After weeks of being pummeled with calls for its breakup, JPMorgan Chase turned a shareholder gathering Tuesday into a daylong argument about why the company should be kept intact.
The $2.6 trillion-asset global bank's executives stressed the same point when explaining each of their businesses it is special because of its size and scope. Yet they all vowed to rein in expenses to cope with low rates and heavy capital requirements.
Executives reaffirmed their plan to trim $2 billion in expenses from retail banking. Meanwhile, they said they would cut $2.8 billion from the corporate and investment bank. Overall, the cuts are supposed to help the company get from a 60% efficiency ratio at the end of the fourth quarter (excluding legal expenses) to something closer to 55% by 2017.
The presentations and plans were bold, but the key, of course, will be in the execution.
"The jury is still out on the breakup talks, but if they reach their [cost-cutting] targets those calls die down somewhat," Mike Mayo, an analyst from CLSA, said immediately following the program. Mayo has been among the loudest voices urging the company to consider splitting up. "If they don't meet the targets, the talks are going to remain front and center."
The company's top leaders started and ended the company's annual investor day by defending the megabank model.
"Scale has always defined the winner in banking," Chief Financial Officer Marianne Lake said early on, adding later that JPMorgan is "the most durable banking franchise in the world, with benefits only afforded to the leaders."
Jamie Dimon, the company's chairman and chief executive, said in his concluding remarks that JPMorgan has "worked long and hard" to create its scale.
"And we are not going to give that up, not even for Richard Ramsden," Dimon said, getting laughs from the crowd. Ramsden, an analyst for Goldman Sachs, published in January a now famous research note that called for the company to consider breaking itself up.
For the company's retail operations, including the retail bank, the cards division and mortgage, the bulk of the cuts have involved personnel. At last year's investor day, JPMorgan promised $1.8 billion in cuts with an expectation of 8,000 job cuts. It delivered $2.2 billion with 11,600 jobs cut.
The company also said it is also looking to cut 300 branches in the next couple of years.
However, Gordon Smith, the CEO of the company's consumer and community banking operations, gave several examples of how the company has trimmed expenses elsewhere, too. It took out 20,000 phone lines it was paying for that were not being used. Travel is down 30%, and hotel stays are down 25%.
"We are meticulously going through any waste and driving it out," Smith said.
Technology should also help drive down costs. For instance, a deposit at a teller costs the company about 65 cents, while it cost just eight cents at ATMs and three cents if a consumer uses the company's mobile app to snap a photo of the check.
Smith was asked if his division only needed to cut $1.6 billion this year since it came in $400 million ahead of its 2014 goals.
"I thought about that momentarily before I walked to employee No. 1's office," Smith said, referring to CEO Dimon. "Best to keep it at $2 billion."
Mary Erdoes, the CEO of asset management, filled her presentation with several examples of how the company's breadth of products and services sets it apart, including one anecdote where the company helped a privately held middle-market client gain some immediate access to liquidity for its owners, then helped one of the owners with a jumbo mortgage and helped the company start planning for the possibility of someday going public.
Erdoes said she told the story because she's "not sure if [the company's benefits of scale] ever resonate with any of you," she said, later adding: "This is the fabric of this firm."
As the company cuts and drives home the point that it benefits from scale, it is still faced with a low valuation on its stock compared with some of the other big banks.
The ratio of the company's stock price to its future projected earnings is among the reasons why analysts are calling for the company to consider a separation. JPMorgan's stock trades at roughly 9 times its estimated 2016 earnings, while banks like U.S. Bancorp trade at 13 times and Wells Fargo trades at 12.3 times, according to chart in Lake's presentation.
"Why is the [price-to-earnings] ratio low? It is a legitimate question to ask," Dimon said "Huge legal and regulatory uncertainty and what that means on your ability to return capital. We believe those [forces] will lift. I might be standing here in four years telling you why we have a premium P/E ratio."