Coming off a year of blockbuster profits, Wall Street is handing out fatter paychecks even as uncertainty creeps into the economic outlook.
JPMorgan Chase reported record profits for the year on Friday, and Citigroup’s annual profit more than doubled. But both banks said the costs of doing business were going up: Higher compensation curbed their final quarterly earnings of 2021.
The bigger payouts coincide with a labor market in which demand is high for workers, who have been hopping between jobs and winning wage increases.
“We want to be very, very competitive on pay,” Jamie Dimon, JPMorgan’s chief executive, told analysts on a conference call Friday. “There’s a lot more compensation for top bankers and traders and managers, who I should say, by the way, did an extraordinary job in the last couple years.”
JPMorgan, the country’s largest bank by assets, posted a record $48.3 billion in profit in 2021, but its profit in the three months ending in December fell 14 percent, to $10.4 billion, from the same quarter in 2020, despite a 37 percent jump in fees collected by its investment bankers.
Revenues were roughly flat for the quarter, and much of the decline in profit was a result of raising pay and spending more on technology, the company said in its earnings statement.
“There is a war for talent — it’s real,” and it will probably spark higher compensation across Wall Street, said David George, a senior bank analyst at Robert W. Baird & Company in St. Louis. JPMorgan’s position as an industry leader means that “if they’re going to spend a lot of money, others are going to have to follow suit or else they’ll be vulnerable,” Mr. George said.
Two other banking giants — Citigroup and Wells Fargo — also reported higher annual profits on Friday. Top executives from all three banks were quizzed on earnings calls about inflation, which has climbed to the highest level in four decades.
While rising prices are making businesses more uncertain about the future of the pandemic-stricken economy and knocking consumer confidence as housing, gas and food become more expensive, they have also helped American workers clinch higher incomes.
Wages are rising across the economy — in December, average hourly earnings were up 4.7 percent from a year earlier. The issue of pay has been particularly fraught on Wall Street: Banks have raised starting pay for junior bankers as a reward for grueling jobs with long hours, but for some, that is not enough to restore the allure of a career in finance.
“There’s a lot of competitive pressure out there on wages and pay,” affecting everyone from senior staff to entry-level employees at Citigroup, Mark Mason, the bank’s chief financial officer, told journalists on a conference call.
Jane Fraser, Citigroup’s chief executive, told analysts that the company planned to change its compensation structure for executives and leaders of business units to give them more stock instead of cash as an incentive to boost performance.
Like JPMorgan, Citigroup reported lower fourth-quarter profit, sliding 26 percent to $3.2 billion but still exceeding analyst forecasts. For the year, profit nearly doubled, to $21.9 billion.
Wells Fargo bucked the quarterly trend: Profit increased 86 percent to $5.8 billion. And full-year profit rose to $21.5 billion in 2021 — more than six times that of 2020, when the company stockpiled rainy-day funds in case of a surge in loan defaults that did not materialize.
While the fourth-quarter results at JPMorgan and Citigroup may have taken some shine off 2021, it was still a banner year. Banks’ consumer divisions recovered as Americans emerged from pandemic shutdowns and spent more on goods, travel and entertainment. And lenders cashed in as they advised companies on a flurry of mergers and acquisitions. Goldman Sachs — which reports next week, along with Bank of America and Morgan Stanley — had already exceeded its record full-year profit by the end of September.
Bank executives have been upbeat about the economy in recent months, particularly during periods that the pandemic ebbed. On Friday, top bankers acknowledged the potential for disruptions from rising prices and the Omicron variant of the coronavirus, which has caused staffing shortages in schools and businesses, but they maintained their rosy outlook about the direction the economy is heading.
“Everybody seems to be getting more and more confident that the recovery is continuing,” Michael P. Santomassimo, the chief financial officer of Wells Fargo, said on a conference call. Given consumer spending and business activity, “we’re optimistic,” he said.
Shares of Wells Fargo climbed 3.7 percent on Friday, while JPMorgan slid 6.2 percent and Citigroup dropped 1.3 percent. The KBW index of bank stocks has risen more than 11 percent this month as investors predict the Federal Reserve will raise interest rates this year to get inflation under control.
Rising rates would clear a path for banks to increase their profits: They would be able to charge customers more in interest.
That would take some of the sting out of the rising labor costs driven by what Wells Fargo’s chief, Charles W. Scharf, called a “very, very competitive” market for talent that is giving many workers opportunities to move on for bigger paychecks.
But Mr. Scharf wasn’t overly concerned about attrition.
“We never want to lose good people,” he said. “But it happens.”
Stephen Gandel contributed reporting.