What JPMorgan needs to do to get respect from the stock market

0

JP Morgan Chase & Co (JPM)’s mission is “to be the world’s most respected financial services company”. In many ways, it’s already “mission accomplished”. JPM is the world’s largest bank by market capitalization. It is the fifth largest bank in the world by total assets, nearly US$4 trillion. During the 2008 financial crisis, the US government turned to JPM for help. A few words from its silver-haired chairman and CEO, Jamie Dimon, can lift the entire stock market, albeit briefly.

However, in recent months, JPM has suffered several marks of disrespect.

The latest episode of disrespect came last Monday (May 23) when an all-day investor conference failed to dispel investor skepticism about JPM’s plans to invest heavily in technology .

· In January 2022, shares of JPM had begun to fall when Dimon announced that he was abandoning his long-standing approach to tight spending control and would invest heavily in technology. CEO Dimon has long been frustrated with sky-high fintech valuations. And it’s cold comfort that JPM is more highly valued than other big banks, like Bank of America or Citigroup, while JPM is only worth a fraction of tech stocks like Apple and Microsoft (Figure 1).

Additionally, JPM’s market capitalization is growing slower than tech giants, but still slower than the average S&P 500 company (Figure 2),

In February 2022, at a meeting in Florida, major shareholders told Dimon that JPM was not providing enough detail on its ambitious technology spending plans, in particular JPM’s digital-only UK banking service.

On May 17, in a rare rebuke at a JPM shareholder meeting, investors voted against a $53 million incentive package for Dimon, conditional on JPM achieving better market capitalization – a condition which implied that the main objective of JPM is to increase shareholder assess.

The failed attempt to gain the respect of investors

At last Monday’s investor conference, JPM’s management team spent the day explaining JPM’s investment plans. While JPM saw a one-day rise in its share price, the overall results were frustrating.

Joshua Franklin of the Financial Times reported that JPM estimates overseas digital losses could exceed $1 billion in the coming years. Sanoke Viswanathan, JPM’s managing director for international consumer growth initiatives, said the digital business won’t break even until 2027 or 2028. Nonetheless, JPM, according to the Financial Times, “will expand digital banking to other countries over time”.

“There’s no way,” Dimon explained, “that JPMorgan will set up 100 branches in Mumbai, Hong Kong, London, or anywhere else and actually compete.” Indeed, JPM is betting on digital because there is no other way to develop abroad.

At the end of the day, analysts were still skeptical. “The bottom line is that you’re still spending a lot of money this year,” Deutsche Bank analyst Matt O’Connor told Dimon. “Are you doing too much all at once?” He asked.

“We just spent all day trying to answer that question,” Dimon answered testily.

The missing answer to the question

Dimon’s obvious answer to the question would have been to highlight the specific differences in customers’ lives that JPM’s digital banking services in the UK bring or will bring – benefits that customers do not receive from other banks. The fact that this response was not on Dimon’s lips indicates why the UK digital bank will not become profitable until 2027 or 2028.

To succeed in digital, JPM must articulate the additional benefits customers will derive from its digital banking services. Given new digital capabilities, JPM needs to rethink the bank itself, not just provide more traditional banking services digitally.

Moreover, in the digital age, talking about a five-year profitability horizon is like talking light years away. With technology changing rapidly, no one knows what banking will look like in 2027.

What Dimon needed – and failed – to say was: How is the life of a JPM digital customer different? today. The fact that such an answer was neither given nor apparently available suggests that JPM has yet to figure out what it takes to be successful in the technology. Simply telling customers, “We are JP Morgan, the world’s most respected bank: come with us,” won’t be enough.

What is JP Morgan’s mission?

As a first step to success in technology, JP Morgan could start with its mission statement. Its official mission “to be the most respected financial services organization” will not suffice. Additionally, JPM’s leadership role in promoting stakeholder capitalism at the business roundtable in August 2019 turned out to be just public relations. The fact that different mission statements exist elsewhere on the JPM website suggests that JPM has not yet truly committed to any particular mission.

Unfortunately, the one mission that JP Morgan shows no signs of embracing is the one that all successful tech companies have had to embrace: delighting customers.

Why customer satisfaction is the key to success in technology

To stand a chance of success in the fiercely competitive tech world, a business must surprise its customers by exceeding their expectations and thereby creating a positive emotional response, spreading word of mouth, resulting in increased sales and profitability. Customer satisfaction – providing the same services as other businesses – will not generate these benefits.

To do this, a company must be dedicated to delighting customers from the top of the company. It is not something that can be delegated. Indeed, customer satisfaction depends on the actions of everyone in the company.

Opportunities must be spotted when and where they arise. This means a top-down bureaucracy must be replaced by an agile network of teams driven by the goal of delighting the customer and working across organizational boundaries.

Spending massive sums on technology and new staff will not be enough. It’s JPM’s current 277,000 employees who need to embrace — and act with — an agile mindset.

To succeed in tech, JPM must therefore become a different company, with a different way of thinking about problems. Microsoft did. The question is. can JPM?

What JPM Needs to Get Stock Market Respect

JPM and its CEO, Jamie Dimon, have clearly had entrepreneurial success in banking as we have known it until now. The question is whether JPM can take the next step and reinvent banking in the digital age. This will take more than providing current banking services in digital form or acquiring other digital banks. JPM must rethink how banking can be reinvented to improve the lives of customers, using new digital capabilities. Buying technology and people will not solve this problem, although it may help. Most importantly, everyone already in the business, from top to bottom, must learn to understand and love their customers and solve their customer issuesnot just those of JPM.

In the process, JPM may also learn that in 2022, it’s not just tech companies that need to love their customers. Thus, no company among the top 30 companies in the Dow index experiences significant market capitalization growth without a customer-centric mission. The message for JPM is therefore essential, whatever the technology. It’s time to change missions.

And also read:

Why your mission statement should include customer first

Why Customer First Is Key to Reaping the Benefits of Deep Purpose

Share.

Comments are closed.