Dimon Says New Sapphire Card Cuts Profit by Up to $300 Million in Quarter

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  • Chase Sapphire Reserve card went viral without any marketing
  • AmEx sees marketing expenses climbing more than 10% this year

Jamie Dimon

Photographer: Andrew Harrer/Bloomberg

JPMorgan Chase & Co.’s new Sapphire Reserve credit card will reduce the bank’s profit by $200 million to $300 million in the fourth quarter, according to Chief Executive Officer Jamie Dimon.

“The card has been doing great” and was embraced by consumers before the bank did any marketing, Dimon said Tuesday at an investor conference in New York. “Now we have to account for acquisition cost in that business.”

JPMorgan introduced the card in August with a 100,000-point sign-up bonus for customers who spend $4,000 in the first three months. The points are worth $1,500 in travel booked through Chase’s website. The cards, which carry a $450 annual fee, were in such demand shortly after the launch that the bank temporarily ran out of the metal it uses to make them.

JPMorgan, the biggest U.S. credit-card lender, is expected to post about $5 billion in profit this quarter, according to the average estimate of analysts in a Bloomberg survey.

Increased Marketing

JPMorgan won’t break even on its investment in the Sapphire Reserve card for 5 1/2 years, according to an analysis by Sanford C. Bernstein & Co.  

“Lucrative sign-up bonuses give an issuer an opportunity to acquire a large number of customers in a short period of time, though we question whether the type of consumer this attracts leads to a less profitable card product in the long run,” the Bernstein analysts, led by Kevin St. Pierre and John McDonald, said in their note to clients last month.

Banks have boosted investment in premium credit cards as stubbornly low interest rates crimp profits in other business lines, escalating a years-long rewards war.

American Express Co., the biggest credit-card issuer by customer spending, expects marketing costs to rise by more than 10 percent in 2016, Chief Executive Officer Ken Chenault said Tuesday at the same investor conference. The lender recently expanded rewards for platinum cards and launched its largest-ever rewards program to persuade more small businesses to accept American Express cards.

“These investments are each focused on sustainable growth,” Chenault said. “We expect them to generate good economic returns and to provide us with solid momentum as we move into 2017.”