JPMorgan’s New Normal

JPMorgan is coming off its sixth year of record revenue. But the start of 2024 brings fresh questions: How can the biggest bank in America sustain a breathtaking pace of growth?

Investors have certainly been pushing for more. Coming into Friday, they expected Jamie Dimon, the bank's larger-than-life chief executive, to raise the bar for net interest income. Yet JPMorgan said it would keep its guidance at roughly $90 billion from such lending profits.

But it also said its expenses for the full year would be higher than they initially expected this year, at about $91 billion. For its own part, JPMorgan has been expanding headcount and spending on compensation when many banks have been cutting back—showing that Dimon is set to lean in, hard, even when rivals are feeling shy.

Dimon almost always speaks with a significant amount of caution, even when he says things are generally fine. In a statement Friday, he said:

The global landscape is unsettling—terrible wars and violence continue to cause suffering, and geopolitical tensions are growing. Second, there seems to be a large number of persistent inflationary pressures, which may likely continue. And finally, we have never truly experienced the full effect of quantitative tightening on this scale. We do not know how these factors will play out.

For JPMorgan's key lending targets, he calls it a "normalization." He told analysts that consumers are doing fine, while one of his deputies said that real incomes have broadly been rising and clients—particularly those taking out credit card debt—are spending money in line with levels seen about a year ago. But Jeremy Barnum, JPMorgan's finance chief, said there are some cohorts of the population that haven’t seen incomes rising.

So you see Barnum pointing to some signs of struggles among lower-income consumers. Remember: Across America, people have piled up record amounts of credit card debt, above $1 trillion. With interest rates remaining higher than expected this year, these borrowers are paying record levels of interest on those debts and annual percentage rates, or APRs, at roughly 25% on average across the country.

Which begs the question: How much more money can people keep borrowing to spend?

For the bottom third of the socioeconomic strata in the US, "they're facing a lot of strains," Yung-Yu Ma, BMO Wealth Management's chief investment officer, said on Bloomberg Television this morning. "It's a bifurcated consumer story."

And increasingly, our sources and our guests across Bloomberg Television have been returning to some worries about a "K-shaped" or "barbell" economy, where the rich get richer and the poor get poorer, and there are hints of that when you examine bank earnings this season.

One wonders how much Wall Street can shake things off if Main Street starts to struggle. Size matters: Lenders like JPMorgan have huge investment banking and trading divisions that tend to thrive when markets get choppy and large companies start pulling off major acquisitions. So they'd be fine either way.

But starting next week, you’ll see the rest of the banking system begin to report results. And not every bank is as insulated from troubles as Fortress JPMorgan.

More on Wall Street

• Blue Owl, one of the fastest growing firms in finance these days, sees a $5 trillion opportunity. We spoke to the firm's co-president, Marc Zahr, in an exclusive interview after Blue Owl agreed to buy real estate lender Prima.
• Changes high up inside of Goldman Sachs. Philip Berlinski is leaving his post after more than two decades to join Millennium Management, where a number of his colleagues now work at the firm now jokingly dubbed "Millennium Sachs." Carey Halio is being lifted to the management committee to take the role of treasurer, she has been an ex0-officio member of that top Goldman team.
• Morgan Stanley is facing a probe involving multiple banking regulators surrounding the vetting of wealth management clients, putting pressure on the stock for the last couple of days -- and ahead of a key earnings report next week.
• Ex-Morgan Stanley banker Pawan Passi who was punished in the block-trading probe that shook Wall Street joined a firm that had gotten his trading leaks, Bloomberg's Sridhar Natarajan, Ava Benny-Morrison and Katherine Burton report.
• McKinsey is starting hundreds of job cuts. Goodbye boom times?
• Ben Melkman, who left Schonfeld last year, is set to join Bridgewater in a surprise move. He will be one of the most senior people at the hedge fund firm and a peer to the deputy CIOs, Bloomberg's Nishant Kumar reported this week.
• And for the Bloomberg Invest TV series, we spoke to Citadel's Angel Ubide -- who sees a bumpy path forward for inflation. (For more insights on how to navigate this market, please join us for Bloomberg Invest in New York on June 25-26!)

There has certain been even more on the radar, but already now looking forward to what's next. Stick with us through the start of next week as we bring you the latest, breaking results out of Goldman, Morgan Stanley and Bank of America. And tune in for our interview with Blackstone's Jon Gray as the big alternative asset managers start to kick of results, his firm before the market opens on Thursday. To read this newsletter in its entirety, you can do that here. To send all tips, opinions and ideas over, shoot me a note at [email protected].