JP Morgan To Hike Pay Across US, Expand Network In Wake Of Federal Tax Changes

Tom Burroughes

24 January 2018

JP Morgan yesterday unveiled a $20 billion investment program spanning five years to widen its network in the US, including an average 10 per cent wage rise affecting 22,000 employees, expanding lending to small firms, and lending for affordable homes.

The move happens as JP Morgan takes advantage of a cut, enacted in December, to the federal US corporate tax rate to 21 per cent from 35 per cent. The change means that the bank’s effective tax rate will be about 20 per in the near term. As reported, the bank took a one-time, $2.4 billion charge in the fourth quarter due to the tax changes.

The package of measures did not, however, appear to affect the blue-blooded bank’s private banking arm. Earlier this month, JP Morgan reported that its asset and wealth management arm, which includes its private banking business, logged $654 million in net income in the fourth quarter of 2017, a 12 per cent year-on-year increase. For the JP Morgan group as a whole, the bank reported net income of $4.232 billion, a drop of 37 per cent from a year earlier.

Explaining its US investment strategy, the bank said: “We are a leader in 23 states, but aren’t yet in major markets like Washington DC, Boston, Philadelphia, and many others. Now that we are planning to expand into new markets, we will hire thousands of new employees and help consumers and small businesses in these areas.”

“This long-term investment, which both increases and accelerates the firm’s current growth, is made possible by the firm’s strong and sustained business performance, recent changes to the US corporate tax system and a more constructive regulatory and business environment,” it continued.

Wages will increase 10 per cent on average – ranging from between $15 and $18/hour – for 22,000 employees; the bank will increase its branch network into new US markets, opening up to 400 new branches over the next five years. These new branches will directly employ about 3,000 people, it said.

JP Morgan said it is increasing community-based philanthropic investments by 40 per cent to $1.75 billion over five years and will boost small business lending by $4 billion. It also said it will hike mortgage lending in low-and moderate-income communities and accelerate commercial lending to build affordable housing.

While modern technology and the rise of internet banking has seen some banking groups consolidate and shut down certain bank branches, JP Morgan’s branch expansion appears to be a move in the opposite direction. Such measures are likely to be hailed by the Trump administration as a pushback against tech-driven job losses and vindication of the tax cut package.

One of the tax cut package's measures - encouraging US firms to repatriate overseas earnings in exchange for a one-off charge - has seen companies such as tech giant Apple cite move to repatriate money. Earlier this month, Apple said it will bring back the vast majority of the $252 billion in cash that it held abroad and make a large investment in the US. Apple has 94 per cent of its total cash of $269 billion outside the US .