost-cutting targets. The bank is only halfway through a previously announced US$4.8 billion cost-cutting target, and cutting any deeper could hurt its businesses, analysts said. JPMorgan has already cut more than 25,000 jobs since 2011.
That would run counter to what other big banks have been doing. Executives from banks including Morgan Stanley, Goldman Sachs Group Inc, Bank of America Corp and US Bancorp have all recently talked about further cost-cutting efforts.
Because of that, and the troubles at European rivals, top brass at JPMorgan have an incentive to reinvest in key businesses to take market share from competitors who are pulling back.
"This is the sort of environment that Jamie Dimon and JPMorgan live for: sluggishness in the environment, competitors feeling pain," said Mike Mayo, a bank stock analyst with CLSA.
Even so, analysts said they and their investor clients will want more insight into how JPMorgan strikes the fine balance between cutting costs to protect profits, and spending money for growth at a time when interest rates remain stubbornly low and the economy shows signs of becoming sluggish.
Some analysts and investors worry that JPMorgan may have to lower its profit target again.
The bank's publicly stated goal going into investor day is to achieve a 15 per cent return on tangible common shareholder capital over the long term. That is down from a 16 per cent target in 2013, which JPMorgan lowered to a range of 15-to-16 per cent in 2014.
JPMorgan delivered returns of 13 per cent in both 2014 and 2015.
"What is that going to be and how can they get there without higher interest rates?" said Chris Mutascio, an analyst with Keefe, Bruyette & Woods. He should have an answer at 6:45 am on Tuesday, when JPMorgan is expected to post a slidedeck on its website ahead of the event.
Last year, executives showed a slide in which higher rates would contribute about half of the additional profits needed to reach the 15 per cent target. But, with the exception of the small boost to rates from the Federal Reserve in December, that tailwind has not appeared.
JPMorgan's investor day is about more than just one bank. As the biggest US lender by assets, with widespread consumer and investment banking operations, its executives are well placed to offer broad perspectives on the state of banking and the global economy.
As in years past, Mr Dimon is likely to opine on topics ranging from interest rates and energy markets to financial regulations and foreign affairs.
"Given the size and breadth of their consumer and commercial client base," said Mr Mutascio, "JPMorgan has the pulse of the US economy."