In the end, the Chase Pay and Starbucks deal may have been the best news to come out of the JPMorgan Investor Day.
The company sounded sanguine on the potential to bring its past relationship with the ubiquitous coffee chain to a new chapter, where the financial behemoth’s payments platform will eventually be in sync with Starbucks in as many as 7,500 locations.
Core Business Faces Headwinds
The fact remains, however, that the new payments deal may have a ways to go before it starts contributing meaningfully to a company that is finding headwinds just about everywhere else. During Investor Day presentations, management stated that the current quarter is finding rough sledding in key avenues, with declines in the investment banking business as high as in the double digits.
Of course, the energy sector looms like some electric boogeyman over results in that unit. In fact, as noted by several outlets, including Reuters, JPMorgan is going to boost its reserves taken to cover losses in the energy book of business by as much as $500 million (that would grow to as much as $1.5 billion should oil hover at around $25 a barrel for a long period of time).
In terms of broader views of the financial industry itself, Daniel Pinto, who heads the investment banking unit, said that investors shied from risk against low interest rates, heightened regulations and, of course, China and its slowing growth, which remains ever in the background. Pinto noted to investors on Tuesday (Feb. 23) that the firm has been working its way through a tough quarter. That has led to the unit’s revenues being down as much as 25 percent year over year.
What Lies Ahead
Looking ahead, the bank is pushing profit goals down the road, and like other players in finance, the pressures of low interest rates, with no real respite coming via the Fed anytime quickly, means that margins will be tough to push higher. Cost-cutting is one thing — and, notably, the company is holding back on that lever toward profits, at least for now — but management signaled during Investor Day that 15 percent returns on tangible common equity will be a 2018 event rather than next year. That return on equity now stands at about 13 percent.