JPMorgan's slimmer ambitionsFebruary 26, 2014: 9:07 AM ET
Jamie Dimon, once an advocate for building even larger banks, plans to exit some businesses and scale back others.
FORTUNE -- The nation's largest bank may indeed be too big.
On Tuesday, at its annual investor day, JPMorgan Chase executives spent a lot of time talking about the bank's plans to shrink.
"Bad loans equal bad revenue," said CEO Jamie Dimon. "Do a lot of bad loans and you go out of business. I want to grow good revenue."
The headline from the meeting was that JPMorgan (JPM) plans to eliminate 8,000 positions in its consumer and community bank divisions in 2013. That's actually fewer job cuts than the bank made in those departments a year ago. But it was only one of the ways JPMorgan executives said the bank was slimming down. Across the bank, executives highlighted businesses they said the bank plans to exit or scale back. Among them were pre-paid cards, physical commodities, and mortgages.
JPMorgan said that coming into 2013 the bank offered 35 different types of home loans. By the end of 2014, JPMorgan plans to offer 15. And for the first time in years, JPMorgan said it will not likely increase the number of bank branches it operates in the next year. Compare that to two years ago, when the bank opened an additional 106 branches, and 240 the year before that. The branches themselves will have 20% fewer employees than they had just a few years ago.
Indeed, the only place the bank appears to be growing is in risk management and compliance. Those divisions are hiring.
The shift to thinking smaller makes sense for JPMorgan. In the past year, the bank seemed to run into problems with regulators everywhere it turned. Rivals Bank of America (BAC) and Citigroup (C) have already spent the past few years paring businesses. But the move marks a big shift for JPMorgan.
Two years ago, at the same investor day, Dimon vowed to continue to grow his bank despite new regulations, a weak economy, and a suggestion by some that JPMorgan would be worth more broken up. He said regulators trying to rein in his bank and others would soon realize that U.S. mega-banks like JPMorgan were not big enough to compete with larger foreign rivals. "Would it be great for America if Boeing and Caterpillar were to use Chinese banks?" Dimon asked.
Now, though, Dimon and Co. appear to think they can do more with less.
The question is whether slimming down will pay off. CFO Marianne Lake said JPMorgan's plan to exit some businesses will save the bank $1 billion next year. Eventually, she says the bank's bottom line will grow to $27 billion. But for that to happen, interest rates will need to go up, and the economy will have to improve.
For next year, though, higher profits might be tough to achieve. The bank said it expects the mortgage market to drop 34% in 2014. Lake said a key measure of profitability for JPMorgan is likely to drop in 2014. Like other banks, JPMorgan is finally realizing, at least for right now, there's just not enough good revenue to compensate for giving up all the bad stuff.