For someone who turned in his best quarter ever, JPMorgan Chase chief Jamie Dimon is worried. About the pandemic in the near-term. And fintech upstarts in the longer term.
The market doesn’t seem to be too concerned, and beaten-down bank stocks are perking up. The banking industry’s shares were slammed during the onset of the pandemic market last year. But the KBW Nasdaq Bank Index is almost back to its level a year ago, before the coronavirus roiled the US and global economies.
The same is true for JPM’s shares, helped by the rebound from its profit slump early last year. All the big banks’ stocks should be buoyed by the Federal Reserve’s go-ahead order to resume stock buybacks and dividend increases.
JPM reported record earnings were $12.1 billion for the fourth quarter, which handily exceeded analysts’ projections. The largest US bank by assets ($2.89 trillion), it benefited from a surge in deposits from thrifty shut-in Americans, a plus enjoyed by its competitors, too.
Nevertheless, Dimon indicated that the economy’s recovery remains fragile, which could affect demand for loans, a bank’s core profit generator. Although JPM and the others have repatriated some of the reserves they stockpiled last year against a possibly horrendous economic crash ($2.9 billion in JPM’s case), Dimon said he was cautious. His bank still has some $30 billion in the reserve account.
This vast stash, he said in the earnings release, “continues to reflect significant near-term economic uncertainty and will allow us to withstand an economic environment far worse than the current base forecasts by most economists.” He did point out that the vaccine rollout has spurred hope that the economy will be “healthy” come summer.
Beyond that, what bothers him is increased competition from the digital payments industry, which he said has an unfair advantage. Companies such as PayPal, Square, Chime, and Plaid have been doing a great business in this arena, which big banks used to dominate.
These fintech rivals have partnered with smaller banks to offer debit cards along with checking accounts with lower fees. They also have programs that permit customers to receive their paychecks a few days early.
These outfits charge big fees for debit-card swipes that banks like JPM are forbidden by law from charging. The law limits fees that banks with more than $10 billion in assets can impose.
The difference is stark. For companies exempt from the limit, fees amount to 54 cents per transaction. JPM and its Goliath ilk are capped at 22 cents.
“There are examples of unfair competition, which we will do something about eventually,” Dimon said during a call with analysts.
“Absolutely, we should be scared s—less about that,” he added. “As you look at what we’ve done, you’d say we’ve done a good job, but the other people have done a good job, too.”