Jamie Dimon says CEOs “should not cry over it”

Jamie Dimon, CEO of JPMorgan Chase & Co.

Giulia Marchi | Bloomberg | Getty Images

Banks have been one of the main recipients of high inflation recently because their profit margins tend to expand when higher prices force central banks to raise interest rates.

At least that was the idea when investors bid on bank shares while prices rose and inflation peaked for decades. Now, mega-banks, including JPMorgan Chase and Citigroup, are revealing that hot inflation in one area – employee wages – is casting a shadow over the next few years.

Shares of JPMorgan fell more than 6% on Friday after the bank said spending would rise 8% to about $ 77 billion this year, driven by wage inflation and technology investment. Higher spending is likely to push the bank’s returns in 2022 and 2023 below recent results and the lender’s target for return on capital of 17%, according to CFO Jeremy Barnum.

“We have seen a somewhat elevated attrition and a very dynamic labor market that the rest of the economy is seeing,” Barnum said. “It’s true that labor markets are tight, that there is a little bit of labor inflation, and it’s important for us to attract and retain the best talent and pay competitively.”

The development adds nuances to the bull case of owning banks, which typically outperform other sectors in rising interest rates. While economists expect the Federal Reserve to raise interest rates three or four times this year, boosting the financial industry, there is a risk that runaway inflation could actually wipe out those gains, according to Barnum.

“Overall, modest inflation leading to higher interest rates is good for us,” the CFO told analysts in a conference call. “But under some scenarios, increased inflationary pressures on spending could more than offset interest rate benefits.”

Citigroup CFO Mark Mason said on Friday that there was “a lot of competitive pressure on wages” as banks struggled for talent amid the boom in trading and trading activity.

“We’ve seen some pressure in what one has 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 in terms of assets, it is especially the bank’s professional class – trading staff, investment bankers and asset management staff – who have seen wages rise after two years in a row with strong results. The company also raised wages in the branches last year.

“There’s a lot more compensation for top bankers and traders and executives who, I must say, have done an extraordinary job in the last few years,” Chairman and CEO Jamie Dimon told analysts during a conference call. “We want to be competitive in wages. If it pushes margins a little bit for shareholders, then so be it.”

Dimon said that while overall inflation “hopefully” would begin to fall this year as the Fed gets to work, increases in “wages and housing and oil will not be temporary, they will remain high for a while.”

In fact, Dimon analysts said wage inflation would be a recurring theme among companies this year. Some companies will navigate the change better than others, he said.

“Please do not say I’m complaining about wages; I think wages are rising is a good thing for the people who are causing wages to rise,” Dimon said. “CEOs should not be crying over it. They just need to take care of it. The job is to serve your client as best you can with all the factors out there.”

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