Friday, March 29, 2024

CEO jp morg9n

In 1983, Daniel Pinto, then a 19-year-old student in Buenos Aires, joined a bank to work as a financial analyst by day so he could fund his studies in accountancy at university in the evenings. He never left the profession and has risen through its ranks to become the president and chief operating officer of the biggest bank in the world.

If JP Morgan’s iconic CEO Jamie Dimon departs any time soon, Mr Pinto, 61, will become acting CEO in the short term. He has been a JP Morgan lifer in the sense that he has spent his entire 41-year banking career in institutions that became part of JP Morgan, including Manufacturers Hanover, Chemical Bank and Chase Manhattan Bank. Vastly experienced, he has done just about everything there is to do in banking, from being a forex trader to managing client sales, to overseeing the fixed income, treasury and emerging market businesses, to running JP Morgan’s corporate and investment bank.

With some 320,000 employees spread across over 60 countries, JP Morgan dwarfs its big-bank peers in terms of assets, deposits, revenues and profits and has a market capitalisation of US$548 billion (S$736 billion) as at March 15, which exceeds those of Bank of America and Citibank combined.

Mr Pinto co-manages the bank with Mr Dimon. “We get together once a week and discuss what he is going to do and what I am going to do,’’ he says during our interview last week in a lounge at JP Morgan’s top floor offices in CapitaSpring. “We work on all the lines of the business which are strategically important.”

Focusing on areas of weakness, not strength
Known to be a perfectionist, Mr Pinto says he spends 90 per cent of his time not on things that the bank is doing well, but what it needs to improve.

“When you look at all the things we do, we’re up there, at No. 1, No. 2 or No. 3.”

But even where the bank is No. 1 in a certain area, that is an average score covering all the activities of that area.

“Averages are not good for companies,” he says. “So, what you want to focus on is not that you’re No. 1 on average, but on each of the components that bring you to that position.

“For example, we’ve been the No. 1 investment bank globally for many years. But we’re not No. 1 in every sector of investment banking, or every region, or every country.

“In payments, we made massive progress in the last several years, but in the merchant acquiring business and small business, we still need to grow.

“We also need to grow the multi-party commerce business, particularly outside the United States.

“So, it’s about looking at things like that – sectors or segments where we might not be No. 1,” he says, “focusing on improving in those areas and not feeling too good about the average. And that applies to everything”.

Record profits and revenues
JP Morgan made record profits in 2023 of just under US$50 billion, which was almost 20 per cent of the profits of the entire US banking industry. Mr Pinto claims that this performance is sustainable.

“We’ve been delivering growth in both profits and the top line year in and year out, and we’ve had record revenues for eight years in a row,’’ he says. He points out that in 2023, the bank benefited from deposit inflows being higher and credit delinquencies being lower than expected. He adds that those trends are now normalising, so they may not provide as much of a tailwind in 2024, but other areas are growing, such as payments, retail banking and the credit card business.

Mr Pinto is fairly optimistic about the state of the US economy. “The macro picture is quite okay,” he says. “The economy is slowing down a bit, but it’s still growing. There’s a strong labour market, the consumer is in a good place and corporate debt net of cash is at quite healthy levels.

“If inflation continues to come down to 2.5 per cent by the end of the year, it’s very likely that we will have a soft landing and a recession will be postponed for the next two or three years. In that scenario, the market is pricing in three to four interest rate cuts starting in June.”

For most of the bank’s business, the net effect of lower interest rates won’t be much, he says. He acknowledges that deposit margins – the difference between the interest the bank earns on its loans and what it pays on deposits – will come down.

“Historically, deposit margins in the industry have been around 2 per cent. We are now short of 3 per cent and that should normalise over time,’’ he says. “But other areas will grow to compensate.”

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Nor is Mr Pinto much concerned about the stresses in the US banking system that led to the collapse in 2023 of regional banks such as Silicon Valley Bank and Signature Bank that caused depositor flight from First Republic Bank, which JP Morgan acquired.

“For US regional banks, the challenge has less to do with stress in the system and more to do with their business models,’’ he points out.

The regional banks have faced higher risks from rising interest rates, lack scale and are exposed to a loss of depositor confidence. Most regional banks have reduced their vulnerabilities, according to Mr Pinto, by borrowing long term and restructuring their portfolios, which has made them less exposed to runs on deposits. But those with assets of less than US$100 billion will face tougher regulation, which means they will need to hold more long-term debt and be recapitalised at higher levels.

So, their business models will need to be adjusted, he says, which will likely happen through consolidation.

Commercial real estate not a systemic issue
A key area of vulnerability for regional banks relates to commercial real estate, particularly in the US office sector, which is badly hit by low occupancy rates and high interest costs. Regional banks have about 85 per cent of the exposure to commercial real estate.

But Mr Pinto points out that the loan to value in this segment is still below 100 per cent. “Some transactions will need to be restructured by bringing in more equity and there will be some foreclosures for sure,’’ he says. “But overall, assuming that interest rates stay at current levels or go lower, which is a more likely scenario, I don’t think it will be a systemic issue. It’s just a challenge.”

JP Morgan emerged bigger from the banking turmoil of 2023, when it acquired the beleaguered First Republic Bank, the latest of its impressive list of acquisitions made during crises, which includes the brokerage firm Bear Stearns in 2008 and Washington Mutual, which was the biggest bank to fail during the financial crisis of that year.

Since it has more than 10 per cent of the deposits of the US banking system, regulations bar it from making further bank acquisitions, except through the Federal Deposit Insurance Corporation, which is how it acquired First Republic. So, it has turned to making a host of smaller acquisitions, mainly outside banking, “to cater to areas of opportunity”, according to Mr Pinto.

He explains: “For example, we have a fantastic credit card business in the United States. We saw that we could build offerings around travel services. So, we ended up acquiring CX Loyalty, which is a wholesale version of the booking platform Expedia, and Frosch, a conglomerate of travel agents. So now, we’re delivering more, and better, quality travel services to our US customers.”

In the payments space, it has invested in fintechs, which Mr Pinto considers to be strong competitors. It has also acquired the financial services unit of Volkswagen called VW Pay, which allows car owners to use their vehicle as a wallet to digitally pay for various services such as fuelling and electric vehicle charging.

“Such things would take a lot of time to develop, so it’s more effective to do them through acquisitions,” says Mr Pinto.

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Betting big on tech
Technological transformation, on which JP Morgan spent more than US$15 billion in 2023, is a major priority for the bank and one to which Mr Pinto pays special attention.

The areas on which it especially focuses include tokenisation and distributed ledger technology. In the latter area, it has collaborated with the Monetary Authority of Singapore, DBS Bank, Temasek, Standard Chartered Bank and other institutions in a project called Partior, an interbank payments system using blockchain to improve the speed and lower the costs of cross-border payments.

The bank uses AI extensively, says Mr Pinto – for example, to create trading algorithms, optimise collateral and yield customer insights. It also uses the technology for control-related issues such as fraud detection and surveillance of activities, globally.

To boost efficiencies, it is using generative AI to improve the productivity of its software and product developers, and on the operational side, to help with processes such as know-your-customer, and improving the responsiveness of its call centres.

“What you want is for agents to solve as many problems for clients as possible, or prevent those problems from happening in the first place,’’ he says. “So it’s still early days, but we’re seeing increases in productivity from deploying AI and large language models. They are a game changer for the company.”

Singapore, where JP Morgan has around 4,000 employees, is one of its three main centres in East Asia, together with Hong Kong and Tokyo. It also serves as a technology hub with some 1,600 staff working in that area. “And it’s high-end technology,’’ says Mr Pinto. “We are working in quantum computing, in encryption and everything that relates to distributed ledger technology and AI.”

How the succession to Mr Dimon, 68, as CEO at JP Morgan will play out is a subject of much speculation in banking circles. Among the main contenders, besides Mr Pinto, are Ms Jennifer Piepszak and Mr Troy Rohrbaugh who run the Commercial and Investment Bank and Ms Marianne Lake who runs the retail operations.

Whoever is Mr Dimon’s successor will have to find his or her own leadership style, Mr Pinto says. “The key will be to play to that person’s strengths rather than try to copy what Jamie did, because Jamie is a once-in-a generation personality who cannot be replicated. They will have to find their own style and do what is right for the company at the time rather than do what was right for the company in the past.”


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