Jamie Dimon, CEO of JPMorgan Chase & Co.
Julia March | Bloomberg | Getty Images
At least, that’s how investors are pumping up bank stocks amid rising interest rates and inflation at multi-decade highs.Large banks now include JPMorgan and Citigroup It is being revealed that high inflation in one area – employee wages – is casting a shadow over the next few years.
JPMorgan shares fell more than 6% on Friday Say Spending will rise 8% this year to about $77 billion, driven by rising wages and investment in technology. Chief Financial Officer Jeremy Barnum said higher payouts could see the bank’s returns in 2022 and 2023 fall short of recent performance and the bank’s 17% return on capital target.
“As the rest of the economy has seen, we’ve seen some increased attrition and a very active labor market,” Barnum said. “The labor market is really tight and the labor force is a little bit inflationary, attracting and staying. It’s important to us to have the best talent and a competitive salary.”
Development adds nuance bull case For owned banks, these banks generally outperform other industries in an environment of rising interest rates. While economists expect the Fed to raise interest rates three or four times this year to boost the financial sector, runaway inflation could actually wipe out those gains, Barnum said.
“Overall, moderate inflation that drives rates higher is in our favor,” the chief financial officer told analysts on a conference call. “But in some cases, rising inflationary pressures could offset the benefits of interest rates.”
Citigroup Chief Financial Officer Mark Mason said on Friday there was “a lot of competitive pressure on wages” as banks scrambled for talent amid a boom in deals and deal activity.
“We’ve seen some of the pressure it takes to attract talent,” Mason said. “You’ve even seen it at some of the lower levels, I should say the entry level in the organization.”
At JPMorgan, the largest U.S. bank by assets, especially the bank’s professional class — traders, investment bankers and asset management staff — saw pay rises after two years of strong performances.The company also raised wages branch last year.
“For the top bankers, traders and managers, I should say they’ve done a fantastic job over the past few years and they’ve been paid a lot more,” chairman and CEO Jamie Dimon told analysts on a conference call. “We’re going to be competitive on pay. If that squeezes shareholder profits a little bit, so be it.”
Dimon said that while headline inflation is “on track” to start falling this year as the Fed starts to work, “the gains in wages, housing and oil are not temporary and will remain elevated for some time.”
In fact, Dimon told analysts that wage inflation will be a recurring theme for businesses this year. Some companies will respond to change better than others, he said.
“Please don’t say I’m complaining about wages; I think wage hikes are a good thing for the people whose wages are going up,” Dimon said. “CEOs shouldn’t laugh or cry about it. They should handle it. The job is to serve your customers as best they can, given all the factors.”