Sun. May 29th, 2022


There are few more artful communicators on Wall Street than Jamie Dimon. Unlike many of his peers, the native New Yorker is willing to speak his mind and can express himself clearly, so easily in the vernacular that he sometimes sounds more like the host of a sports radio talk show than the boss of the greatest US bank by assets.

But some topics are a little too complicated for even the JPMorgan Chase chief to turn to his advantage. Like other pillars of the banking business these days, he makes fatal decisions about how to respond to a new generation of fintech competitors – and to explain his technology spending to outsiders seems difficult.

Dimon’s issues were seen a few days ago when JPMorgan reported it fourth quarter results. As usual, it made a lot of money – a record $ 48.3 billion last year. The bank also made it clear that it is not standing still. It said it would increase investment in technology, marketing, new businesses and additional staff by 30 percent this year to $ 15 billion. Technology spending of all kinds is expected to total $ 12 billion.

The problem is that all of this spending could help boost the bank’s spending by 8 percent, JPMorgan said, threatening its ability to meet its profitability targets for this year and perhaps next. During a call with Wall Street investment analysts, Dimon was pressed for details on what kind of bang the bank can expect from the big bucks he throws at technology.

Dimon predicted that JPMorgan would gain market share in virtually every activity, but he acknowledged it would take time to fully understand the impact of its technical spending. He said, for example, that the bank expects to save $ 30 million to $ 40 million a year by moving card operations from a mainframe facility to the cloud, but he insisted the biggest benefit of the move would be in improved capabilities – from fraud extinction to more purposeful offers to customers.

Investors reacted cautiously. JPMorgan shares – which roughly doubled during the pandemic – lost more than a tenth of their value in days after the company’s earnings call. Mike Mayo, a Wells Fargo analyst who recommended JPMorgan shares for seven years, downgraded the stock, saying the lack of details on what the bank expects from its investments raises the possibility that it could squander money without that outside investors can say what it is. happen.

“Investing in banks is always a measure of investing in a black box – it’s a different shade of gray that leads to black,” Mayo says. “In the case of JPMorgan, it should be too dark a gray for our comfort zone.”

The irony of Mayo’s critique is that he realizes that Dimon and bankers like him need to move quickly to modernize their operations or run the risk of more banking functions migrating to fintechs and non-banking competitors. He’s just worried about the transparency of the process.

“It used to be Jamie Dimon to the banks, now it’s Jamie Dimon to the world,” says Mayo. “He sends a signal that no one will spend JPMorgan. It’s Jamie Dimon’s way of saying, ‘I’m not cutting.

JPMorgan’s size and financial strength will come in handy. While fintechs only need to focus on the coolest technology, traditional banks like Dimon’s must at the same time fight their sophisticated new challengers and maintain the legacy computer systems on which their customers still rely. JPMorgan says half of its $ 12 billion technology budget is needed to run the bank and the other half is to change it. Add that up: these are two businesses.

“The problem is that banks run a large amount of their operations on old stuff – old hardware, old software,” says Diane Glossman, a longtime Wall Street banking analyst who has a particular interest in back office operations. “As a result, a very significant portion of their technology spending goes into keeping the wheels on the cars.”

In turn, Dimon showed his usual confidence when he discussed his investment plans this month, saying he would have to spend a few dollars to beat competitors old and new. At age 65 – and with a record to often deliver more than he promised – Dimon looks set to hang around for the several years it will take to see if his technology spending strategy on the target is.

For the rest of us, investing in banks is only going to get harder. It will no longer be enough to simply know whether executives can evaluate credit risks, allocate capital or inspire sales forces. Bankers are becoming software engineers these days, and it may take a while before we find out how many of them are up to the job.

gary.silverman@ft.com



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