JPMorgan Sees Clients With Less Than $100,000 Unprofitable
bloomberg.com
bloomberg.com
What is not being said is:
1. We are in an abnormally low and compressed rate environment. As those numbers go back up smaller deposits will become profitable.
2. Small deposits turn into big deposits as customers age - this is the rationale behind college checking accounts.
3. The banking infrastructure is a largely fixed cost. I don't know how they accounted to $100k, but I'd you wanted to inflate the number one could ignore the fact that the variable cost of most customers is virtually non-existent at the margin.
4. You can just charge fees to customers below $100k to make them profitable. Checking accounts are historically cheap, in real terms.
The fact that they charge anything at all seems ludicrous to me. Particularly when I don't use it for months at a time.
A customer with 100mm is possibly only 10x as hard to serve as one with 100k.
I suspect the endgame is 100 pct automated services for most of the market. This won't be provided by the big firms who struggle to get my credit card and checking account on the same screen.
With fees and free money from the Fed, banks haven't felt any pressure to improve their business processes. With congress kicking fees away from them, they might have to learn how to not suck at their jobs.
The other post saying this is about the Durbin amendment to the Dodd-Frank bill is probably much closer to the truth. You also have to take into account (JPM-Chase's CEO) Jamie Dimon's extremely vocal position on the bill.
Your basic point, that we must account for leverage, is correct in its assertion but not intensity. (No worries - there is no pride in having spent years learning to pry apart financial institutions).
[1] http://www2.fdic.gov/sdi/main.asp (A&L)
1) JPMorgan is saying that future regulation is what is driving those customers to be unprofitable.
More importantly:
2) For someone making business decisions, it is important to really look at your customers to determine which are profitable. There is a consistent flow of stories from startup founders about the dangers of trying to satisfy every customer.
This should be an example of a calculated way a company looks at their profitability and customer mix responsibly and with careful analysis rather than gut feel.
*As a caveat, we don't really know whether those customers would be unprofitable or not, and JPMorgan may be making a political statement about future regulation through their financial documents.
JPMorgan execs are saying they can't or won't adapt to the changing market. "We're a dinosaur. Save us Washington! Save us!" This article is part of their lobbying efforts. Entrepreneurs should see it as an opportunity.
But they are asking Washington to NOT do anything. This isn't a bailout.
Basically, it's even better than a good credit union, because their brokerage accounts are so high margin/high revenue that they'll subsidize the banking operations. It's like a cheap hotel room at a Vegas casino -- a win if you don't gamble.
Of course, from the outside it sounds just fine if they have to shrink to match their actual deposits.
Banks are not going to lose money on customers, with the narrow exception of young people they want to develop a relationship with.
What will happen if the government doesn't allow high overdraft charges and such is the banks will charge big monthly fees for the privilege of having an account. If the government doesn't allow that they'll simply jettison people without a lot of money.
Of course when the economy picks up the picture changes, but right now they really don't have much to do with the money. It's not that the bank is inefficient, it's that there aren't enough worthy (in the green eye shades sense) borrowers out there.
Edit: Yes, I know they make money off of fees, too, but I doubt they collect many fees on accounts with more than about $1k.
This is not a hypothetical scenario - here's one recent event: http://www.tomshardware.com/news/Warhammer-Online-MMORPG,101...
It is up to people to choose the account that is right for them.
It's also up to people not to fall into giant potholes sprinkled randomly across the roadway. That doesn't mean we shouldn't complain and get them filled in pronto regardless if they increase repair revenue or not.