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Thursday, January 20, 2022

Wages on Wall Street will rise after a lean year.

After a year of stunning earnings, Wall Street is handing out bigger checks, even as uncertainty creeps into the economic outlook.

On Friday, JPMorgan Chase reported a record profit for the year, while Citigroup’s annual profit more than doubled. But both banks said the cost of doing business is rising, with higher compensation capping their bottom line quarterly earnings in 2021.

Large payouts coincide with a job market that is in high demand for workers hopping between jobs and seeking higher wages.

“We want to be very, very competitive on pay,” Jamie Dimon, chief executive of JPMorgan, told analysts in a conference call on Friday. “There is much more reward for leading bankers, traders and managers., who, by the way, I must say, has done an incredible job over the last couple of years.”

JPMorgan, the country’s largest bank by assets, posted a record profit of $48.3 billion in 2021, but its earnings for the three months ended December fell 14 percent to $10.4 billion, compared with the same quarter of 2020, despite a 37 percent jump in earnings. fees charged by his investment bankers.

Earnings for the quarter were largely flat, and much of the decline in earnings was driven by higher wages and higher technology spending, the company said in its earnings report.

“There’s a talent war going on – it’s real,” and that’s likely to drive up rewards on Wall Street, said David George, senior banking analyst at Robert W. Baird & Company in St. Louis. JPMorgan’s position as an industry leader means “if they’re going to spend a lot of money, others need to follow suit or they’ll be vulnerable,” Mr. George said.

Two other banking giants, Citigroup and Wells Fargo, also reported higher full-year profits on Friday. Top executives from all three banks were interviewed in response to earnings calls about inflation, which has risen to its highest level in four decades.

While rising prices make businesses more uncertain about the future of the pandemic-hit economy and undermine consumer confidence as housing, gas and food become more expensive, they have also helped American workers achieve higher incomes.

Wages are on the rise across the economy, with average hourly earnings up 4.7% in December from a year ago. The pay problem has been particularly acute on Wall Street: banks have raised starting salaries for junior bankers as a reward for grueling long hours, but for some this is not enough to restore the attractiveness of a career in finance.

“There is strong competitive pressure on wages,” Mark Mason, the bank’s chief financial officer, told reporters during a conference call from senior to entry-level employees at Citigroup.

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Jane Frazier, chief executive of Citigroup, told analysts that the company plans to change the compensation structure for executives and business unit leaders to give them more shares instead of cash as an incentive to improve performance.

Like JPMorgan, Citigroup reported a 26 percent drop in fourth-quarter profit to $3.2 billion, but still beat analysts’ forecasts. Within a year, profits nearly doubled to $21.9 billion.

Wells Fargo reversed its quarterly trend, with earnings up 86 percent to $5.8 billion. And annual profit rose to $21.5 billion in 2021 — more than six times what it was in 2020, when the company was hoarding money for a rainy day in case of a surge in loan defaults that didn’t materialize.

While JPMorgan and Citigroup’s fourth quarter results may have brightened up 2021 a bit, it has still been a big year. Banks’ consumer units rebounded after Americans emerged from the pandemic lockdown and began spending more on merchandise, travel and entertainment. And the lenders made money because they advised companies on mergers and acquisitions. Goldman Sachs, which will report next week along with Bank of America and Morgan Stanley, has already surpassed its record annual profit by the end of September.

Bank executives have been optimistic about the economy in recent months, especially during periods of easing in the pandemic. On Friday, leading bankers acknowledged the possibility of disruption due to rising prices and the Omicron coronavirus variant, which has caused shortages in schools and businesses, but maintained their rosy outlook on which direction the economy is heading.

“Everyone seems to be getting more and more confident that the recovery is underway,” said Michael P. Santomassimo, CFO of Wells Fargo, during a conference call. Given consumer spending and business activity, “we’re optimistic,” he said.

Shares of Wells Fargo rose 3.7% on Friday, JPMorgan 6.2% and Citigroup 1.3%. The KBW Banking Index is up more than 11 percent this month as investors predict the Federal Reserve will raise interest rates this year to bring inflation under control.

Raising rates will open the way for banks to increase profits: they will be able to charge more interest from customers.

This will ease the sting of rising labor costs caused by what Wells Fargo CEO Charles W. Scharf called a “very, very competitive” talent market that gives many workers the opportunity to move up to higher pay.

But Mr. Scharf was not overly concerned about the decline.

“We never want to lose good people,” he said. – But it happens.

Stephen Handel made reporting.

World Nation News Deskhttps://www.worldnationnews.com
World Nation News is a digital news portal website. Which provides important and latest breaking news updates to our audience in an effective and efficient ways, like world’s top stories, entertainment, sports, technology and much more news.
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