Summary
- JPMorgan has moved to combine and scale its wealth management operations in order to smooth out its earnings and to be more competitive in the area.
- JPMorgan has shown itself to be one of the leaders in the commercial banking arena in applying modern information techniques to build the banking platform of the future.
- This move follows the example of James Gorman at Morgan Stanley to rebuild the business models of banks and to move further into the scale that will dominate the industry.
JPMorgan Chase & Co. (NYSE:JPM) is revamping its wealth management area.
According to David Benoit in the Wall Street Journal,
The bank is creating a unit that will combine its U.S. wealth-management operations for affluent clients and the Chase branch network’s financial-advisory business, according to a memo reviewed by The Wall Street Journal. The restructured business will also include JPMorgan’s new You lnvest online brokerage, the memo said.
Besides earnings, gaining scale in this area of the banking space provides a way to smooth out earnings, something Jamie Dimon, the CEO of JPMorgan, would like to do.
A prime example of a move like this came from Morgan Stanley (NYSE:MS) which moved strongly into the wealth management area after the Great Recession as other large banks seemed to stick with the “older” model of what these banks should be doing.
James Gorman ascended to the position of CEO at Morgan Stanley in 2009 and immediately moved the business model of the bank toward a greater emphasis on wealth management, a major reason for the change being smoother earnings.
Morgan Stanley, under the leadership of James Gorman, to me, has been one of the real success stories of the post-Great Recession period.
Another reason given for the move at JPMorgan is the recent acquisition of TD Ameritrade Holding Corp. (NASDAQ:AMTD) by Charles Schwab Corp. (NYSE:SCHW). Many believe that this acquisition is a sign of how, in this age of modern information technology, the scale factor is becoming more and more important. This scaling factor is seen by some as the future of the financial industry.
The future of the banking business: bigger banks and fewer banks.
The battle is on, and the outcome is clear to most analysts. The specific winners of the contest still are to be determined.
Jamie Dimon and JPMorgan Chase are not going to let the future get away.
In Mr. Dimon’s annual letter to shareholders in early 2018, per the above-referenced WSJ piece, he said “he saw ‘no reason’ the bank couldn’t double its market share in this area.”
There you have it, scale, scale, scale.
Investors ask what commercial banks should be invested in.
I was asked this Wednesday for the second time in two months when co-hosting a podcast for Money Matters on YouTube. (Here is the first of these interviews; the second will not be available for a short while.)
My basic answer reflected my position as a value investor. In terms of investing in banks at this particular time, I think that basing investing decisions upon value is such circumstances is not appropriate.
Over the next five years or so, I see so much change coming to the banking industry - bigger banks and fewer banks. And I see the winners in this changing environment depending upon personalities and financial power, so that one can only justify investing in any bank based on intuition and specific individual cases.
Wealth can be gained when “your” bank gets acquired. Money can be gained, eventually, by the survivors.
