Credit…Pool photo by Michel Euler
After a year of blockbuster earnings, Wall Street is handing out fatter paychecks despite uncertainty creeping into the economic outlook.
JPMorgan Chase on Friday reported record profits for the year, and Citigroup’s full-year profit more than doubled. But both banks said the cost of doing business would rise: Higher remuneration dampened their latest quarterly profits of 2021.
The higher payouts coincide with a labor market in which there is high demand for workers to hop between jobs and earn wage increases.
“We want to be very, very competitive on pay,” JPMorgan chief executive Jamie Dimon told analysts in a conference call on Friday. “There is a lot more compensation for top bankers, traders and managers, who, by the way, has done an extraordinary job in recent years.”
JPMorgan, the country’s largest bank by assets, posted a record profit of $48.3 billion in 2021, but its profit for the three months ended December fell 14 percent despite a 37 percent increase from the same quarter in 2020 percent on $10.4 billion in fees charged by its investment bankers.
Revenue was about flat for the quarter, and much of the profit decline was the result of wage increases and higher spending on technology, the company said in its earnings statement.
“There’s a talent war going on — it’s real,” and it’s likely to spark higher pay on Wall Street, said David George, a senior banking analyst at Robert W. Baird & Company in St. Louis. JPMorgan’s position as an industry leader means that “if they want to spend big, others have to follow suit or they become vulnerable,” George said.
Two other banking giants — Citigroup and Wells Fargo — also reported higher annual profits on Friday. Top executives from all three banks were asked over the phone about inflation, which has risen to its highest level in four decades.
While rising prices are making businesses more uncertain about the future of the pandemic-hit economy and shaking consumer confidence as homes, gas and groceries become more expensive, they have also helped American workers earn higher incomes.
Wages are rising across the economy – in December, average hourly wages rose 4.7 percent from a year earlier. The pay issue has been particularly thorny on Wall Street: Banks have raised starting salaries for young bankers as a reward for grueling, long-hour jobs, but for some that’s not enough to restore the appeal of a career in finance.
“There’s a lot of competitive wage pressures out there,” affecting everyone from senior executives to juniors at Citigroup, Mark Mason, the bank’s chief financial officer, told reporters on a conference call.
Citigroup chief executive Jane Fraser told analysts that the company plans to change its compensation structure for executives and business unit heads to give them more stock rather than cash as an incentive to improve performance.
Like JPMorgan, Citigroup reported lower profit for the fourth quarter, down 26 percent to $3.2 billion, but still beating analysts’ forecasts. For the year, earnings nearly doubled to $21.9 billion.
Wells Fargo bucked the quarterly trend, with profit up 86 percent to $5.8 billion. And full-year profit rose to $21.5 billion in 2021 — more than six times what it was in 2020, when the company was investing in bad times in case of a spike in loan defaults that didn’t materialize.
While fourth-quarter results at JPMorgan and Citigroup have dulled some of their luster in 2021, it was still a stellar year. Bank consumer divisions rallied as Americans emerged from the pandemic shutdowns and spent more on goods, travel and entertainment. And lenders benefited as they advised companies on a series of mergers and acquisitions. Goldman Sachs — reporting next week along with Bank of America and Morgan Stanley — had already surpassed its record full-year profit at the end of September.
Bank executives have been bullish on the economy in recent months, particularly as the pandemic wanes. On Friday, top bankers acknowledged the potential for disruption from rising prices and the Omicron variant of the coronavirus, which has caused staffing shortages in schools and businesses, but maintained their rosy outlook on the economy’s direction.
“Everyone seems to be getting more and more confident that the recovery will continue,” Michael P. Santomassimo, Wells Fargo’s chief financial officer, said on a conference call. “We’re bullish on consumer spending and business activity,” he said.
Wells Fargo shares rose 3.7 percent on Friday, while JPMorgan fell 6.2 percent and Citigroup fell 1.3 percent. The KBW index of bank stocks is up more than 11 percent this month as investors predict the Federal Reserve will hike interest rates this year in a bid to control inflation.
Rising interest rates would pave the way for banks to increase their profits: they could charge customers more interest.
That would evade rising labor costs driven by what Wells Fargo’s boss Charles W. Scharf called a “very, very competitive” market for talent that gives many workers the opportunity to keep going for bigger paychecks.
But Mr. Sharp wasn’t too concerned about wear and tear.
“We never want to lose good people,” he said. “But it happens.”
Stephen Gandel contributed reporting.