JPMorgan eyes $1.4 billion in cost savings in 2015

Savings to come from consumer, investment banking

JPMorgan Chase & Co said on Tuesday it aims to save about $1.4 billion in annual expenses, mainly in consumer and investment banking, as a proposed government requirement to hold more capital is expected to pinch profits.

The largest US bank by assets expects expenses in 2015 to fall to roughly $57 billion from $58.4 billion in 2014, JPMorgan said at its annual investor day. Shares rose 2.5% to $60.82, reaching their highest since the beginning of January.

JPMorgan is looking to lower expenses by $2.8 billion in its investment bank, excluding legal costs, and by about $2 billion in its consumer bank. Some savings will be offset by investments elsewhere in the company.

Just over half the investment banking expense reductions will come from simplifying businesses, but JPMorgan will also look to cut technology and operational costs in that division by $1 billion and front-office personnel costs by $300 million.

Daniel Pinto, chief executive for JPMorgan's corporate and investment bank, told Reuters that personnel cost cuts will come from job cuts and pay cuts. The bank has not yet determined how many jobs will be eliminated, he said.

"We are working through the process," Pinto said on the sidelines of the conference at the company's headquarters on Park Avenue.

It has become easier for JPMorgan to pay its market employees less and still compete with rivals because trading revenues have been shrinking across the industry, he added.

The changes are necessary because of weak revenue and higher regulatory burdens on the investment bank. "You have no choice," Pinto said.

New information systems will help lower tech costs by reducing the time needed to process trades and other transactions, Pinto said.

Chief Executive Jamie Dimon told analysts the latest cost cutting is in line with continuing efforts to keep a lid on expenses. But some analysts said they left the conference believing Dimon and his lieutenants are pushing harder than ever.

"It feels as though they are turning up the intensity on efficiency" after three years of no real progress reducing costs relative to revenue, CLSA analyst Mike Mayo said.

The new $2.8 billion target for reducing costs in corporate & investment bank "is a big number," said Mayo. He said JPMorgan must act aggressively because more investors are asking whether the bank should be split up if it cannot deliver expected savings.

In a presentation, finance chief Marianne Lake said that if JPMorgan split itself into two, it would have to duplicate its finance, risk, and audit divisions, among others, at great expense.

Regulators have insisted that larger and more complex banks hold more capital to cushion against potential losses that could destabilise the financial system. To prevent higher capital requirements, executives said the bank will shed up to $100 billion of non-operating deposits, extra cash clients keep in accounts.

CHECKING BILLS

Executives gave more details about how JPMorgan has been achieving its goal, disclosed last year, of eliminating $2 billion of retail bank expenses. For instance, the bank took out 20,000 phone lines that were not being used, said Gordon Smith, chief executive over branch banks, cards and mortgages. Hotel nights were reduced 25% and use of "black car" transportation was cut 40%, Smith said.

It cut 23,200 jobs from the retail bank in 2014, about 7,000 more than its originally announced goal. The company plans to eliminate 300 of its 5,600 branches by the end of 2016. JPMorgan had been adding branches through 2013 as rivals backed away.

Staffing of branches has gone from a peak of about 60,000 people in 2011 to 46,000 in 2014.

Separately, the bank said in a regulatory filing that the US Department of Justice has questioned it about potentially discriminatory auto lending practices.