As expected by the market, JPMorgan Chase & Co. (JPM) announced another round of job cuts. The company’s primary aim is to lower expenses by shrinking its number of branches and countering the reduced demand for mortgages refinancings.
JPMorgan will be dismissing 8,000 workers in its Consumer & Community Banking segment this year. In the meantime, the bank plans to add nearly 3,000 job vacancies in its control function, especially in the compliance and risk management arenas.
Of the total 8,000 job cuts, 2,000 will be in the Card, Merchant Services & Auto division while the remaining 6,000 are supposed to be in Mortgage Banking unit. In 2013, JPMorgan had already slashed around 16,500 jobs in these two units combined.
The primary reason for the bank’s retrenchment of workforce is owing to the decline in mortgage lending operations in its Mortgage Banking unit, given the rise in long-term interest rates. In 2013, refinance originations declined 24% year over year. Further, JPMorgan expects the mortgage market to be down nearly 34% this year.
Additionally, JPMorgan expects mortgage production pre-tax income to be negative, while mortgage production expenses are projected to decline 30% in 2014. Overall, the Mortgage Banking division’s expenses will fall approximately $2 billion this year.
Further, in a major strategic shift in its expansion plan, JPMorgan will be rationalizing branches. The company will not be opening any branches in the next two years but will focus on increased automation with fewer employees. The company anticipates branch workforce to fall 20% in 2015 from 2011.
Moreover, JPMorgan plans to reduce the size of the branches due to the increased used of online banking and ATMs. The company stated that around 10% of the deposits are now made through mobile banking. This is even cost effective for JPMorgan as electronic deposits cost nearly 3 cents while the cost comes to 65 cents in case done through banking teller. Hence, this will improve the bank’s bottom line going forward.
Overall, driven by all these changes, the Consumer & Community Banking segment’s expenses are expected to fall by $2 billion by 2016 from the 2014 level.
Also, JPMorgan now expects return on tangible common equity (ROTCE) to be in the range of 15%–16% over the long term, a change from the earlier target of 16%. In 2013, the company’s ROTCE was 11%.
Evidently, JPMorgan is striving to cut costs and improve profitability. Even though the company has reported increased profits over the years, persistent pressure on its top line and stringent regulations are weighing on its financial performance. Further, the company’s hefty litigation settlements have been a drag on its results.
Notably, JPMorgan is not the first bank to slash workforce owing to lower mortgage refinancings activities. In the past one year, banking majors like Bank of America Corp. (BAC), Wells Fargo & Co. (WFC) and Citigroup Inc. (C) have announced job cuts due to similar reasons.
Currently, JPMorgan carries a Zacks Rank #3 (Hold).
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