Investments and Acquisitions: Determining the Best Use of Capital and Assessing ROIs
We have always said that a steady and increasing dividend along with reinvestment in one’s own business — organically and inorganically, offensively and defensively – are the highest and best use of capital. Reinvestment would ordinarily come before stock buybacks unless the stock is extraordinarily cheap. And we generally only buy back stock when we don’t see a clear need for the capital over the next few years.
In fact, stock buybacks at our company will be lower in the next year or so because we may need to retain more capital due to required capital increases (which, by any real measure, we definitely do not need) and because we have made some good acquisitions that we believe will enhance the future of our company.
We try to be rigorous in how we invest for the future. Above all, we try to free up our capital and capabilities with the following in mind: 1) we reduce complexity in our company and simplify as much as possible; 2) we periodically assess and eliminate hobbies (which have a danger all their own); and 3) we assess investments and activities that seemed good when we started them but are not working out as planned. However, some things simply are complex (like airplanes, pharmaceuticals, technology and banking) but worthwhile — and in fact necessary to compete. We don’t let fear of that complexity stop us from investing.
Before we talk about different types of investments, we should recognize that our most important asset — far more important than capital — is the quality of our people.
We announced earlier in the year that our total expenses would increase by approximately $6 billion. Of that amount, $2.5 billion is mostly related to people, reflecting both inflationary and competitive labor market dynamics. (We have been quite adamant that we will do what is necessary to retain talent – we cannot be one of the best companies without having some of the best talent.) Included in this $2.5 billion are certain expenses (think travel and entertainment) as economies have reopened.
In this section of the letter, I am going to focus on investments — describing how and why we do them and offering a few examples. We have always believed that investing continuously and rigorously for the future is critical for our ongoing success. This year, we announced that the expenses related to investments would increase from $11.5 billion to $15 billion. I am going to try to describe the “incremental investments” of $3.5 billion, though I can’t review them all (and for competitive reasons I wouldn’t). But we hope a few examples will give you comfort in our decision-making process.
Some investments generate predictable returns.
Some investments have a fairly predictable time to cash flow positive and a good and predictable return on investment (ROI) however you measure it. These investments include branches and bankers, around the world, across all our businesses. They also include certain marketing expenses, which have a known and quantifiable return. This category combined will add $1 billion to our expenses in 2022.
Our shareholders should also know that when we make investments like these, we incorporate through-the-cycle thinking — we don’t only look at current margins and charge-offs but also evaluate what we expect them to be over the next several years.
Acquisitions should pay for themselves — and each one has its own logic.
Acquisitions generally extend products, add services or bring in technology that we would have had to otherwise build ourselves. These acquisitions are described in more detail in the letters from the other CEOs included in this report. Over the last 18 months, we spent nearly $5 billion on acquisitions, which will increase “incremental investment” expenses by approximately $700 million in 2022.
We expect most of these acquisitions to produce positive returns and strong earnings within a few years, fully justifying their cost. In a few cases, these acquisitions earn money — plus, we believe, help stave off erosion in other parts of our business. Importantly, on an ongoing basis, many of our acquisitions will be relatively capital-lite, meaning they can grow over time but require little additional regulatory capital.
We want to build upon our global footprint.
While we don’t disclose our investment here, our international consumer expansion is an investment of a different nature. We believe the digital world gives us an opportunity to build a consumer bank outside the United States that, over time, can become very competitive — an option that does not exist in the physical world. We start with several advantages that we believe will get stronger over time: a global brand, with long-term capital and staying power; a global Payments business; an international Private Bank; global Asset Management products; and best-in-class trading platforms. We have the talent and know-how to deliver these through cutting-edge technology, allowing us to harness the full range of these capabilities from all our businesses. We can apply what we have learned in our leading U.S. franchise and vice versa. We may be wrong on this one, but I like our hand.
We make extensive investments in technology for a broad range of reasons, from improving operations and security to enhancing our products and services.
Investments in technology and operations, as well as related products and services, are the most complicated category. Some of these investments simply must be done to sustain the company’s health. Investments in this bucket help keep the ship in tip-top shape and touch a broad range of workplace needs: regulatory requirements and necessary improvements for cybersecurity, as well as operational resiliency and security. Some things we have done with no direct revenue benefit, rather simply to maintain our competitive position. I call these table stakes — think of digital account opening for consumer and small business accounts. Other investments are specific improvements to products and services, often with identifiable benefits. Finally, there are specific investments in this category that are more like forward-looking R&D, as described in the examples that follow.
Combined, this category will add a little bit less than $2 billion to our “incremental investment” expenses in 2022 (the actual expense lines could be for people, hardware or software, or purchased services). Almost all of the $2 billion in expenses are analyzed and studied for their ROI or other significant benefits.
Sometimes people refer to some of these expenses as modernizing or adopting new technologies. I prefer not to talk about it that way because, effectively, we have been modernizing my entire life. Also, the term implies that once you get to a modern platform, these expenses should dramatically decrease — which is rarely the case. In fact, when we analyze these expenses, we incorporate not only the cost to build the product or service but also the cost to maintain it going forward. Furthermore, once you have built the new platforms, they generally create a whole new set of investment opportunities to be analyzed. Technology always drives change, but now the waves of technological innovation come in faster and faster. The science behind them is also increasingly complex as technology (including AI) is “embedded” in more products. In today’s world, I cannot overemphasize the importance of implementing new technology.
We hope a few examples will explain how these expenses are managed. To do so, we are going to talk about two different types of investments that are clearly related: infrastructure and software.
First, on the path to new and modern infrastructure, cloud-based systems, whether private or public, will ultimately be faster, cheaper, more flexible and also AI-enabled — all extremely valuable features. A few other additional details:
We have spent $2.2 billion building new, cloud-based data centers. Our total expensed cost of data centers is higher than in previous years — mostly because of the duplicative expense that is generated as we run both the new and older centers.
Thousands of applications (and their related databases) are being replatformed and refactored to run in the private and public cloud environment. To give you an example: We migrated our Card mainframe to the new data center and are already seeing approximately 20% faster response times for our major customer-facing applications. This one application will use only 1.5% of the capacity of our new data centers: Of our more than 5,000 applications that will still be in use in two years, 40% will have been replatformed.
These “infrastructure” costs include things like modernizing developer tools and embedding operational resiliency and cybersecurity controls.
Second, much of our “incremental investment” technology spend involves building software for new products and services. There are hundreds of these, large and small. Again, a few examples will describe the process:
In certain product areas, we made large, multi-year investments to improve a specific business. In Payments, we have been investing consistently over the past five years to modernize our businesses and compete with both banks and fintech companies. Since 2016, we have invested more than $1.5 billion in technology, operations, sales, products and controls and generated an incremental $4 billion in organic revenue annually, taking our overall market share in Treasury Services from 4.5% in 2016 to 7.2% in 2021. In 2021, we continued this strong momentum, initiating a large majority of all real-time payments in the United States in our cloud-native, faster payments platform, which is now live in 45 countries. We are also winning more than 80% of all global bids that include virtual account solutions available on our liquidity platform.
We now process payments for eight of the top 10 global Big Tech companies (up from three out of 10 companies five years ago), consistently winning business from strong competitors. We continue to bring to the market and commercialize innovative products, such as embedded banking; AI-driven fraud controls and forecasting; and account validation and programmable payments on JPM Coin. Decentralized finance and blockchain are real, new technologies that can be deployed in both public and private fashion, permissioned or not. JPMorgan Chase is at the forefront of this innovation. We use a blockchain network called Liink to enable banks to share complex information, and we also use a blockchain to move tokenized U.S. dollar deposits with JPM Coin. We believe there are many uses where a blockchain can replace or improve contracts, data ownership and other enhancements; for some purposes, however, it is currently too expensive or too slow to be deployed.
We expect to achieve double-digit market share over time in Payments, being the world’s most innovative bank, as well as the safest and most resilient.
We built the capability for our Self-Directed Investing, which now has 800,000 new investment accounts totaling nearly $60 billion on the platform. We are excited to enhance and roll out this product to all of our customers, as we think it is a critical offering in today’s new competitive environment.
Increasingly, we are investing more money (think hundreds of millions of dollars) each year on AI for very specific purposes. For example, we use AI to generate insights on existing and prospective clients from public information, such as KYC protocols, regulatory filings, social media, news, public websites and documents. Once standardized, the information is then applied to multiple uses, such as generating leads, identifying companies and investors, onboarding clients, and detecting environmental, social and governance (ESG) themes. In all of these cases, there are identifiable returns due to lower prospecting costs or improved services. One specific example will suffice:
In the consumer world, we have spent about $100 million since 2017 on AI, machine learning and other technology initiatives to improve fraud risk systems. We know this investment is working. Our annual fraud losses have come down 14% since 2017 despite volumes being up almost 50%, and we estimate that our technology investments alone have contributed about $100 million in annual savings.
We have developed over 1,000 application programming interfaces that give various types of customers access to our systems in a controlled way, allowing them to automate our banking systems into their enterprise systems.
There are plenty of forward-looking and exciting R&D investments, too. For example, we are working on several research-based projects that have the potential for significant future impact. These involve multi-agent simulation, synthetic data and encryption methods — elements that have the capacity to unlock new ways of trading, managing risk and assessing productivity. Multi-agent simulations, for example, enable the exploration of strategies that can handle challenging regimes as variations of novel historical data. Synthetic data, well-calibrated by real data, enables effective testing, experimentation and development without triggering privacy and regulatory restrictions associated with using real data. Encryption methods give us better tools to protect our clients’ privacy and also equip us with the necessary techniques to handle the metaverse. This category also includes investment in the critical area of quantum computing.
While we measure each of these incremental investments (and there are hundreds of them) as diligently as we can, you can assess the overall results by asking the following questions: Do we maintain the competitiveness of our products? Are we gaining market share? Do we have real wins against some tough competitors, both in the banking world and in fintech companies? What are our customer satisfaction scores? Have we built wonderful new products, like Credit Journey and Self-Directed Investing, that may not generate revenue but clearly have improved our business? How are our products serving our clients’ needs to access our systems how and when they want?
Finally, also consider: Is the bank sustaining its overall competitive position, growing at pace and still maintaining a very healthy return on tangible common equity while investing for the future? We hope you will see some great new and exciting products and services this year.
Updates on Specific Issues Facing Our Company
We are vigilant against cyber attacks.
As we have highlighted in previous letters, we cannot overemphasize how cyber threats pose extreme hazards to our company and our country. This has become even more evident as the cost of ransomware has increased dramatically (cyber attacks may have caused the death of some people as hospitals could not provide the necessary procedures). And it is evident to everyone, with the war in Ukraine, that grave damage could be inflicted if cyber is widely used as a tool of war. We believe that our company has some of the best cyber protections in place, as well as the best talent to monitor and guard our information. We also work extensively, and increasingly, with the appropriate agencies of the U.S. government to help protect the financial system and the country.
Our commitment to sustainability is informed by energy realities.
Despite the growth in well-intended climate pledges from governments and companies, the world is well short of meeting its net zero emissions goals by 2050. But the war in Ukraine and sanctions on Russia are driving gasoline prices up and threatening Europe’s access to natural gas. Resource scarcity leads to higher energy costs and reduces reliability, hindering national security and hurting the most vulnerable. Disruptions to the global energy system are again highlighting our urgent global need to provide energy resources securely, reliably and affordably and, at the same time, address long-term clean energy solutions and strategies to reduce our carbon footprint.
These objectives are not mutually exclusive. We can — and must — do both.
To begin, we need to find a better way forward that can bring diverse stakeholders together in pursuit of the North Star: another “Marshall Plan” (as described earlier). Here are four ways to jump-start that process:
First, we must promote energy security. Constraining the flow of capital needed to produce and move fuels, especially as the war in Ukraine rages on, is a bad idea. The world still needs oil and natural gas today, but not all hydrocarbons are equal when it comes to their carbon footprint. We should be directing more capital toward less carbon-intensive fuel sources and investing in innovations, such as carbon capture and sequestration, as we look to transition to green technologies delivered at scale for society. Our company is firmly committed to helping finance these kinds of investments and expediting the use of lower-carbon fuels. This is why we established the Center for Carbon Transition, centralizing client access to financing, advisory and research solutions to help them make the low-carbon transition and thrive.
Second, we need to scale investment massively in clean technologies. As the International Energy Agency has emphasized, “huge leaps in clean energy innovation” are core to achieving net zero. This is because the world will rely on traditional fuels until alternatives, like clean hydrogen, are fully available. To accelerate progress, JPMorgan Chase has a goal of financing and facilitating $1 trillion by 2030 to advance climate action — supporting initiatives such as renewable energy, green buildings and vehicle electrification.
Third, governments should play a leadership role by enacting thoughtful policies that spur long-term and large-scale capital deployment for low-carbon solutions that create jobs and benefit the global economy. Here are some examples: a carbon tax that directs some proceeds to help offset energy costs for underserved communities; measures to promote investment in technology R&D; and reductions in permitting timelines for energy infrastructure, such as wind and solar farms and liquefied natural gas.
Finally, let’s set meaningful goals and identify a few tangible, cost-effective solutions to reduce emissions today. This should include minimizing fugitive methane emissions and virtually eliminating wasteful flaring of natural gas. Immediately actionable opportunities like these might require more financing, not less, to reduce the short-term rate of climate change and prepare companies to thrive in a lower-carbon future. In 2021, JPMorgan Chase set 2030 targets to reduce the carbon intensity of our financing portfolio, starting with oil and gas, electric power and automotive manufacturing — with more to come.
There is no silver bullet to meet the world’s energy and climate goals. But we can start by prioritizing emissions reductions, developing meaningful short- and long-term goals and crafting innovative policy solutions. The curve toward net zero can still be bent before it’s too late.
Progress continues in our diversity, equity and inclusion efforts.
We’ve made tremendous progress over the past few years to create a more inclusive company and promote equity in all our communities. The work is not easy, but we are as committed as ever to doing what is right and just. I’ll spotlight a few areas of focus and describe the progress we’ve made.
A More Diverse Workforce
We continue to believe that if our team is more diverse, we will generate better ideas and better outcomes, enjoy a stronger corporate culture and outperform our competitors. This appears to be proving true.
Despite the pandemic and talent retention challenges, we continue to boost our representation among women and people of color. Here are some examples:
More women were promoted to the position of managing director in 2021 than ever before; similarly, a record number of women were promoted to executive director. By year’s end, based on employees who self-identified, women represented 49% of the firm’s total workforce. Overall Hispanic representation was 20%, Asian representation grew to 17% and Black representation increased to 14%.
We expanded our global Diversity, Equity and Inclusion department to include three new Centers of Excellence: Advancing Hispanics and Latinos, The Office of Asian and Pacific Islander Affairs, and The Office of LGBT+ Affairs.
To promote greater participation in our workforce by Black professionals, we expanded our Historically Black Colleges and Universities partnerships to 17 schools across the United States to boost recruitment connections, expand student career pathways, and support long-term student development and financial health.
We continue to find ways to lift our LGBT+ employees, professionals with disabilities and military veteran colleagues. We just celebrated the 10th anniversary of the Veteran Jobs Mission, which is a coalition JPMorgan Chase co-founded in 2011 as the 100,000 Jobs Mission. It began as 11 companies committed to hiring military talent across the private sector, and now membership exceeds 300 companies with more than 830,000 veterans hired.
Finally, I want to be clear: We oppose any and all forms of discrimination against anyone. Being the bank of choice for all is our goal ― and we want everyone to feel welcome here and be able to contribute to our core mission to the best of their ability.
An Update on Our $30 Billion Racial Equity Commitment
The murder of George Floyd in 2020 highlighted what we already knew: More was required by all of us to address systemic racism. In October 2020, less than five months after his tragic murder, our company made a five-year, $30 billion commitment to help close the racial wealth gap. We committed to trying new things and putting the full force of our firm behind solutions that could really make an impact.
By the end of 2021, we had deployed or committed more than $18 billion toward our goal. That commitment focuses on increasing homeownership, expanding affordable rental housing and growing small businesses, spending more with Black, Hispanic and Latino suppliers, improving financial health and access to banking, investing in minority depository institutions (MDI) and community development financial institutions (CDFI), and investing in communities through philanthropic capital. Here are some details on our progress to date:
Supplier Diversity: In 2021, we spent an additional $155 million with 140 Black, Hispanic and Latino suppliers ― more than doubling the first-year spend goal and increasing the number of new Black, Hispanic and Latino suppliers by more than 40% over 2020.
Affordable Rental Housing: We approved funding of approximately $13 billion in loans to create and preserve more than 100,000 affordable housing and rental units across the United States.
Homeownership: We established a Community and Affordable Home Lending business, hiring over 150 Community Home Lending Advisors and expanding the Chase Homebuyer Grant to $5,000 to help cover customers' closing costs and down payments for homes purchased in 6,700 minority neighborhoods nationwide.
Small Business: We hired 25 diverse senior business consultants to provide free one-on-one coaching for minority business owners in 14 U.S. cities and to mentor more than 1,000 small businesses.
MDIs: We invested more than $100 million in equity in 16 diverse financial institutions that serve nearly 90 communities in 19 states and the District of Columbia.
CDFIs: We provided more than $350 million in financing to CDFIs to support communities that lack access to traditional financing.
Access to Banking: We helped more than 200,000 customers open low-cost checking accounts with no overdraft fees; opened 10 Community Center branches (the sidebar that follows includes more details about this initiative), often in areas with larger Black, Hispanic and Latino populations; and hired over 100 Community Managers in underserved communities to build relationships with community leaders, nonprofits and small businesses.
Our dedication to racial equity is not simply a five-year effort. We might not always get it right, but we are committed to advancing racial equity and sharing our progress on the journey.
Community building through community banking
Americans have lost trust in the ability of large institutions like the federal government, national media and big companies — even big banks — to understand or care about their needs. This view is well earned, particularly among communities of color and low-income households. Simply put, our country has done a bad job of looking out for and creating opportunity for everyone. We need to consider more thoughtfully the unique needs of communities across the United States. Companies of all sizes need to show up, listen, and make the right investments and decisions to earn a neighborhood’s trust. And it needs to be done on the ground and in the community itself to be authentic and sustainable. Impact is most effective when it is local.
A local bank branch, especially in a low-income neighborhood, can be successful only when it fits the community’s needs. That is why over the last several years we have shifted our approach to how we offer access to financial health education, as well as low-cost products and services, to help build wealth, especially in Black, Hispanic and Latino communities. We are delivering this approach through our Community Center branches, unique spaces in the heart of urban communities. Beginning with Harlem in New York City and Ventura Village in Minneapolis, we have opened 10 more Community Center branches in neighborhoods like Stony Island in the South Shore of Chicago, Crenshaw in Los Angeles, and Wards 7 and 8 in Washington, D.C. Ten of these branches were opened since we announced our $30 billion commitment to racial equity in October 2020. These branches have more space to host grassroots community events, small business mentoring sessions and financial health seminars. The majority were built with minority contractors, and we hire local artists to make these locations complement their neighborhoods. With branches expanding to Atlanta, Baltimore, Miami, Philadelphia and Tulsa, we expect to have 17 Community Center branches serving customers in underserved communities by the end of 2022.
The Community Manager, a new role within the bank, primarily functions as a local ambassador to build and nurture relationships with community leaders, nonprofit partners and small businesses. We have now hired over 100 Community Managers in underserved communities and intend to keep growing that number. Our Community Managers have hosted more than 1,300 financial health events with over 36,000 people in attendance and have participated in 600+ community service events. We want people who live and work in these communities to feel welcome and included when they visit our branches. We ask them to come as they are and bring the family or their dog. They are also likely to know the employees in the branch, as we hire locally — people who live in the community and care about serving their neighbors.
I’ve attended many grand openings of our Community Center branches in person. The energy is contagious. We’ve hosted mayors, community partners, students and small business customers who have shared their sense of pride and optimism about what these branches mean for their community. Our Community Managers are always front and center at these events, connecting people to one another and forging new relationships.
We know that to be sustainable, this effort must be measured by results. Our company is closely tracking the number of accounts opened, the number of mortgages funded, the pace and scale of new small business loans extended, and a host of other metrics to ensure that we are achieving results and listening to feedback so we can have even greater impact. In October 2021, we published a detailed report on our racial equity initiatives, including our Community Center branches and Community Managers, which we intend to continue to provide, letting others learn from our experience.
We’re also taking a local approach to our community investments and advocating for local policy solutions. Our business is only as strong as our communities, so we increased our investments in places like Mattapan in Boston and Oak Cliff in Dallas to help local minority small businesses access the capital and support they need to grow. We’ve expanded our homebuyer grant program, which provides $5,000 to cover closing costs and down payments when customers buy homes in 6,700 minority neighborhoods nationwide. We are also looking at alternative credit scores and other ways to increase homeownership in underserved communities and build generational wealth and stability.
We call this going from “community banking” to “community building,” and it is an important evolution in serving communities where it is long overdue. While it is early, our approach has the promise to create real local impact.
Morgan Health is helping us lead in healthcare transformation.
JPMorgan Chase spends $39 billion on compensation and benefits for our 270,000+ employees. Of that amount, about $1.5 billion is directed to medical costs for our employees and their families — approximately 460,000 people. Our employees also spend approximately $500 million on their own medical care. Medical care costs may be our most important benefit costs because they have a critical impact on the health and well-being of our employees and their families. As our employees remain our most valuable asset, improving the quality and delivery of healthcare services is a high priority.
Managing the complexities of healthcare is staggering, whether you are an individual or a corporation — from coping with actual health issues (covering the spectrum of a bad back to diabetes to cancer) and locating suitable primary or specialist care to deciphering incomprehensible insurance plans and pricing, resolving excessive surprise bills and other issues. While the U.S. healthcare system is exceptional in many ways, it also has many flaws that must be addressed. Healthcare costs, which are already the highest in the world, continue to rise (average premiums for family coverage have increased 22% since 2016) for both employers and employees — with no evidence that outcomes are improving (e.g., only 46.5% of adults with private insurance have their blood pressure controlled, and that number has declined in the last 10 years).
This is why, in 2021, we launched Morgan Health, a new business unit. With Morgan Health, we have an opportunity to deliver and scale new healthcare models that improve the quality, equity and affordability of employer-sponsored healthcare. We're focused on connecting healthcare to improved health outcomes for our employees. JPMorgan Chase has approximately 20 talented people on our Human Resources Benefits team helping employees and their families access the best possible medical care. In hindsight, it is shocking how few people we had dedicated to this vitally important issue. With Morgan Health, we are adding approximately 30 more individuals who will help our Benefits team attack this problem from many different angles.
Looking forward, Morgan Health is investing $250 million to accelerate the development and delivery of accountable care (managing a patient’s total care from prevention to outcomes), completing its first $50 million investment in Vera Whole Health — and its subsequent investment in Castlight — with plans to deploy these services to our employees in Columbus, Ohio, this year. Morgan Health just completed another investment in healthcare analytics company Embold Health, which will help facilitate how consumers access the highest-quality care available. We are also working toward providing equal access to equal healthcare, regardless of race, income or other personal characteristics for our employees and in the communities we serve. Addressing inequities in healthcare is fundamental to Morgan Health’s strategy, and our partnership with Kaiser Permanente in California is moving forward quickly on its collaborative effort focused on the collection and reporting of health equity performance metrics.
We continue to support data-driven policymaking through the JPMorgan Chase PolicyCenter and Institute.
Last year, I wrote that one lesson of leadership is putting in place good decision-making processes. An essential part of that is good data because the challenges we face are complex and interconnected. Too often, decision makers use "facts" to justify a pre-existing point of view or do not accurately represent reality. Good data that is granular and timely and, when possible, leverages big data sources must be at the heart of all policy processes to ensure measurable and equitable outcomes.
Six years ago, we created the JPMorgan Chase Institute to deliver unique data and insights to help solve some of our most pressing economic challenges. This information offers a unique lens into the financial habits of millions of small businesses and households, leveraging anonymized and aggregated customer data that represents half of U.S. households. The Institute’s data and analyses have helped policymakers better understand the impact of decisions — ranging from student loan relief and targeted investments in underserved Chicago and Detroit neighborhoods to small business support and insights about how families manage income volatility and use their tax refunds. Importantly, the Institute has also helped shape some of our own products and employee benefits, including how we incentivize customers to save more money and reduce health insurance deductibles for our lower-paid employees.
The Institute’s work has also helped inform our policy advocacy efforts that support inclusive growth. Two years ago, we launched the JPMorgan Chase PolicyCenter to drive this work. Grounded in data, we are developing and advocating for policy aimed at reducing structural barriers to economic mobility and broadening opportunity for millions of families who live on the financial margins and have been most impacted by COVID-19. For example, as Congress was debating expanded unemployment benefits, our research showed how these benefits had boosted spending and stimulated economic activity during COVID-19. Additional research has provided insight into household balances, cutting across income levels and providing an important barometer on how households are faring as government support expires.
This work is not easy, but we believe it’s imperative that policymaking include private and public sector partnership. We continue to need better data to understand what is happening in the real economy so we can help shape policies that make a significant and positive impact on those who need help the most.
We join other companies in evolving our vision of the workplace.
Today, in many places COVID-19 has moved from pandemic to endemic status, although there is still suffering in some parts of the world. And we are cognizant that the risk of new variants is real and that if they occur, we will need to take appropriate action.
As a company, while we continually prepare for multiple business resiliency scenarios (e.g., data center failures, closures of cities, major storms, even widespread disease), we never fully prepared for a pandemic that entailed a large-scale shutdown of the global economy. Although some of our employees, particularly in the branches, continued to work on our premises every day, we quickly set up the technology — ranging from call centers and operations to trading and investment banking — that enabled many of our employees to work from home. We learned that we could function virtually with Zoom and Cisco and maintain productivity, at least in the short run.
Although the pandemic changed the way we work in many ways, for the most part it only accelerated ongoing trends. While it’s clear that working from home will become more permanent in American business, such arrangements also need to work for both the company and its clients. I believe our firm’s on-site versus remote work will sort out something like this:
Generally speaking, many employees (approximately 50%) will necessarily work at a location full time. That would include nearly all employees in our retail bank branches, as well as jobs in check processing, vaults, sales and trading, critical operations functions and facilities, amenities, security, medical and many others.
Some employees (approximately 40%) will work under a hybrid model (e.g., some days on-site and other days at home). Increased flexibility and hybrid working arrangements will vary by job type. We do hope to provide these types of arrangements where they are appropriate and for those who want them.
A small percentage of employees, possibly 10%, may work full time from home in very specific roles.
In all situations, these decisions depend upon what is optimal for our company and our clients, and we will extensively monitor and analyze outcomes to ensure this is the case. As we reopen, and we mostly are, we will, of course, follow government guidelines.
Remote work will change how we manage our real estate. We will quickly move to a more “open seating” arrangement in which digital tools will help manage seating arrangements (people will have regular neighborhoods where they can congregate), as well as needed amenities, such as conference room space. As a result, for every 100 employees, we may need seats for approximately 60 to 75 on average – with an appropriate increase in conference room, private office and amenity space to make it a great work environment.
The virtual world also presents some serious weaknesses. For example:
Performing jobs remotely is more successful when people know one another and already have a large body of existing work to do. It does not work as well when people don’t know each other.
Most professionals learn their job through an apprenticeship model, which is almost impossible to replicate in the Zoom world. Since the onset of COVID-19, JPMorgan Chase has hired over 80,000 new people into the company — and we are making sure they are properly trained on all aspects of our business, from their special role to the significance of conduct and culture. But this is harder to do over Zoom. Over time, this drawback could dramatically undermine the character and culture you want to promote in your company.
A heavy reliance on Zoom meetings actually slows down decision making because there is less immediate follow-up.
Remote work eliminates much spontaneous learning and creativity because you don’t run into people at the coffee machine, talk with clients in unplanned scenarios or travel to meet with customers and employees for feedback on your products and services.
Finally, the negative effects of the weaknesses outlined above are cumulative — they weren’t as obvious earlier in the pandemic — and they get worse over time.
We are moving full steam ahead with building our new headquarters in New York City. We will, of course, consolidate even more employees into this building, which will house between 12,000 and 14,000 people. We are extremely excited about the building’s public spaces, state-of-the-art technology, and health and wellness amenities, among many other features. It’s in the best location in one of the world’s greatest cities.
Two final points. Of our total overhead of $71 billion, $39 billion represents our people costs. Over time, using lots of data, surveys and other metrics, we believe we can gain efficiencies while still keeping our people happy, healthy and motivated, at an increasingly lower cost.
And finally, our leaders must lead. They have to walk the floors, they must see clients, they need to be visible, they need to teach and educate, and they need to be able to conduct impromptu meetings. They cannot lead from behind a desk or in front of a screen.
Management Lesson: The Benefit of Purpose and the Tremendous Value of Work
Great management and leadership are critical to any large organization’s long-term success, whether it is a company or a country. Strong management is disciplined and rigorous. Facts, analysis, detail … facts, analysis, detail … repeat. You can never do enough, and it does not end. But creating an exceptional management team is an art, not a science.
In the section on Investments, I described what we consider our most important investment: our people, who in accounting terms are not even considered an asset. But we all understand the value of building a great team.
In the rest of this section, I talk about some management lessons — I always enjoy sharing what I have learned over time by watching others and through my own successes and failures.
Perfect your Picasso — have something to strive for and motivate you.
It seems to me that people are happier and more motivated when they have a passion, a moral purpose, something they are devoted to — when they are painting their own Picasso, striving for something. Some people find it in religion, the military, teaching, science, athletics, parenthood, entrepreneurship or simply being their best at their craft. Whatever it is, all these things combined — when done well — create a wonderful society. And most people I know get an enormous sense of satisfaction from the exploration and learning that take place on the journey.
Personally and professionally, I am motivated by the desire to leave the world a better place — if I do my job well, this company can do so much for individuals, shareholders, communities, countries and humanity. I am motivated when I see our customers and employees in action, knowing there is increased opportunity for each of them when we do better as a company. I am motivated when I go to our annual National Achievers Conference, which recognizes some of our most successful bankers and managers in the branches. Sometimes they have tears in their eyes as they accept this recognition — many have never been recognized before — and it is hard to describe how this deepens my own sense of responsibility.
Recognize the tremendous value of work.
Work, all work, has value. It was a beautiful thing during the onset of COVID-19 when we celebrated our essential workers (in New York City, it was unbelievable to hear the sound of 1 million New Yorkers shouting thanks out their windows every evening at 7:00), including nurses, firefighters, emergency medical service staff, sanitation workers and police officers (although recently that spirit seems to have waned). They were always essential workers, and they appreciated our recognition.
Along the same lines, some in society diminish “starter” jobs, such as cashiers, office workers, bank tellers, fast food cooks and others. These “starter” jobs bring dignity, provide security for many families and create a solid work ethic. Often, they result in better social outcomes in terms of reductions in drug use and crime, similar to outcomes we have seen from summer youth employment. For many, these jobs are the first rung on the career ladder, leading to bigger and bigger jobs. For example, more than 95% of Domino’s franchise owners started as delivery drivers or pizza makers. At JPMorgan Chase, about one-third of our branch managers started as tellers or personal bankers.
I have expressed regret for many years in this letter that we, as a society, have not found a way to better prepare our young people for jobs, whether through conventional schooling or apprenticeships and skills-based training, which is more important today than ever before. Offering better training and getting more income to lower-paid workers would hugely benefit the economy, the individuals involved and social outcomes — and would help rectify income inequality. We must do a better job improving the outcomes of an education; i.e., that it leads to well-paying jobs. I also believe that we should immediately increase the minimum wage and the EITC to both entice more people into the workforce and to get more income into the hands of the lower paid.
Nurture the extraordinary value of trust.
Trust is earned, given and received. To maximize human creativity and freedoms — which are the greatest gifts of capitalism — trust is essential. We must make it safe to argue, disagree and challenge each other while continuing to dig deeper in areas where we’re not doing as well as we’d like. It must be okay to fail or make mistakes. Trust is the force multiplier that gets the best out of everyone. You do not earn trust if you finger-point, don’t admit to your own mistakes or don’t share the credit.
Combat the enemy within.
While trust is the force multiplier, a workplace cannot devolve into excessive, feel-good collaboration and bureaucracy. I have seen work environments in which everyone is so nice to each other and so collaborative that it slowly creates crippling bureaucracy as everyone’s opinion is sought out — and everyone has a veto.
The other disease that arises from within is a workplace completely run by corporate headquarters: It is very easy to be critical of people in the field for their failures when you don’t walk in the trenches with them.
Very often, the enemy within fights change, resists making bold decisions and balks at investments that are hard, such as growing the salesforce. When the enemy within takes over, energy and creativity wither quickly … although it may take decades for the company to die.
Drive high performance, the right way.
So how do you drive high performance while creating a safe workplace that values relationships built on trust and respect? The best leaders treat all people properly and respectfully, from clerks to CEOs. Everyone needs to help one another at a company because everyone’s collective purpose is to serve clients. When strong leaders consider promoting people, they pick those who are respected by their colleagues and ask themselves, “Would I want to work for him? Would I want my kid to report to her?”
We must strive for continuous improvement, set high standards and emphasize the negatives when we observe them but always remember to make life fun. When I travel around the world and see our people and our company in action, I love it. And you must make it fun — not only because it has a positive effect on retention, attitude and the overall culture of the company but also because it leads to sharing and truth-telling.
I’ve enjoyed the show “Ted Lasso.” He tries to get the best out of everybody, and he displays great gratitude. While I could get a little better at showing more gratitude on a day-to-day basis with my management team (I did give them biscuits in little pink boxes this year), they do know how much I trust, respect, appreciate and admire them.
Three additional things: You don’t create a winning team by pandering to individuals. You must deal with conflict immediately, directly and forthrightly — problems do not age well. When people cannot do their job, they should not have that job. We should either work with them to find another role where they can thrive or ask them to leave. Just do it respectfully to everyone involved — do not embarrass people who have been working for the company.
Bring energy and drive — not just every day — but to every meeting and interaction.
Finally, sharing credit, recognizing the contributions of others, and not casting blame or finger-pointing all are critical to earning trust.
Retaining talent is important and so is life outside of work.
Retaining your best talent is essential. In addition to being treated with enormous respect, what people want most is a challenging job with meaningful work.
All companies have turnover in staff, and all turnover is not necessarily bad. People seek out new challenges, may find outside advancement opportunities or may just want a change in lifestyle. Sometimes good people leave because they are getting a better opportunity or increased compensation at another company. You should not be angry when someone receives a higher compensation offer from another company. No one likes to feel they are being taken advantage of — everyone wants to go home each day thinking they are treated fairly and equitably. And everyone has their own needs in terms of family, income, work-life balance and other factors.
But turnover can be bad, too. It is bad when inefficiency or bureaucracy or ineffective managers drive out good talent. It is still true that most people leave their job because they don’t like their boss.
We also recognize and ask our employees to take care of their mind, body, spirit, soul, friends and family. While we do what we can to help them, we recognize that these are the most important things in their life, and we try to constantly remind them to give the needed time and attention to what they cherish most.
In Closing
I would like to express my deep gratitude and appreciation for the 270,000+ employees, and their families, of JPMorgan Chase. From this letter, I hope shareholders and all readers gain an appreciation for the tremendous character and capabilities of our people and how they have helped communities around the world. They have faced these times of adversity with grace and fortitude. I hope you are as proud of them as I am.
Finally, we sincerely hope that all the citizens and countries of the world see an end to this terrible pandemic, see an end to the war in Ukraine, and see a renaissance of a world on the path to peace and democracy.
Jamie Dimon, Chairman & CEO, JPMorgan Chase & Co. signature
Jamie Dimon
Chairman and Chief Executive Officer
April 4, 2022