Dan2021. What an interesting year. With the world turned upside down by a pandemic that seemingly had its sights set on...
JP Morgan’s co-president talks about his 2020 outlook, the Big Tech threat and socially conscious investing
NonStop Insider
Dan
As you look through publications – traditional and digital – there often are times when you come across articles that really are worth reading. What follows here appeared on the CNBC.com web site, December 27, 2019.
At first we thought we might reference it in passing in the Social Media Round-Up [December 2019] article, but on second thought it seems fitting that we publish most of it here in a separate article. To read the complete interview Daniel Pinto gave CNBC, just follow this link –
HPE and the NonStop team have enjoyed a very close relationship with J.P. Morgan Chase through the years – several years ago a representative of J.P. Morgan Chase served on the ITUG Board. It seems fittingly then to include it here. So much is happening in the world of banking, fintechs and financial institutions in general but it’s still worth noting that they all depend on NonStop for support of numerous mission critical applications.
Daniel Pinto sees a lot from his perch atop the world’s biggest investment bank.
He’s led J.P. Morgan Chase’s corporate and investment bank since 2014, a time in which the bank has steadily gained market share from rivals in trading and banking.
Pinto has also served as J.P. Morgan’s co-president and co-chief operating officer for the last two years, making him a crucial deputy to CEO Jamie Dimon.
From his office on the 41st floor of the New York-based bank’s midtown headquarters, Pinto shared his views on the year ahead, the threat Big Tech poses to finance and the rise of sustainable finance, known as ESG, short for environmental, social and governance.
CNBC: Much has been written about the decline in trading revenues over the last decade as machines and indexing have taken over. What do you think the future holds? Will the shrinkage continue indefinitely?
Pinto: The trading business is very different than it was. There are different asset classes with different levels of liquidity— and in general, existing algorithms are constantly optimizing the market.
Therefore the arbitrage [opportunities] that existed 10 or 15 years ago don’t really exist anymore. Trading has become about doing humongous amounts of trades at a very tiny margin and being very effective in the way you process and manage the risk. That’s why, if you’re big and you have scale, that model is perfectly profitable. If you’re a middle-of-the-pack player, it’s very difficult to exceed your cost of capital.
CNBC: This was the year it became clear that Big Tech – Google, Facebook, Uber – is coming for finance. What do you think of that threat?
Pinto: I think it’s only a matter of time before they participate in financial services in a bigger way. We have to assume that they will be real competitors.
The retail banking business has slightly bigger margins and less complexity so I see more head-to-head competition there. However, the reaction to Libra and the heightened sensitivity to digital currencies shows that it may take some time. That said, I wouldn’t act under the assumption that Libra is completely dead. In our case, we’re working on the development of JPM Coin which uses blockchain to make instantaneous payments across the world.
CNBC: In retail banking, digital banks like Chime in the U.S. and Monzo and Revolut overseas have managed to rapidly acquire customers, at least partly at the expense of big banks like J.P. Morgan and Wells Fargo. How do you see that playing out?
Pinto: They are acquiring clients, but the challenge is acquiring profitability.
Their valuations are going up because the number of clients is rising, but they will need to show that they can convert clients into primary accounts and profitable relationships.
The other issue to pay attention to is infrastructure and controls. As some digital banks gain in size and significance, I expect that they will be held to the same high standards of traditional retail banks.
They may or may not succeed, but we need to watch all these things. It’s a very dynamic space. The last thing you want is to feel invincible and then realize that you should have paid more attention.
CNBC: While J.P. Morgan has a massive budget for technology – it spends north of $11 billion annually on technology – executives said this year that tech costs would rise more slowly in the future. Will that hamper innovation?
Pinto: I believe we can get another 20% or 30% of extra output per dollar of investment into technology as we continue standardizing and modernizing our platforms.
Everything is changing so fast that if you miss the train of innovation, it’s going to be very difficult to catch up. The risk is to stop investing.
What made this CNBC interview published here (in part) interesting were three points raised by J.P. Morgan Chase co-president and co-chief operating officer, an important deputy to CEO Jamie Dimon. Most important of all perhaps was his final comment, “If you miss the train of innovation, it’s going to be very difficult to catch up.” As for the three points of interest, consider these:
Perhaps you thought blockchain was taking a back seat or simply lying low for now? Think again; “In our case, we’re working on the development of JPM Coin which uses blockchain to make instantaneous payments across the world.”
Furthermore, thought fintechs would escape the oversight baggage that comes with being a big bank? The lines may blur very soon; “As some digital banks gain in size and significance, I expect that they will be held to the same high standards of traditional retail banks.”
Finally, even with a spend-rate on technology “north of $11 billion annually” and with the prospect that “tech costs would rise more slowly in the future,” this is one bank that continues to value the investment it makes in tech. But it’s also a clarion call to standardization and yes, modernization; “we can get another 20% or 30% of extra output per dollar of investment into technology as we continue standardizing and modernizing our platforms.”
All of which is to say that if this is what a bank of the size of J.P. Morgan Chase is paying attention to, should the NonStop community be doing the same? Do we run the risk of missing the innovation train? Perhaps not, but it’s still a topic worth discussing in 2020!
