JP Morgan Chase executives took another swing at convincing investors America’s largest bank (by assets) shouldn’t be broken up. While going on the defensive might help the bank reframe the conversation, it’s doubtful the argument for splitting up the company is going to go away anytime soon.
“Being bigger is not the same thing as being more complex,” CFO Marianne Lake told investors at the top of its investor day Tuesday, outlining ways the bank is trying to simplify its business model even as it grows in size.
Assets held by JP Morgan have swelled by more than 20% to $2.6 trillion over the past four years, eliciting calls to split the business lines that serve Wall Street from those that cater to everyday customers buying mortgages and opening credit cards.
Meanwhile, new banking regulations have imposed stricter capital requirements on JP Morgan relative to its smaller competitors. Government officials say that due to its size, complexity, and global interconnectedness, a failure by JP Morgan poses the biggest threat to the financial system among 33 biggest US banks.
Talk of JP Morgan’s breakup grew louder after Goldman Sachs issued a report last month, saying that new capital requirements are higher for JP Morgan because of how big it is and that its size is holding the company back.
JP Morgan’s Lake said the bank conducted its own review of a potential breakup and plans to keep making a case against it. It says the business generates $18 billion in revenue and cost savings by the nature of working together. Splitting up the business would require duplicate corporate functions, talent, and technology. Plus, the lessened amount of capital required to satisfy government’s capital requirements “wouldn’t be as small as you think,” she said.
Not everyone was convinced: In the words of one analyst, is JP Morgan prepared for the Fed to say, “how many ways do we need to tell you need to shrink both in size and complexity?”