JPMorgan CFO: $27B Profit Outlook Not Bank’s Target
“That’s not a forecast. It’s not a budget. It was a simulation. And it was really predicated only on those things that we’re really certain of, investments we’ve been executing for years…I think there’s every reason to believe that it’s biased to the conservative.”
ALL FOUR BUSINESSES PERFORMING EXCEPTIONALLY WELL JANUARY TRADING WASN’T AS STRONG AS EXPECTED TRADING HAMPERED BY LACK OF CLIENT CONVICTION REGULATION HAS TURNED CFO UNIT INTO NERVE CENTER JPM HAS ‘BEST HAND’ AMONG BANKS ‘WE WILL WIN’ AMID INDUSTRY CHANGES $27B PROFIT OUTLOOK IS BIASED CONSERVATIVELY
source: BLoomberg television
STEPHANIE RUHLE: Well let’s get right to our first guest because I’m super excited about this one. She’s one of the most powerful women in finance, Marianne Lake, Chief Financial Officer of JPMorgan. Marianne, welcome. You have a big, big job, CFO of JPMorgan.
So clearly your day job is full, but you’re also involved in JPMorgan’s Women on the Move tour. You’re traveling around the world talking to women at all levels inside the bank about their jobs. What’s the business case for that? Should JPMorgan shareholders feel good that you’re spending your time talking to all these women in the bank?
MARIANNE LAKE: So there’s loads of research that shows that women on boards, and C-suites and in management positions in companies, the companies generally perform better, but even if they didn’t, even if they didn’t we’re committed to diversity in JPMorgan. And when I’m on the road I’m seeing investors, I’m seeing clients, I’m seeing our employees. And so to spend some time having a direct dialogue with the women in our firm is a valuable use of my time. And we’re getting feedback from them all of the time. We’ve been to 12 cities, 4,000 women, over 200 pieces of feedback. And we’re making positive change.
ERIK SHATZKER: You are one of the most important people at the biggest bank in America. How do you decide how to balance your time, how much you should invest in initiatives like that, and how much you can’t afford to invest in initiatives like that?
LAKE: Right. So it’s all part of my job. And I have to balance every day, depending on what’s going on, but managing finance like a business, managing our team, managing our people is a critical part of managing the firm through the long run. So it’s an important part of the job and we’re going to dedicate time to it.
RUHLE: How is JPMorgan leading through all this? Just a few years ago people felt Jamie Dimon he’s America’s favorite banking CEO. And he sort has become public enemy number one, whether it’s populous opinion, the Department of Justice, while your employees don’t seem to be walking out the door, your customer feedback is higher than ever and your stock is doing so well. How are you making that happen?
LAKE: Well if you just take the customers in the first instance, if you ask customers about the industry the perception is negative. And I understand that. Perception one day hopefully will catch up with reality, but if you ask our customers what they think of JPMorgan and Chase, they like us, they like their bankers. They trust us and they recommend us. So we are focused on serving our clients, our communities and our customers transaction by transaction every day.
RUHLE: Then are you also focused on changing populous opinion? Who’s responsible to get America to start liking banks again?
LAKE: And we do have a responsibility. And the way we do it first and foremost is grass roots. It’s at that customer engagement level. It’s just treating people exceptionally well and with great products, and services and with respect. But we’re also working that through our foundation of philanthropic effort then. And we have a role in politics and in reform.
SHATZKER: Has that required a conscious and deliberate effort to avoid, call it a bunker mentality, because Stephanie and I know lots of bankers. And they’ll tell us, and they do that the negative press, the bad headlines can really get to you.
LAKE: Yes. There’s obviously an impact. And everybody in our firm wakes up every day, and reads the paper, and sees the news and there’s an impact, but we just lead by example, which is we’ve always had a culture at JPMorgan of focusing on the negatives, accepting our issues, fixing them, resolving them. And we’re leading from the front. So I think that underneath all of that our businesses are performing exceptionally well, all four of them. Our clients are very happy and our people are remaining motivated.
RUHLE: But revenue if you look at fixed income and equities, drivers where we’ve seen huge revenue year after year, and that’s where your rock stars reside, and those numbers are down. Are they ever coming back?
LAKE: It’s not [already] rock star. All of our businesses are performing strongly. And that’s part of their benefit of our diversified business model, but if you look at a January you expect it to be exceptionally strong in market. And we just didn’t see that this year. And it was a lack of client conviction. It was fixed income. It was equities. It’s across products and it’s just been a soft start to the year.
There’s no one reason for it. There’s a number of factors playing into it. And we have no reason to believe we aren’t going to bounce back. You said it yourselves that there’s reasons to be hopeful in the second quarter. The market seems to think that this a temporary disruption. The Fed seems to believe so too. So we’ll see.
SHATZKER: Marianne, I want to ask you about your job. You’ve been chief financial officer for a little more than a year. Is that right?
LAKE: Yes, correct.
SHATZKER: So how’s the chief financial officer’s job at JPMorgan and perhaps at other large banks in America, maybe even in Europe evolved over the past six, seven, eight years? What was it like before the crisis to the best of your knowledge, because you didn’t have it, relative to what’s it like now?
LAKE: Well in many ways it’s the same. And if I talk between –
SHATZKER: And lots of the same things now, today.
LAKE: Right. So if we talk to JPMorgan, well and if we talk about JPMorgan when we look at the CFO role we think about it as really a partner to the whole OC in running the firm, and running the businesses, and driving change and executing on the agenda, but if you think about today with capital, and regulation and controls being so front and center, like navigating this, the complexities of this new financial architecture has sort of throwing the CFO organization to be a bit of a nerve center. And it’s a fun place to be right now.
RUHLE: Well being that capital regulation and controls are front and center, what’s the message to the rest of the bank? If I’m a high-flying trader, if I’m a superstar banker, why would I want to work at a firm like JPMorgan where when you look at what guys at Carlyle and Blackstone are getting paid? It seems like the grass is truly greener on the other side.
LAKE: Yes, except for we have two great brands. We have a fortress balance sheet. We continue to invest in our businesses. We have everything. We have the best hand. And we will win.
RUHLE: And compared to other banks.
LAKE: Correct. And at the end of the day the power of our platform has evidenced itself in our results. We’ve had very, very strong results. So we will get through this and emerge very, very strong. And I guess the advice to them is just keep doing business, keep being aggressive as within the constructs of a well-run bank.
SHATZKER: Marianne, when you say we will win, what do you mean by that?
LAKE: So we have proven that we’re adaptable. We’ve proven that we’re able to do that and still deliver very, very strong returns, industry-leading returns. And so there’s unprecedented levels of change out there. And everybody is working through them. And it’s incredibly complex, but we have every reason to believe we’re going to emerge out of this in the same position we came in, which is a position of strength.
RUHLE: Jamie Dimon continues to make the argument that clients want one bank. Is that really true, because at the end of the day don’t clients want best execution across every single product? And they’ll got to whoever can provide them with that?
LAKE: Well they want the whole relationship. And the best way to measure it is clients vote with their business. And we are broadly gaining share across all of our businesses. So in that sense clients are telling us they like our model. We like our model. It’s delivering incremental value to our shareholders. We showed at Investor Day for two years running now that we’re generating $15 billion of incremental revenues and $3 billion of incremental expense synergies because of the platform we have.
And I could go through our commercial bank wouldn’t be the commercial bank it is without retail. It delivered $1.7 billion record IBCs this year. Eighty percent of the customers in the commercial bank used treasury services. Asset management is managing $90 billion of retail customers’ money. It’s pervasive across the organization how engaged the businesses are with each other and is really valuable.
RUHLE: So while firms like a Morgan Stanley or a UBS seem to be leaning out fixed income or equities, for example, you’re not necessarily getting bigger. You’re staying put. Are you influenced by what they’re doing?
LAKE: Well we benefit in some cases from being able to step in where others are stepping out. At the end of the day our complete platform and our global reach is a competitive advantage. And our scale provides operating leverage. And we believe in it.
SHATZKER: Marianne, at the same Investor Day that you made reference to just a moment ago, JPMorgan forecast that in four or five years’ time it could be making $27 billion in earnings a year. Some people wonder why that number isn’t higher. And I also wonder what’s constraining that. In other words, how much of a permanent cost has the post-crisis legal and regulatory environment placed upon JPMorgan beyond the one-time legal settlements?
LAKE: Sure, so and just to clarify that that’s not a forecast. It’s not a budget. It was a simulation. And it was really predicated only on those things that we’re really certain of, investments we’ve been executing for years, normalization of rates and credit. It doesn’t imagine that are to the possible over the course of the next three to five years. So don’t read into that it’s a forecast.
And I think there’s every reason to believe that it’s biased to the conservative. With respect to costs that’s significant. We showed, if you look at that chart, we showed $2.5 billion of net income impact from broad new financial architecture. That’s derivatives market reform, litigation leverage. And that’s an awful lot.
SHATZKER: That’s permanent.
LAKE: But again that’s somewhat permanent. And hopefully it will be less than that, but our scale again provides us advantages in that sense.
SHATZKER: When you say that you hope the $27 billion is biased towards the conservative, in your words what is the art of the possible?
LAKE: So and for example we didn’t imagine or forecast what markets revenues will be doing in four or five years’ time, although we absolutely expect them to be growing and for us to be growing at least in line, if not more than in line with that. That was not embedded in that forecast. So it was really all about the investments we’re making, normalization of credit, normalization of rates and costs, and not about core organic business growth in (inaudible).
SHATZKER: But if that’s on the low end, what would the high end be?
LAKE: Well some other people are doing that right now.
SHATZKER: Well it’s not unlimited.
RUHLE: Would you acknowledge that in some ways, compared to others, regulation is your friend? JPMorgan you say because of scale you can afford a massive compliance department. You can afford to face all these changes where other banks can’t. So is regulation a benefit for somebody like JPMorgan as big as you are?
LAKE: Well there is a case to be made about building a moat around the largest banks, and the safety and soundness and counterpart of choice and all, but let’s say that we need a healthy functioning financial market, and we need healthy functioning competition in local communities. So we’ve very supportive of not holding all of the smaller banks to the same soundness in all cases as the larger banks. And certainly that’s true in terms of the capital they’re having to hold. So small banks are our clients and we want them to do really well.
RUHLE: We also maybe need a bank CEO who’s a woman. All right, Marianne, thank you so much for joining us.
LAKE: Thanks for having me.
RUHLE: Marianne Lake, she’s the CFO of JPMorgan.