From fintech competition to M&A plans, here are 4 things JPMorgan analysts are keeping an eye on

  • JPMorgan, the largest US bank by assets, reports Q1 earnings April 14.
  • Analysts will be watching how growth in credit cards and wealth management is shaping up. 
  • Analysts are also interested in how the bank will invest in fintech to compete with payments startups.
  • See more stories on Insider’s business page.

Big bank earnings season kicks off this week, and analysts are expecting a strong quarter for JPMorgan.

The firm will report its first-quarter earnings on April 14. In notes to clients and interviews, analysts say they’re optimistic about how things are shaping up for the top US bank by assets. 

Big banks have held up relatively well during the last year, staving off the massive wave of layoffs, unemployment, and loan losses that befell them during the 2008 financial crisis.

Although results for the fourth quarter and last year’s Q1 were tough thanks to higher loan-loss provisions, lower fee-based revenue, and a less favorable interest-rate environment, watchers say there are plenty of reasons to be optimistic now. That’s because the credit outlook has likely improved, and businesses like investment banking and trading should be strong. 

“JPMorgan is a juggernaut in the sense that most banks move three steps forward, then two steps back, but it moves three-and-a-half steps forward and only one-and-a-half steps back,” said Chris Kotowski, managing director and senior analyst at Oppenheimer. “It’s a really impressive organization, and it’s not a one-trick pony. There are a lot of great businesses there.”

Still, analysts will be looking closely at JPMorgan’s plans to grow its credit-card and wealth management businesses; its technology investments; and any hints on CEO Jamie Dimon’s succession plans. Here are four things they’re keeping an eye on. 

The outlook for JPMorgan’s credit-cards business 

JPMorgan executives have talked about continuing to build the firm’s cards business, no small feat when credit-card spending volume is generally down significantly. 

JPMorgan was the top credit card issuer last year based on sales and outstanding balances, according to its 2020 Annual Report. The bank did $703 billion in credit card sales in 2020, but that was down from $763 billion in 2019.

And from the perspective of a bank, people paying back credit card bills quickly can be a drag on performance. 

Jennifer Piepszak, JPMorgan’s chief financial officer, said in last quarter’s earnings call that credit-card payment rates were “quite extraordinary” and “certainly a risk for us if they remain elevated.” Still, she said she expected to see loan growth pick up in the second half of 2021.

Oppenheimer’s Kotowski said that credit spreads remained tight, which signals a high confidence that borrowers will continue to pay back their credit-card loans.

“Banks make their money by lending money, but this isn’t uncontrolled loan losses, just that people aren’t traveling and eating out, so they’re borrowing less money and paying less to banks on credit cards,” he said.

UBS analyst Saul Martinez told Insider in January that JPMorgan has “consistently been taking market share” and that the bank has been successful in selling banking products to card customers.

The bank will be issuing grocery-delivery service Instacart’s upcoming credit card and is also bidding on food-delivery service DoorDash’s upcoming card, the Wall Street Journal first reported. The deals come as banks look to branch out beyond travel-focused rewards cards. 

What’s next for wealth management 

Like many rival banks, JPMorgan has pegged wealth management as an area where it wants to get bigger. Analysts and executives alike have said the business’ relatively capital-light nature and consistent fees are attractive. 

JPMorgan has reorganized its wealth operations under one roof, and appointed former marketing chief Kristin Lemkau as CEO of its US wealth management business.

RBC Capital Markets analyst Gerard Cassidy told Insider that rising markets should help the performance of JPMorgan’s wealth and asset management businesses alike.

“The hard part will be, well, where do we go from here?” Cassidy said.

Future M&A will likely be a question. Cassidy noted bank leadership has said in the last year that it is interested in growing through a money-management acquisition — a topic analysts have brought up on recent earnings calls.

The bank’s asset management arm late last year acquired 55ip, a fintech startup that helps financial advisors cut down on taxes for their clients, and according to a Financial Times report lost out last year to Morgan Stanley in a bid for asset manager Eaton Vance. 

Asset management and wealth management generated revenues of $7.7 billion and $6.6 billion last year, respectively. The wealth business oversees some $580 billion in assets under supervision, the bank said in a March 26 press release. 

Dimon has said he’s ‘scared sh*tless’ by fintechs — what are JPMorgan’s plans to battle the threat?

Fintechs have taken the world by storm, and the industry has evolved tenfold in the last decade. Startups used to take aim at one piece of a bank, like trading or checking accounts, and then build a digital alternative.

Now, fintech is evolving and some tech companies are becoming one-stop shops. At the end of 2020, valuations at companies including PayPal ($280 billion), Mastercard ($322 billion), Alibaba ($658 billion), Facebook ($715 billion), Google parent Alphabet ($1.2 trillion), and Apple ($2.1 trillion) — were nearing or surpassing JPMorgan’s market cap. 

“Absolutely, we should be scared sh*tless about that,” Dimon said during the bank’s fourth-quarter earnings call.

David Konrad, senior analyst at D.A. Davidson, told Insider that a lot of the innovation in the space has been on the payments side, and while banks overall have lost their share of the pie, the pie is growing, which means opportunities to compete and to collaborate.

“This ecosystem can work together in the sense that fintech payments companies have had to partner with banks to get help on the liquidity and lending side and to tie into depository franchise where they otherwise wouldn’t have access,” he said. “JPMorgan is seeing a fintech threat coupled with extraordinarily large earnings and are accelerating investments into the franchise. They’re better positioned than anyone in the industry.”

Dimon said on last quarter’s call he was confident JPMorgan could compete but that the firm is now facing a generation of “newer, tougher, faster competitors” that will work with competitors if they don’t secure a relationship with the bank. 

“I expect it to be very, very tough, brutal competition in the next 10 years. I expect to win, so help me God,” he said.

Dimon’s retirement and succession planning remain big questions

Dimon’s eventual retirement — as well as who his successor will be — has been the subject of intense speculation for years. The oldest CEO of a big Wall Street bank turned 65 in March and had a serious health scare last year. Dimon has said on multiple occasions he’s within a few years of retiring but hasn’t announced any concrete plans.

“Succession is always in the background, but he shows every sign of liking his job, so I don’t know,” Oppenheimer’s Kotowski said. He added that while there are plenty of internal candidates capable of taking the reins when the time comes, some, like co-president and COO Gordon Smith, are close to Dimon in age, making plans trickier to figure out as time passes.

Still, the firm’s consistent success has lessened some of the anxieties that can come with a big leadership change, Kotowski said. 

In the interim, analysts have coaxed bank executives for more details. Richard Ramasen, a Goldman Sachs analyst, asked Dimon in December what he’d want to see in a successor and what advice he’d pass on.

“You want to work for people you respect,” Dimon said at the time. “You want to work for people that have a little humility to know that I don’t know everything that you know.”

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