JPMorgan Chase & Co. (JPM) said the bank can increase profit 50 percent in the next four to five years as higher rates boost interest margins and the firm cuts 5,500 more jobs from retail units than it had forecast.
Profit can reach $27 billion if legal costs subside and income from loans and investments improves, the New York-based company said today in a slide presentation for its annual investor day. The bank now plans to eliminate about 8,000 jobs in consumer and mortgage banking this year as demand wanes for refinancings. Hiring in areas such as compliance and risk management will offset some of the cuts, the company said.
Managers led by Chief Executive Officer Jamie Dimon are laying out strategy at the biggest U.S. bank by assets after a year marred by clashes with regulators and $23 billion in legal costs. Dimon, 57, is seeking to accelerate growth and trim unwanted units while fending off allegations that the firm misled buyers of mortgage bonds, rigged markets and ignored suspicious activity by clients.
“We now have clarity on most of the regulatory rules, and we believe that we, more than others, will successfully adapt to the new financial architecture and will emerge where we started -- with best-in-class margins and returns,” Chief Financial Officer Marianne Lake said at the investor conference.
JPMorgan said it expects $3.5 billion of added net income by 2017 from expansions in businesses including middle-market lending and private banking. The net income target can be achieved over four to five years, the lender said. A year ago, the firm laid out a scenario where earnings could increase to $27.5 billion, while saying its target was $24 billion.
The forecast for return on equity was little changed as the company holds higher levels of capital in all of its divisions. Return on tangible common equity is expected to be 15 percent to 16 percent, compared with an earlier forecast of 16 percent, according to the presentation. JPMorgan posted an 11 percent return in 2013.
Banks have been hobbled by narrow profit margins on loans as interest rates hovered near record lows. The Federal Reserve began phasing out a policy designed to suppress rates last year, and yields on 10-year Treasuries almost doubled over the last eight months of 2013.
Bankers and analysts have said an increase in short-term rates would be more helpful for margins. The average forecast among economists in a Bloomberg survey is that the central bank won’t start raising its short-term rate until at least 2015.
The consumer and mortgage job reductions would bring total staff cuts to 24,500 in the two divisions since the start of 2013, JPMorgan said in today’s presentation. Last year, the firm said it would eliminate as many as 19,000 in the two divisions by the end of 2014. Reductions in retail banking are expected to happen through attrition, the bank said.
JPMorgan’s asset-management business, led by Mary Erdoes, said market gains and growth in international operations and retail sales are fueling expansion. The unit plans to oversee $3 trillion for clients in three or more years, up from about $2 trillion, according to the company. That will help boost pretax income at the business to about $5 billion from last year’s $3.2 billion.
Commercial banking, led by Doug Petno, set its long-term target for return on equity at about 18 percent, compared with the 19 percent it earned last year. Low deposit spreads and a slow economic recovery may pressure near-term results, while the unit expects to benefit eventually from an increase in international banking and more fees tied to mergers and acquisitions.
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