Jamie Dimon, CEO of JP Morgan, will speak at the Boston College CEO’s Club Luncheon on November 23, 2021 in Boston, Massachusetts, USA.
Brian Snyder | Reuters
Banks have recently become one of the main beneficiaries of high inflation, as rising prices tend to increase profit margins when central banks are forced to raise interest rates.
At the very least, it was the idea when investors bid on bank stocks while interest rates rose and inflation reached decades of highs. Megabanks such as JPMorgan Chase and Citigroup are now revealing that hot inflation in one area, employee wages, is overshadowing the next few years.
JP Morgan shares fell more than 6% on Friday. Banks have announced that this year’s expenses will rise 8% to about $ 77 billion due to wage inflation and technology investment. Higher costs, according to CFO Jeremy Burnham, could cause banks’ earnings in 2022 and 2023 to fall short of their immediate results and the lender’s 17% capital return target.
“We’ve seen a slightly higher decline and a very dynamic labor market, as other economies have seen,” Burnham said. “Sure, the labor market is tight, there is a bit of labor inflation, and it’s important that we attract and retain the best talent and pay competitively.”
This development adds nuance to the bullish case of owning a bank. Banks usually outperform other sectors in an environment of growth. Economists expect the Federal Reserve to raise rates three to four times this year, boosting the financial industry, according to Burnham, but the risk that runaway inflation could actually wipe out these rises. There is.
“Overall, moderate inflation leading to higher interest rates is good for us,” the CFO told analysts in a conference call. “But in some scenarios, rising inflationary pressure on expenses can be more than offsetting interest rate profits.”
Citigroup CFO Mark Mason said on Friday that “wages have been under a lot of competitive pressure” as banks vie for talent in a boom in trading and trading activity.
“There is some pressure on what you have to pay to attract talent,” Mason said. “You saw it even at some of the lower levels, I should say it’s the entry level of the organization.”
At JP Morgan, the largest bank in the United States in terms of asset size, wages have risen, especially for banking professionals such as trading personnel, investment bankers and employees of asset management companies, after two consecutive years of good performance. .. The company also raised wages at its branches last year.
Chairman and CEO Jamie Dimon told analysts in a conference call, “Top bankers, traders and managers who have to say they’ve done an extraordinary job in the last few years get more rewards. There is. ” “We are competitive in wages. If that puts a little strain on our shareholders’ interests, that would be the case.”
“Wages, housing and oil aren’t temporary, but they’ll continue to rise for some time,” Dimon said, while overall inflation “hopefully” begins to recede this year when the Fed becomes functional. Let’s do it. “
In fact, Dimon told analysts that wage inflation will be a recurring theme among businesses this year. He said some companies will navigate change better than others.
“Don’t say I’m complaining about wages. I think rising wages are good for people who are going up,” Dimon said. “The CEO shouldn’t whine about it. They should just deal with it. The job is to serve your clients as much as you can with all the elements out there.”
Jamie Dimon says the CEO “shouldn’t whine about it.”
Source link Jamie Dimon says the CEO “shouldn’t whine about it.”