12 billion reasons why JPMorgan Chase is a disruptor, not legacy bank
“There are two kinds of corporations emerging from today’s technology revolution, the disrupted and the disruptor. JPMorgan Chase is in the midst of a once-in-a-generation transformation into the latter.”—JPMorgan Chase
JPMorgan Chase and Co.’s 4Q 2021 earnings results are out, and amidst all the impressive results—and make no mistake, they were impressive, with the bank reporting record profits last year—one number in particular jumps out: $12bn. This is the amount JPMorgan Chase (JPM) spends on global technology across the company. By comparison, that is nearly the same as all the capital invested in all the seed deals done by US VCs in 2021 (a total of $13.1bn according to PitchBook).
$12bn is a very big number, but more importantly it is a call to arms, with the bank confidently stating in its earnings presentation that “…we continue to invest in our technology stack so that we can quickly build and deploy best-in-class products across our business.” Or to put it even more clearly, as the bank states on its website, “There are two kinds of corporations emerging from today’s technology revolution, the disrupted and the disruptor. JPMorgan Chase is in the midst of a once-in-a-generation transformation into the latter.”
Where has this investment and attitude gotten JPM in capital markets? Mostly to the top: JPMorgan ranked number one in both investment banking fees and global markets revenues according to data from Dealogic (as of January 1, 2022) and Coalition (rank as of 3QYTD).
How committed is the bank to their goal to “build and deploy best-in-class products”? Enough to increase tech and tech-adjacent spend by 20% from between 2021 and 2022 (see Figure 1). That follows an increase of around 25% between 2019 and 2020. While it acknowledges “tailwinds” of “normalization” of capital markets activity post-pandemic, it is clearly not seeing this as an excuse to back off tech spend.
Figure 1: JPMorgan Chase Tech and Tech-adjacent spend increase
Source: JPMorgan Chase & Co 4Q 2021 Earnings Presentation
And despite managed revenue from CIB Markets in 2021 being slightly down from 2020, the overall trend from 2019 is still positive, up 31%. (see Figure 2)
Figure 2: JPMorgan Chase Managed Revenue, CIB Markets ($B)
Source: JPMorgan Chase & Co 4Q 2021 Earnings Presentation. Note: the Firm’s definition of managed basis starts, in each case, with the reported US GAAP results and includes certain reclassifications to present total net revenue for the Firm and each reportable business segments on a fully taxable-equivalent basis.
JPMC attributes the past tech spend increase to four areas (see Figure 1). But going forward, where are these investments going? In its earnings presentation it lists five key strategy areas:
• Technology Modernization
• Data Strategy
• Operating Model
One word keeps coming up, and it is right in line with our Capital Markets’ Technology Trends Previsory—scale (see Figure 3). JPMorgan Chase highlights plans to build scalable infrastructure and developer platforms on the technology modernization side and make firmwide data available for use at scale on the data strategy side. Some of the spend is reportedly going toward new data centers as well as cloud computing (underscoring that a hybrid approach to cloud is likely to remain the dominant approach in financial services for some time). Those investments should eventually lower operating costs. But it certainly looks to be a long-term play.
Figure 3: Celent Identified Enabling Business Scaling Through Technology as a Key Tech Trends for Capital Markets in 2022
Source: Celent Previsory Capital Markets 2022 Edition