JPMorgan Chase’s quarterly profit dropped 14% despite a bonanza of investment-banking fees, as trading revenue dropped and payroll costs surged amid a talent shortage on Wall Street.
Chief financial officer Jeremy Barnum said the bank was facing “headwinds” as the stock- and bond-market volatility of 2020 stabilizes, thereby hurting trading revenues. But he also singled out the cost of retaining employees as bankers increasingly job hop and demand fatter bonuses.
“It is true that labor markets are tight, that there’s a little bit of labor inflation, and it’s important for us to attract and retain the best talent,” Barnum said on a conference call with reporters.
The comments come as major banks have hiked salaries to record levels this year as the war for talent reaches a fever pitch. The boom in deals has pushed investment banking revenue higher but also led to major burnout among analysts and associates.
JPMorgan said its operating costs jumped 11% last year to $17.9 billion as the bank doled out heftier salaries.
On Friday morning, the nation’s biggest bank reported a fourth-quarter profit of $10.4 billion or $3.33 a share — beating analysts’ expectations of $3.01 a share, according to data from FactSet.
In the fourth quarter, JPMorgan’s investment bank was once again the star of the show. Advisory fees jumped 37% as dealmaking, IPOs and M&A remain hot.
Asset and wealth management profits rose 18%, stemming in part from an increase in assets under management. Trading revenue — which soared amid the pandemic-related uncertainty — dropped 13%.
“The economy continues to do quite well despite headwinds related to the Omicron variant, inflation and supply chain bottlenecks,” Dimon wrote in the press release. “Credit continues to be healthy with exceptionally low net charge-offs, and we remain optimistic on US economic growth.”
JPMorgan was also hit with a $200 million fine in the fourth quarter after admitting it failed to archive employee messages about work-related matters. For years, JPMorgan employees — from analysts to top directors — used personal devices to discuss company matters and failed to keep the communications.
JPMorgan stock was recently off 5.5% at $159.16 in midday trading Friday.
Even as profits slumped in the final quarter, JPMorgan still reported a record year — raking in $48.3 billion in 2021. JPMorgan’s pre-pandemic record was $36.4 billion.
JPM’s record profits in 2021 stemmed in part from the fact the bank released $9 billion it had set aside in 2020 to prepare for potential loan defaults by businesses struggling during the pandemic.
“As we have said before, however, we do not consider these scenario-driven releases core or recurring profits,” hard-charging chief executive officer Jamie Dimon has previously stated.