The big questions JPMorgan investors are asking Jamie Dimon

Investors are gathering at the JPMorgan campus in Manhattan on Monday to hear from CEO Jamie Dimon and his executive team, and they will be listening for answers to some key questions.

Who might succeed Dimon, the longest-serving head of a major US bank? Can JP Morgan continue to achieve record profits? How does it plan to deploy all its excess capital? How exactly do you plan to integrate AI into its operations?

By almost any measure, JP Morgan is currently in a class of its own when compared to the rest of the industry.

It’s the country’s largest bank by assets, outperforming all of its rivals again in the first quarter, and its stock reached a new all-time high last week.

The concerns some have as they attend JPMorgan’s annual Investor Day on Monday are not about the present.

They have a lot to do in the future.

JPMorgan’s biggest unknown right now is the plans of its 68-year-old chief executive, the longest-serving major bank head and one of the most famous figures in the financial world.

Dimon has repeatedly dismissed retirement predictions, but at an investor day last year he admitted that he knows he can’t do this job forever.

“Succession is an issue no matter what,” said Mike Mayo, a banking analyst at Wells Fargo.

Mayo pressed Dimon at an investor day last year about how many years he expected to remain CEO.

“Three and a half,” Damon said before laughing. He added: “We have the same plan that we had before,” without clarifying whether there is any truth in the number he mentioned.

He has an incentive to stay until at least 2026 through a special retention bonus of 1.5 million options that the board granted him three years ago, requiring him to remain in charge long enough to exercise the options.

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Jamie Dimon, Chairman and CEO of JPMorgan Chase, attends the final beam-laying ceremony for JPMorgan Chase's new global headquarters building at 270 Park Avenue in New York City, US, November 20, 2023. REUTERS/Brendan McDiarmid

Jamie Dimon, Chairman and CEO of JPMorgan Chase, attends the final beam-laying ceremony for JPMorgan Chase’s new global headquarters in New York City last November. (Reuters/Brendan MacDiarmid) (Reuters/Reuters)

The retention plan has one interesting provision that allows Dimon to exit early. He can exercise the options if he leaves for a government job, according to a regulatory filing — elected or not elected.

On Monday, investors will hear from several executives considered front-runners for Dimon’s job.

One of the front-runners is Jennifer Piepszak, who this year became co-CEO of a new division that includes JPMorgan’s commercial and investment bank, along with Troy Rohrbaugh, the former co-head of markets and securities services.

The other is Marian Lake, who oversees JPMorgan’s sprawling consumer unit.

JPMorgan President and COO Daniel Pinto is widely considered the person who would step in if Dimon had to leave suddenly and a new leader had to be named immediately.

Analysts agree that JPMorgan has a great pipeline of executive talent, but the transition will be a challenge no matter who takes over.

“When the announcement comes, the stock price will go down because there are a lot of people owning the stock because of it,” Gerard Cassidy, a banking analyst at RBC, told Yahoo Finance.

JP Morgan prides itself on being prepared for any unexpected shocks.

One measure of this readiness is capital, a buffer that protects the lender from future losses. The lender currently has more of this capital on a relative basis than at any time in its history.

“Our capital cup is gone,” Dimon told analysts during an April earnings call.

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For organizers, this is a good thing. But having too much can be a bad thing, as far as investors are concerned.

This is because it may mean that the company is at risk of not performing as efficiently as it should, leading to a decline in some of the measures that investors care about most. One such measure is return on tangible common equity, or ROTCE.

JPMorgan’s first-quarter ROTCE far exceeded its competitors as well as its own target. But the concern is what will happen to this measure in the future when regulators ask JPMorgan and other big banks to increase their capital levels to higher levels.

“How long does JP Morgan want to hold on to excess capital?” asked Betsy Grassick, an analyst at Morgan Stanley.

NEW YORK, NY - NOVEMBER 12: JPMorgan Chase's new headquarters rises at 270 Park Avenue in Midtown Manhattan as the sun sets on November 12, 2023 in New York City.  (Photo by Gary Hirschorn/Getty Images)NEW YORK, NY - NOVEMBER 12: JPMorgan Chase's new headquarters rises at 270 Park Avenue in Midtown Manhattan as the sun sets on November 12, 2023 in New York City.  (Photo by Gary Hirschorn/Getty Images)

JPMorgan Chase’s new headquarters is located at 270 Park Avenue in Midtown Manhattan. The bank’s annual investor day will be held across the street from this new building, inside another property the bank controls. (Gary Hirschorn/Getty Images) (Gary Hirschorn via Getty Images)

There are ways JPMorgan can deploy its additional capital. It can make new investments, such as buying another bank. It could also boost its dividend or stock buybacks, returning more money to its shareholders.

But it will be politically difficult for JPMorgan, the most dominant bank in the United States, to escape further takeovers such as its takeover of the failed First Republic in 2023 from regulators.

Further dividends and stock buybacks are also not certain. Dimon poured some cold water on the idea of ​​ramping up JPMorgan share buybacks in April, saying “personally” he didn’t want to buy JPMorgan shares at the April 12 price ($195.43). It is now above $200.

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“Excess capital is not wasted capital, but stored profits,” Dimon said in April. “We will roll it out in a very good way to our shareholders in due course.”

The question of too much capital is “a nice problem to have, but it’s a challenge,” RBC’s Cassidy said.

Damon He didn’t hold back in his annual letter to shareholders last month When we talk about the potential of artificial intelligence.

He likened it to “the printing press, the steam engine, electricity, computing, and the Internet,” and predicted that the consequences would be “likely to be as transformative as some of the major technological inventions of the past hundreds of years.”

So how will JPMorgan change it?

Dimon offered some details on the subject, citing the more than 2,000 AI, machine learning and data scientists currently working at the bank and a new position called chief data and analytics officer who sits on the operating committee.

But some works remain a mystery. JPMorgan now has more than “400 use cases in production in areas like marketing, fraud and risk” and sees AI helping the bank “to reimagine the entire business workflow” and “augmenting almost every function,” he said.

Investors will hear more details, both regarding JPMorgan’s investments and potential savings over time.

Last year, JPMorgan allocated $15.3 billion to technology, the highest amount ever and the largest annual spending among US banks. Analysts expect the budget to be larger in 2024.

“I think JPMorgan could end up being the Nvdia of banking,” Mayo said in March, referring to the chipmaker that has benefited greatly from the AI ​​explosion.

“They have the resources, the spending, the data, the processes, the people in place… They’re starting from a position of strength more than any other bank.”

David Hollerith is a senior reporter at Yahoo Finance covering banking, cryptocurrency, and other areas of finance.

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