America’s largest bank JPMorgan delivers good news

JPMorgan held its first investor conference since 2020 — providing new forecasts and reassuring investors that it would hit its profitability target — sending its stock up 6% yesterday.

What’s the big deal? JPMorgan is seen as one of the strongest American banks with higher profitability and a stronger balance sheet.

But after outperforming other big banks for over a decade, JPMorgan’s status is in question. Earlier this year, the bank:

• Said it would likely miss its 17% target return on shareholder investments — due to rising costs.
• Forecasted full-year expenses to grow by 8% — with increased investments in tech.

JPMorgan’s investment scope was vague — and analysts were unhappy with “front-loaded spending for less certain back-ended benefits,” per bank analyst Mike Mayo (CNBC).

CEO Jamie Dimon has a history of delivering investment returns — but investments in tech are harder to measure.

Damage control: At yesterday’s investor conference, JPMorgan came out with a bang to reassure investors:

• Dimon said its 17% target return on tangible common equity (ROTCE) “remains our target and may be achieved in 2022.”
• The ROTCE is an important metric that measures how profitable a bank uses its investors’ money.

Dimon wants investors to have faith in his capital allocation decisions — “we have always earned good returns while making investments.”

Rate impacts: Rising rates were supposed to benefit bank stocks. Instead, recession concerns and losses from Russian exposure became the driving forces.

• But rising interest rates may start to give banks some help. Yesterday, JPMorgan forecasted $56B in net interest income — above its previous $50B forecast.

JPM is down 26% this year — falling further than the S&P 500 Financials Sector Index. Like many other industries, the fate of the financial sector rests in the geopolitical tensions easing — and inflation calming.