JPMorgan, like Goldman Sachs before it, is launching an assault on UK retail banking. Yet Chief Executive Jamie Dimon’s plans seem more ambitious. In a saturated market, the $400 billion group’s edge may be its capacity to endure pain.
Dimon’s company said on Wednesday that it would offer digital bank accounts in Britain within months. That looks very different to the strategy chosen by Goldman, whose successful Marcus brand has since 2018 been hoovering up customer savings to fund its investment bank. UK current accounts, usually free, are effectively loss-leaders. JPMorgan’s launch would only make sense if it also plans to offer a full-service retail bank with mortgages and credit cards.
That would take Dimon’s group into a cut-throat market. Britain’s so-called challenger banks like Metro Bank, TSB and Virgin Money have spent over a decade trying and failing to dislodge Lloyds Banking Group, NatWest, Barclays and HSBC. And there’s relatively little profit to go around. Even before the pandemic, UK lenders’ average return on tangible equity was about 10%, according to UBS data which excludes one-offs like legal bills and restructuring costs. That’s roughly half JPMorgan’s figure for 2019.
Dimon might think he can beat the UK market’s returns by dispensing with a costly branch network. Building a new IT system will also make his British bank nimbler than older rivals. But others have tried the same trick, with mixed success. Anne Boden’s Starling Bank, founded in 2014, only recently hit break-even. Digital pioneer Atom Bank lost almost 70 million pounds in the financial year to March 2020.
JPMorgan’s size in theory gives it an advantage. The bank likes to tout its gargantuan $12 billion annual IT budget, which is roughly six times the amount that Lloyds, Britain’s biggest domestic bank, spent on technology in 2019. Yet it’s doubtful whether the UK venture will have any cost synergies with the U.S. retail business: the bank said on Wednesday that it had designed the new business “from scratch”.
Yet the parent group’s heft could help in another way. The new UK unit will be a barnacle on a whale. That means, unlike his venture capital-backed digital rivals, Dimon can absorb losses and wait for weaker players to die. He’s chosen a tougher UK path than Goldman CEO David Solomon, and will also need more patience.