JPMorgan Chase & Co. (JPM - Analyst Report) became the latest global bank to announce job cuts to improve profitability. The company will be eliminating overall 19,000 jobs (about 7.3% of the total workforce as of Dec 31, 2012) by the end of 2014. The announcement was made by management during the company’s Investors Day presentations.
The majority of the job cuts are expected to be in JPMorgan’s Consumer & Community Banking segment. Here, about 17,000 jobs will be slashed, with 4,000 being removed this year and the remaining next year. The retrenchment will be largely in the mortgage banking division of the segment.
Chase Bank is going to be the other area, which will witness job elimination. With the increased used of online banking platforms, JPMorgan will be trenching workers in many of its branches. This way, the company will be able to slash workforce by another 6,000 by 2014. However, the company is planning to open nearly 200 branches in 2013 and 2014.
JPMorgan strategizing to offset the job cuts by hiring nearly 4,000 people in credit card, commercial and investment banking, and asset management divisions. This would aid the company to improve its market share in these areas of operations.
Apart from bringing down workforce, JPMorgan anticipates roughly $1 billion reduction in overall expenses this year. Further, the company expects mortgage banking costs to decline $3 billion by 2014 and expenses at community banking division to rise about 3% in 2013 and roughly 2% next year.
Moreover, management at JPMorgan provided updated guidance for net interest income (NII) and net income. NII is expected to remain stable driven by growth in interest-earning assets, while net income will be approximately $27.5 billion by 2014, mainly driven by the abovementioned cost cutting initiative, assumption of lower litigation costs and marginal rise in interest rates.
In a challenging operating backdrop, lower returns and stringent capital norms, bolstering revenue has become a challenge. Hence, many Wall Street banks are downsizing operations and announcing layoffs. We believe that until a recovery in revenue occurs, sustaining and elevating profitability through cost reduction measures, including layoffs, will continue.
In Dec 2012, Citigroup Inc. (C - Analyst Report) came up with the decision to restructure its operations, which would ultimately result in over 11,000 layoffs. This will result in expense savings of $900 million this year, while from 2014 the annual cost savings is projected to surpass $1.1 billion. Similarly, Bank of America Corp. (BAC - Analyst Report) and Goldman Sachs Group Inc. (GS - Analyst Report) have also announced job cuts to improve overall efficiency.
Currently, JPMorgan retains a Zacks Rank #3 (Hold).