JPMorgan is one of the world's biggest banks. It has millions of global customers, generating over $125 billion in revenue from interest and fees annually. The company's success has led to its shares climbing 900% since the lows during the Great Financial Crisis in 2009, and the company's $436 billion market capitalization makes it the largest publicly-traded bank in the United States.
The bank's size makes it essential to pay attention to what its management says. Especially, when its CEO, Jamie Dimon, is doing the talking.
Dimon is considered one of the best bank executives on the planet. His industry experience and influential connections give him valuable insight into what could happen next in the banking industry. On July 14, he weighed in on how regulation may impact customers. It may not make them happy.
JPMorgan Delivers Upside Profits
The company revealed its latest quarterly financials on July 14. The numbers were impressive, considering economic uncertainty, strained consumer budgets because of inflation, and slower loan demand because of higher interest rates.
JPMorgan's revenue rose 34% to $41.3 billion in the second quarter, and its earnings per share increased by 58% to $4.37. The figures outpaced Wall Street analysts' expectations of $38.9 billion and $3.80 per share.
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The solid performance was supported by rising interest income. The company produced $21.8 billion in net interest income on $1.3 trillion in total loans.
Banking Costs Could Be Heading Higher
During the company's earnings conference call, Wall Street analyst Michael Mayo noted that the Federal Reserve's head of bank regulation recently suggested stricter regulations may be coming for the nation's biggest banks, including JPMorgan. Mayo asked CEO Jamie Dimon and CFO Jeremy Barnum what the bank may do if that happens.
The responses were telling, and potentially bad news for JPMorgan's customers.
"This is great news for hedge funds, private equity, private credit, Apollo, Blackstone, and the gas industries," said Dimon. "They’re dancing in the streets.”
Barnum explained that more strict capital requirements may result in higher prices, interest, or fees, or the bank exiting certain businesses altogether.
"To the extent that we have pricing power and higher capital requirements, meaning that we're not generating the right returns for shareholders, we will try to reprice, and we'll see how that sticks and how that flows into the economy and how that affects demand for products, said Barnum. "If the repricing is not successful, then in some cases, we will have to remix, that means getting out of certain products and services."
If customers balk at potential price increases from more onerous regulatory requirements and JPMorgan abandons certain businesses, other unregulated entities, such as private equity firms Apollo Global (APO) -) and Blackstone (BX) -), could step in with even pricier solutions, boosting their sales and profits.
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Of course, this isn't the first time banks like JPMorgan have had to navigate stricter regulation because of economic shocks. Regulatory requirements became more stringent after the Great Financial Crisis took a toll on the industry. Big banks, including JP Morgan, continued to benefit, but so did other entities. Dimon seems to think a similar scenario could play out again.
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