J.P. Morgan Targets Higher Returns on Equity



Targets 15% return on equity in three years

As we saw in the last article, J.P. Morgan’s (JPM) return on equity, or ROE, is lower than Wells Fargo’s (WFC) or that of a smaller bank like US Bancorp (USB). Meanwhile, it’s higher than Bank of America’s (BAC) and Citigroup’s (C) ROE.

One of the bank’s key objectives is to improve its ROE to ~15% over the next three years.

The table above shows the firm’s ROE targets by segment. J.P. Morgan also aims to earn ~$30 billion in net income over the next three years.

The firm expects core loan growth of approximately 10% in 2015. If favorable credit trends continue, total net charge-offs are expected to remain low in 2015. The firm expects a reduction in the consumer allowance for loan losses over the next two years.

J.P. Morgan forms ~7.3% of the Financial Select Sector SPDR ETF’s (XLF) portfolio.

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Consumer and Community Banking

In Consumer and Business Banking—within Consumer and Community Banking—the firm expects continued spread compression in the deposit margin and a modest decline in net interest income in the first quarter of 2015.

In Mortgage Banking, the firm expects quarterly servicing expense to decline by the second quarter of 2015, as default volume continues to decline.

In Card Services, the revenue rate in 2015 is expected to remain at the low end of the target range of 12% to 12.5%.

Corporate and Investment Bank

In Corporate and Investment Bank, Markets revenue in the first quarter of 2015 will be impacted by the firm’s business simplification initiatives that were completed in 2014. This will result in a decline of approximately 10% in Markets revenue. It will also result in a decline in expenses compared to the first quarter of the previous year.

Overall, the firm expects the impact from its business simplification initiatives will be a reduction of approximately $1.6 billion in revenue and a corresponding reduction of approximately $1.6 billion in expenses. These reductions won’t meaningfully impact the firm’s 2015 anticipated net income.


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