After a year of eye-popping profits, Wall Street is handing out bigger paychecks even as uncertainty creeps into the economic outlook.
JPMorgan Chase announced record profits for the year on Friday, and Citigroup’s annual profit more than doubled. But both banks said the costs of doing business were rising: higher compensation dampened their latest quarterly results of 2021.
The larger payouts coincide with a labor market in which demand is high for workers, who have jumped from job to job and won pay raises.
“We want to be very, very competitive on compensation,” JPMorgan chief executive Jamie Dimon told analysts on a conference call Friday. “There is a lot more compensation for the best bankers, traders and managers, who I must say, by the way, has done an amazing job over the past two years.
JPMorgan, the nation’s largest bank by assets, posted record profit of $48.3 billion in 2021, but its profit in the three months to December fell 14%, to 10, $4 billion, compared to the same quarter in 2020, despite a 37% increase in commissions received by its investment bankers.
Revenue was roughly flat for the quarter, and much of the decline in profits was due to higher salaries and increased spending on technology, the company said in its income statement.
“There’s a talent war going on – it’s real,” and that will likely trigger higher compensation on Wall Street, said David George, senior banking analyst at Robert W. Baird & Company in St. Louis. JPMorgan’s position as an industry leader means that “if they’re going to spend a lot of money, others are going to have to follow suit or they’ll be vulnerable,” George said.
On Friday, two other banking giants – Citigroup and Wells Fargo – also announced higher annual profits. Top executives from the three banks were asked about earnings calls on inflation, which hit its highest level in four decades.
As rising prices make businesses more uncertain about the future of the pandemic-hit economy and undermine consumer confidence as housing, gas and food become more expensive, they have also helped American workers to obtain higher incomes.
Wages are rising across the economy – in December, the average hourly wage was up 4.7% from a year earlier. The pay issue has been particularly tense on Wall Street: Banks have raised starting salaries for junior bankers as a reward for grueling jobs with long hours, but for some that’s not enough to restore the appeal of a career in finance.
“There’s a lot of competitive pressure on wages and compensation,” affecting everyone from senior Citigroup executives to entry-level employees, Mark Mason, the bank’s chief financial officer, told reporters on a conference call.
Jane Fraser, chief executive of Citigroup, told analysts the company plans to change its compensation structure for executives and business unit leaders to give them more stock instead of cash as an incentive to improve performance. .
Like JPMorgan, Citigroup reported lower fourth-quarter profits, slipping 26% to $3.2 billion, but still beating analysts’ forecasts. For the year, profit nearly doubled to $21.9 billion.
Wells Fargo bucked the quarterly trend: profits rose 86% to $5.8 billion. And annual profit rose to $21.5 billion in 2021, more than six times that of 2020, when the company hoarded funds for rainy days in the event of an increase in defaults that did not occur. not materialized.
While JPMorgan and Citigroup’s fourth-quarter results may have shone in 2021, it was still a banner year. Banks’ consumer divisions rebounded as Americans emerged from pandemic shutdowns and spent more on goods, travel and entertainment. And lenders cashed in by advising companies on a wave of mergers and acquisitions. Goldman Sachs – which reports next week, along with Bank of America and Morgan Stanley – had already exceeded its record annual profit at the end of September.
Bank executives have been bullish on the economy in recent months, especially during times when the pandemic has waned. Major bankers on Friday acknowledged the potential for disruption from rising prices and the Omicron variant of the coronavirus, which has caused staff shortages in schools and businesses, but maintained their optimistic outlook about the direction that take the economy.
“Everyone seems to be increasingly confident that the recovery is continuing,” Wells Fargo chief financial officer Michael P. Santomassimo said on a conference call. Given consumer spending and business activity, “we’re optimistic,” he said.
Wells Fargo shares climbed 3.7% on Friday, while JPMorgan fell 6.2% and Citigroup 1.3%. The KBW bank stock index rose more than 11% this month as investors predicted the Federal Reserve will raise interest rates this year to keep inflation under control.
Rising rates would pave the way for banks to increase their profits: they could charge customers more interest.
It would eliminate some of the rising labor costs driven by what Wells Fargo chief Charles W. Scharf called a “very, very competitive” market for talent that gives many workers the possibility of moving to higher salaries.
But Mr. Scharf wasn’t too concerned about attrition.
“We never want to lose good people,” he said. “But it happens.”
stephen gandel contributed report.