Exclusive: JPMorgan presses managers to cut costs as profits fall

Wed Jan 14, 2015 5:25pm EST
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By David Henry

NEW YORK (Reuters) - Senior executives at JPMorgan Chase & Co (JPM.N: Quote) are pressuring managers across the bank to cut costs, after disappointing revenue growth has hurt profits, a person familiar with the matter told Reuters on Wednesday.

The bank might implement specific expense goals for businesses, the source told Reuters, adding, "Everyone is having to give at the office on this." JPMorgan said it expects to disclose more about its cost-cutting efforts on Feb. 24, when it hosts its investor day.

On Wednesday, JPMorgan posted a 3 percent decline in revenue, but only a 1 percent decline in non-interest expense, resulting in its overall income dropping by 7 percent. Those results were disappointing enough to investors to pull the company's shares down 3.45 percent.

Even excluding $1.1 billion of legal expenses the bank recorded in the quarter, it spent 61 percent of its revenue on expenses, a ratio known as its "efficiency ratio." For all of 2014 expenses were 60 percent of revenue, compared with 59 percent in 2013.

Chief Financial Officer Marianne Lake said in a conference call with analysts to discuss the results that the company expects expenses to be only 55 percent of revenue over the medium term.

JPMorgan's trouble with expenses raises questions about its size, at a time when regulators are creating harsher rules for the biggest U.S. banks, and some analysts are wondering whether big banks should be broken up.

"The last three years JPMorgan's efficiency has stalled out," said analyst Mike Mayo of CLSA. "Investors might be OK with JPMorgan's size it if can show the benefits. If they can't, then let's talk about shrinkage and breakup."

JPMorgan executives said on Wednesday that they just need more time. The bank has met its targets for cost savings in absolute dollar terms, but those have not been enough to stay ahead of falling revenues. CFO Lake said the company would see its cost-cutting efforts pay off in 2016 and 2017 and she promised to give details on Feb. 24.   Continued...

A sign outside the headquarters of JP Morgan Chase & Co in New York, September 19, 2013. REUTERS/Mike Segar