JPMorgan To Slash 17,000 Jobs With Eye On $27.5 Billion Income Target For 2014

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Quick Take

  • JPMorgan is aiming for a 30% jump in profit by the end of next year
  • The action plan includes an organization-wide growth strategy to expand the scope of banking services the bank’s divisions currently provide
  • At the same time, JPMorgan is looking to cut down its employee base by up to 17,000 by end-2014 – a move that is based on the shifting customer preference from branch-based to Internet-based banking

The top management at JPMorgan Chase (NYSE:JPM) strongly believes that the country’s biggest banking group could easily generate annual profits in excess of $27.5 billion over the coming years. This figure compares to the $21.3 billion in net income the bank reported for 2012, with the $6 billion increase expected from a reduction in litigation expenses, an improvement in net interest margins, an increase in presence across services worldwide, and most importantly from a marked reduction in total workforce. [1] Working with a two-year roadmap, the bank will make significant cuts in its mortgage banking and consumer banking business while it will make modest additions to its employee base in commercial banking, investment banking and credit card business for a net reduction of as many as 17,000 jobs. [2]

We maintain a $48 price estimate for JPMorgan’s shares, which is around the current market prices.

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The Overall Plan Is To Increase Revenues Through Growth In Operations Across Businesses…

JPMorgan’s growth plan hinges on an increase in reach, which the bank plans to achieve by continuing to expand its branch and ATM network. It must be mentioned here that JPMorgan is the only major financial institution that has added new branches in recent years, even as competitors like Wells Fargo (NYSE:WFC) (which has the country’s widest branch network), Bank of America (NYSE:BAC) and Citigroup (NYSE:C) shut down or sell branches in less-profitable regions. As the number of branches increase, it has a direct impact on the amount of deposits held by JPMorgan – providing the banking group with a cheap source of funds. This in turn will help the bank’s net interest margins going forward.

JPMorgan will also focus more on cross-selling its products and services, with new and existing branches trying to win more business in more profitable offerings like wealth management.

… While Cutting Down On The Number Of People Needed To Get The Job Done

A growth in revenue doesn’t necessarily mean an increase in operating expenses. In fact, going by what JPMorgan believes, the banking group is in a position to grow revenues while actually cutting down on the number of people it employees. The ax will fall hardest on the mortgage business, which will see a reduction in strength by a number between 13,000 and 15,000 – mostly from the mortgage servicing unit, which has swelled since 2008, initially in response to the wide number of defaults following the recession and then due to the huge demand for loan modifications in the low interest rate environment. [3]

The bank will also do away with about 6,000 tellers across its retail banking operations, as the increased use of ATMs and internet banking for day-to-day services has made this job redundant.

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Notes:
  1. Firm Overview, JPMorgan Presentations, Feb 26 2013 []
  2. JPMorgan to cut up to 17,000 jobs by end of 2014, Reuters, Feb 26 2013 []
  3. JPMorgan Mortgage, Community Units to Lose Up to 19,000 Jobs, Bloomberg, Feb 26 2013 []
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