JPMorgan's wealth management profits plummeted in the first quarter following a steep increase in compensation expenses.
The Wall Street giant reported $1 billion for its wealth management unit for the first three months of the year. That figure — which exludes profits coming from the former First Republic Bank business that JPMorgan acquired last year — was down 26%.
JPMorgan blamed the weaker bottom line on higher expenses, including "including revenue-related compensation" and "continued growth in private banking advisor teams."
Despite the low profits for wealth management, JPMorgan reported a strong quarter on Friday for all its business units. For its retail and commercial banking business combined with wealth management and other divisions, it saw a 6% year-over-year increase in profits. That brought the bank's total net income to $13.42 billion for the quarter.
JPMorgan warned that its future profits could be held back by persistently high interest rates, which have encouraged many clients to move money into high-yield savings and similar accounts that tend to offer smaller returns to banks. Hopes that the Federal Reserve would soon reduce its benchmark lending rates were dimmed on Wednesday with a report that the consumer price index rose by a still-hot 3.5% in March.
JPMorgan Chief Financial Officer Jeremy Barnum cast some doubt on whether financial institutions would soon see an end to investors moving money into high-yielding products, a process sometimes called cash sorting.
"We've looked at that data," Barnum said in a call Friday with analysts. "We see some evidence that maybe it's slowing a little bit. We're quite cautious on that. We really sort of don't think it makes sense to assume in a world where checking and savings is paying effectively zero and the policy rate is about 5%, they are not going to see ongoing migration."
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Asset and wealth management
One bright spot for wealth management was a 14% year-over-year increase in the asset management fees collected in the first three months of the year. That brought the total from that source to nearly $3.2 billion. That in turn contributed mightily to the nearly $4.7 billion in total net revenue the unit reported for the quarter, a figure essentially unchanged year over year.
Counterbalancing that was $3.4 billion in expenses for the first quarter, a figure up 11% year over year. The biggest contributor to that was $1.97 billion in compensation expenses. JPMorgan also blamed costs related to its taking total ownership in a former joint venture in China in which it had previously held a 49% stake.
Headcount
JPMorgan reported having 9,107 advisors at the end of the first quarter. That was up by 136 from the previous quarter.
Most of the gains were in JPMorgan's ranks of client advisors. It gained 115 of these advisors in the first quarter, bringing its total to 5,571. JPMorgan also added 21 advisors to its private bank, which works mainly with the wealthy. That brought its tally for private bank advisors to 3,526.
Assets under management
JPMorgan's wealth unit reported $3.6 trillion in client assets in the first quarter, a figure up nearly 20% year over year. The bank said the figure was boosted both by investment gains as well as strong inflows of new assets.
JPMorgan reported $34 billion in net inflows of long-term assets, including equities and bonds but excluding cash and other sorts of liquid holdings. That was up from $12 billion in net new long-term holdings in the previous quarter.
Of JPMorgan's assets under management, roughly $1 trillion were held in its private bank, $1.5 trillion in its global institutional division and $1 trillion in its global funds business. Its pre-tax margin for managing those assets was 28%.
Beyond all of that, it had nearly $1.7 trillion in brokerage and custody accounts and similar holdings. That brought its total for client assets to $5.2 trillion.
Private bank results
JPMorgan's private bank reported $2.8 billion in revenue for the first quarter, a figure up 18% year over year. A good part of that — $367 million — stemmed from JPMorgan's acquisition of First Republic.
Remark
Speaking to analysts on Friday, JPMorgan CEO Jamie Dimon sounded his latest cautionary note aimed at tempering expectations that a recession will be avoided this year. Dimon conceded that many things are still going right in the U.S. economy. Unemployment is low and housing and stock prices are generally up.
Dimon said there are signs that people with lower incomes are struggling to pay their debts. Of course, he added, that doesn't mean an economic downturn is guaranteed.
"I just think the chance of it happening is higher than other people," Dimon said. "I don't know the outcome. We don't want to guess the outcome. I've never seen anyone actually positively predict a big inflection point in the economy literally in my life or in history."
