Jamie Dimon, chief executive officer of JPMorgan Chase & Co.
Giulia Marchi | Bloomberg | beautiful pictures
Bank are one of the main beneficiaries of recent high inflation as their profit margins tend to expand when prices are higher. force central banks to increase interest rates.
At least, that’s the thinking as investors buy bank stocks while interest rates rise and inflation hits multi-decade highs. Now, megabanks include JPMorgan Chase and Citigroup revealed that hot inflation in one area – employee wages – is casting a shadow over the next few years.
JPMorgan shares fell more than 6% on Friday after the bank speak that costs will increase 8% to about $77 billion this year, driven by wage inflation and technology investment. According to Chief Financial Officer Jeremy Barnum, the higher costs will likely push the bank’s profits in 2022 and 2023 below recent results and the lender’s 17% return on capital target.
“We have seen somewhat increased attrition and a very dynamic labor market, as the rest of the economy is witnessing,” Barnum said. “It is true that the labor market is tightening, there is a bit of labor inflation, and it is important for us to attract and retain the best talent and pay competitively.”
The development adds nuance to bull case to own banks, which often outperform other sectors in an environment of rising rates. While economists expect the Federal Reserve to raise interest rates three or four times this year, boosting the financial sector, there is a risk that runaway inflation could actually wipe out those gains, according to Barnum.
“On balance, modest inflation leading to higher rates is good for us,” the chief financial officer told analysts during a conference call. “But in some scenarios, increased inflationary pressures on costs could offset the benefits for the exchange rate.”
Citigroup Chief Financial Officer Mark Mason said on Friday that there is “a lot of competitive pressure on wages” as banks jostle for talent amid a boom in deals and trading activity.
“We’ve seen some pressure on what people have to pay to attract talent,” Mason said. “You’ve even seen it at some of the lower levels, I should say entry levels in the organization.”
At JPMorgan, the largest US bank by assets, it’s the professional class of banking in particular – tellers, investment bankers and wealth managers – who have increased their salaries after two years of strong performance in a row. The company also increased salary at branch last year.
“There’s a lot of compensation for top bankers, traders and managers, who I should say have done an extraordinary job over the past few years,” said Chairman and CEO. Jamie Dimon told analysts on a conference call. “We’re going to be competitive on salary. If that reduces profits a bit for shareholders, so be it.”
Dimon said that while overall inflation “hopes” to start to decline this year as the Fed kicks in, “wage, housing, and oil increases are not transient, they will continue to rise for a long time.” time.”
In fact, Dimon told analysts that wage inflation will be a recurring theme among corporations this year. Some companies will navigate change better than others, he said.
“Please don’t say I’m complaining about wages; I think rising wages are good for people with rising wages,” Dimon said. “Executives shouldn’t be the type to talk about it. They should just deal with it. It’s your job to serve your customers as best they can with all the outsiders.”
