JPMorgan Chase & Co (JPM.N) plans to use size to its advantage, leveraging its various components to boost annual earnings more than 25 percent over time, bank executives said on Tuesday.
At the banking company's investor day, Chief Financial Officer Doug Braunstein said JPMorgan was targeting $24 billion in annual net income, up from the $19 billion it earned last year.
"I'll be damned if we don't have record profits at least for a while now," Chief Executive Officer Jamie Dimon said in closing remarks at the conference.
Even though JPMorgan fared better than many of its peers during the financial crisis, Dimon is still under pressure to show how the bank can grow revenue in a tepid economic environment and increased regulatory requirements for large banks.
Although the bank's shares have done better than other global banks, the stock is trading just pennies more than it was in 2004, when Dimon joined the company after it took over Bank One Corp where he was previously CEO. Over the same period, Standard & Poor's 500 stock index is up about 22 percent.
Dimon, however, disagreed with arguments from analyst Mike Mayo of CLSA that the company should consider breaking itself up to boost its low stock price. If JPMorgan is best in breed, perhaps the large bank breed is not so good, Mayo wrote in a research note last week.
"My guess is the company will be far more valuable ... doing what we do today for 10 years than by splitting it up into a bunch of different pieces," Dimon said. "I can't imagine that the units of this company would perform better as part of a smaller company."
Responding to the idea of splitting the company to boost the stock price, the CEO noted that financial engineering schemes often do not work well for shareholders.
"If financial engineering would add a lot of value, we would consider it, but it has to be real and it has to be permanent," he said.
Even as investors clamor for improvement, Dimon said he doesn't mind if the bank's stock trades at current levels, at least for a while. That is because he wants time to buy back more shares at market prices he considers low.
Dimon would not say exactly what that price was, but noted the company recently bought a lot of shares at $36 each, which is not far below current prices.
Last year, the company spent about $9 billion buying back shares. Dimon hopes to win approval for more buybacks from regulators next month after the current round of capital stress tests are completed.
Dimon also said he was in no hurry to sharply raise the company's stock dividend because it could push up the stock price. Rather than pay out extra cash, Dimon would be more inclined to use the money to build up the bank's capital cushion toward new minimums put in place by bank regulators.
The bank's shares rose 0.4 percent to close at $39.21 on Tuesday, rising slightly less than the stock of other large banks.
ACQUISITIONS NOT EXPECTED
Throughout the day, a parade of executives armed with PowerPoint slides argued the bank's scale gives it advantages over competitors.
Jes Staley, head of the investment banking unit, said the bank's diversified portfolio was an important source of strength during the financial crisis. Last year, clients of the commercial banking arm of the company used the investment bank for financing 147 times in the debt markets and 77 times in the equity markets, generating $1.4 billion in revenue, Staley said.
The asset management business picked up 41 high net worth clients for private banking from the investment bank and the private bank referred 71 clients to the investment bank, Staley said.
Investment banking revenue for JPMorgan grew faster and with less risk, in the past three years than for peers, partly because of the company's size, Staley said. JPMorgan's share of debt market revenue last year was an industry high 17 percent, Staley said.
Dimon also said the bank's scale will help it cope better with additional costs of complying with requirements for thicker capital cushions. Some of those will actually provide JPMorgan with additional protection against upstart competitors, said Dimon, who remains one of the most outspoken critics of regulations adopted since the financial crisis.
Braunstein conceded, however, that the company would need to do more to achieve its $24 billion target. He identified the need for nearly $1 billion in income from growth efforts, including branch expansion, commodities products and international growth.
But Dimon and Braunstein said the company will not be making acquisitions any time soon. Takeovers would run into political opposition because during the crisis the government had to bailout large banks that collapsed.
In addition, executives will need help from lower costs to meet profit goals. Last year, lingering expenses for bad home loans and mortgage securities created before the housing bust cost the company about $5.5 billion in after-tax profits.
The bank expects to keep overall expenses flat in 2012, even as it invests in select businesses, Braunstein said. One area where the bank expects to trim expenses during the year is mortgage loan servicing, where delinquent loans are declining.
JPMORGAN TESTING SELF-SERVICE TELLERS
Among growth initiatives, JPMorgan has identified 900 new branch locations it could build, with a focus on California and Florida, said Todd Maclin, head of consumer banking and business banking. But he cautioned the bank will be "super careful" in deciding how many it actually builds.
In its latest plan, the bank expects to add 150 to 200 branches per year, Maclin said, down from the 300 per year outlined at last year's investor day, but in line with a projection made in December. JPMorgan currently has 5,500 locations, behind Wells Fargo & Co's (WFC.N) 6,200 and Bank of America Corp's 5,700 (BAC.N).
At the same time that the company is continuing to build branches, it is also seeing a surge in customers using their computers for banking. Chase's online site is used five times as frequently as its branches now, said Gordon Smith, a senior executive leading the bank's digital push.
While that might suggest branches are becoming obsolete, Smith said the online use bodes well for the investments in advanced teller machines in the branches and other moves to use technology to cut branch costs. The bank's digital channel began to take hold with customers in 2010 and "is going to see explosive growth," Smith added.
The bank is testing self-service teller stations in six locations in a drive to lower costs and speed up traditional teller lines. The stations perform ATM functions as well as additional services, such as check cashing. The test is in an early stage and the bank will be careful not to "jam it down the throats" of wary customers, Maclin said.
(Reporting By David Henry in New York and Rick Rothacker in Charlotte, N.C.; writing by Ben Berkowitz; editing by Lisa Von Ahn, Matthew Lewis editing by Andre Grenon)