JPMorgan investor day runs gamut, from climate change to middle market

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Protestors railing against JPMorgan Chase for financing fossil fuels “have a right to be concerned,” but the banking sector can’t bear sole responsibility for ending climate change, the bank’s chief said Tuesday.

At the bank’s annual investor day, Chairman and CEO Jamie Dimon called for a “mature conversation” about energy financing. At the meeting, JPMorgan sought to show it was making good on those pledges while also reducing its activities in areas of particular concern to environmentally minded shareholders.

"It can't just be banks that solve the problem," Dimon told investors during a question-and-answer session. “If you stop banks from financing some of [these projects], they will be financed by other people who don’t care about pollution.”

Big banks have come under greater scrutiny in recent months for financing fossil fuel industries and holding certain positions on other environmental and social issues. JPMorgan, the largest bank in the country, in particular is facing calls by some shareholders to disclose the impact of its lending activities on the environment and drop former Exxon CEO Lee Raymond from its board of directors.

Climate change was one of several hot topics at the meeting, which took place in New York City. Executives also offered highlights of year-over-year growth in consumer and commercial banking and asset management, the uptick in market share for the global investment bank and their ongoing embrace of technology that provides leads on new customers.

Here are four messages the company sought to send Tuesday:

Clean energy commitment matters — and changes are coming

Early in the day, JPMorgan highlighted the pledge it made in 2017 to provide $200 billion of new financing for renewable energy projects by the year 2025. The bank said it expects to meet that goal by the end of this year, putting it five years ahead of schedule.

Before the meeting, the bank outlined plans to reduce certain types of energy financing, including putting a stop to financing new oil and gas development in the Arctic. The bank said it plans to cease funding of new coal-fired power plants and refinancing existing loans for coal-fired power plants.

JPMorgan said it will not lend or provide advice to companies that derive a majority of their revenue from coal mining and that it expects to phase out its remaining credit exposure to those companies by 2024.

Additionally, the bank said it would not finance coal mining companies that use mountaintop removal and would no longer do business with companies that use uncontrolled fire to clear land. The changes also include enhanced due diligence for companies involved with the oil and gas sector, coal, hydroelectric plants and soft commodities such as palm oil, soy and timber.

The ratings agency Fitch said in a note that the bank’s emphasis on its environmental initiatives reflects “the growing importance of ESG on banks.”

“Everyone has an interest in advancing their understanding of ESG,” Christopher Wolfe, managing director and head of North American banks, said in a follow-up call. “The reality is that banks have to be paying attention to those things and understanding where our society is.”

Middle-market banking remains ripe for expansion

JPMorgan said its commercial bank continues to have lots of opportunities to serve middle-market businesses in the United States, in part because of its expansion into 47 metropolitan areas since 2008. Doug Petno, CEO of commercial banking, told investors that the bank added 1,500 new middle-market clients in 2019 almost three times as many as it added five years ago.

“We’re really only just scratching the surface in these newer markets” such as Philadelphia, Charlotte, N.C., and Seattle, Petno said. “We’ve established coverage in 125 locations, we’re in 75 of the top 100 [metropolitan statistical areas], and through a granular, data-driven approach, we’ve identified 36,000 prospective clients across the country. Our current footprint,” including an expanding national branch network, “sits right on top of this enormous opportunity.”

According to the bank, since 2010 loans made to middle-market firms have increased on average by 37% each year, topping out at $15.6 billion in 2019. Meanwhile, deposits have risen on average by 29% a year, ending last year at $13.1 billion, the bank said.

And there are now 3,280 middle-market clients, up from just 820 clients 10 years ago.

The benefit of landing middle-market clients comes down to the likelihood of developing long-lasting relationships that spur revenue growth, even decades after being in the market, Petno said.

“We’ve been in Chicago for 150 years … and we’re still growing,” he said.

Borrowing from discount window is an exercise in breaking old stigmas

Jennifer Piepszak, JPMorgan’s chief financial officer, said the bank plans to borrow funds from the Federal Reserve’s “discount window” lending program as part of an effort to destigmatize use of the program.

“We think this is an important step for us to take to break the stigma here,” Piepszak said.

The discount window played a big role during the financial crisis. But according to a December 2017 note from the Fed, usage since mid-2010 has been low, even lower than it was pre-crisis.

Of the bank’s plans to borrow occasionally from the fund, the Bank Policy Institute’s chief economist, Bill Nelson, said in a release:

“It should help reduce discount window stigma, which has been a persistent issue for more than 70 years and was exacerbated by the financial crisis. When banks borrow from the discount window, they help enhance its effectiveness as both a monetary policy and financial stability tool.”

The bank says it won’t let recession fears deter its growth plan

JPMorgan says it could keep plugging along if and when an economic slowdown occurs in the U.S.

According to Petno, the commercial bank has “detailed readiness playbooks” to help guide bankers through a downturn. Dimon concurred, saying JPMorgan is prepared for the end of the cycle while acknowledging that lots of its bankers have not experienced working through an economic decline.

“Their bonuses haven’t gone down for the better part of 10 years,” Dimon said. But a slowdown "is not going to stop us from investing in the things you heard about today, not one single iota. … What you saw here today was a lot of earnings power, a lot of earnings in the bag for next year regardless of the cycle.”

Areas of ongoing investments include people, technology and even certain M&A deals. Some of those things, as well as marketing efforts, might even be less expensive in a downturn than they are today, Dimon said.

Dimon said the bank is focused on “very, very creative” deals — such as the 2019 acquisition of InstaMed, a health care technology company — but don’t expect the bank to scoop up a federally insured banking institution. Though regulators are more willing to accommodate growth at big banks, they would stop short of letting a bank JPMorgan’s size buy another U.S. bank.

“The door is open for people to be a little more ambitious and aggressive with how they deploy capital in acquisitions,” Dimon said.

Laura Alix contributed to this article.

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Commercial lending Middle market Climate change Consumer lending Growth strategies JPMorgan Chase