JPMorgan Chase to Slash $1 Billion in Costs; Cut Staff by 4,000
JPMorgan Chase became the latest Wall Street firm to scale back in an uncertain economy, announcing plans Tuesday to save $1 billion through various costs cuts and about 4,000 job reductions this year.
The bank, struggling to emerge from the shadow of a trading scandal known as the "London Whale" affair that dealt the firm its biggest ever trading loss, also issued a stark warning about the rising costs of regulation.
A frequent critic of efforts to increase oversight on Wall Street, JPMorgan said that new red tape could cost up to 10 percent of market revenues. However, the financial services giant cautioned that the effects of the Volcker Rule won't be seen for at least two to three years. JPMorgan also said it plans to add 200 more branches by 2014.
JPMorgan has instituted a number of changes to its executive suite lately, an issue JPMorgan Chairman and CEO Jamie Dimon addressed when asked about whether management changes had become too disruptive, and a recent call to split the chairman and CEO roles.
The bank is "completely comfortable" with management overhauls and current leadership, Dimon said. Responding to a call to sever his joint position, the bank chief called the controversy a "sideshow". He added that the board should have flexibility to make those decisions.
The results from Italy's election continue to roil markets, which are becoming increasingly attuned to the threat of Washington's budget stalemate. Dimon said both events were unsettling investors.
Europe's debt troubles are "a roller coaster" for markets, Dimon said, adding that the threat of sequestration was a "legitimate" worry as well. Markets should be concerned by the potential for a quick and substantial jump in interest rates, should Washington fail to strike a deal on taxes and spending, he added.
The bank stated it would reduce headcount in its mortgage banking unit by between 13,000 to 15,000 by the end of 2014. Most of these employees are considered contractual and hourly workers, and not full-time, the bank said. These reductions combined the cuts planned for this year mean about 17,000 net job cuts will occur over the next two years.
The bank's biggest challenges, according to Marianne Lake, JPMorgan's CFO who spoke at JPMorgan's Investor Meeting, are from regulatory issues.
Earlier in the day, Lake said that the planned cuts would be driven by savings in its mortgage unit, during a period when the U.S. housing sector has shown fairly steady improvement from the post- 2008 meltdown.
JPMorgan's cost-saving efforts come at a time when its key rivals are also moving to adjust to a volatile global economy. Goldman Sachs is reportedly preparing a round of job cuts; meanwhile, beleaguered financial behemoth Citigroup announced its own massive restructuring plans last year.
(Read more: Citigroup Axes 11,000 Jobs, $1.1 Billion in Costs)
Speaking at the investor conference earlier, Dimon said that while the company has benefited from downturns, it can maintain a 15 percent return on tangible equity.
Correction: An earlier version of this story incorrectly reported that Marianne Lake and Jamie Dimon were speaking from CNBC's CFO Council. Both were speaking at JPMorgan's Investor Conference.
The company later clarified that there will be 17,000 net job cuts over the next two years. About 4,000 of those will occur this year and 13,000 are planned for 2014. Among the 17,000 total cuts, about 6,000 will occur at its retail branches and 15,000 in its mortgage banking unit.
—Reported by CNBC's Kayla Tausche, written by Javier E. David