How JPMorgan Will Spend a Big Chunk of Its Tax Windfall

JPMorgan Chase & Co. is unrolling a $20 billion, five-year investment across its businesses based on benefits from recent tax-law changes, a softer regulatory environment and its overall growth.

The largest U.S. bank by assets is planning to open up to 400 branches in new markets across the country, grow its home lending to lower-income consumers and boost wages for some retail-banking employees, among other changes, Chief Executive James Dimon said in an interview.

JPMorgan is one of many large companies passing its employees or clients some of the windfall of billions of dollars in expected additional profit from the tax-code overhaul enacted late last year. The bank's effective tax rate will be about 19% this year and 20% over the near term, down from 35% previously, finance chief Marianne Lake said during an earnings call earlier in January.

Mr. Dimon said during the same call that the bank could have roughly $3.6 billion in additional net income in 2018 as a result of the tax overhaul.

JPMorgan took a one-time, $2.4 billion charge in the fourth quarter due to the tax changes. But Ms. Lake and Chief Executive James Dimon spoke at length about future benefits and hinted at some changes the bank was planning.

"In anticipation [of tax reform], we asked our people: 'What can we do? What different things can we do to help? What can we do to accelerate our growth?'" Mr. Dimon said of the planned new investments. "This is good for the business, good for employees, [good for] wages, skills, jobs."

JPMorgan's move to open hundreds of new branches in new cities is at odds with some of its competitors, which have been closing locations in recent years. The bank has also been slimming down the number of branches in certain areas while boosting its digital and mobile banking options.

JPMorgan currently has about 5,130 branches in 23 states. Over the next five years, it is planning to expand to 15 to 20 new markets and add 3,000 people, said Gordon Smith, head of consumer and community banking. That could include Washington, D.C., Boston and Philadelphia, among other cities.

A quarter of JPMorgan's branches are in lower-income communities. Mr. Smith said each of such branches supports about 6,000 families and about 450 small businesses.

"The improved regulatory environment has [helped] open this opportunity for us," Mr. Smith said. "Once you open a branch, you're helping customers to get mortgages, helping customers to get credit cards, helping small businesses to be able to get business loans, helping commercial bank customers to be able to grow their businesses."

The growth in branches is also connected to the bank's plans to boost small-business lending by nearly 20%, or $4 billion, hiring 500 new bankers over three years, he said. It is planning to open offices in Charleston, S.C., and Bethesda, Md., in 2018 and evaluating other locations across the country.

JPMorgan also plans to hire 500 new mortgage employees to grow home lending in low- and moderate-income communities to $50 billion over the next five years. The bank lent an average of $7.7 billion to such communities from 2015 to 2017.

Mr. Smith said the $50 billion is equivalent to about 250,000 mortgages in lower-income communities. JPMorgan is also boosting the amount of certain homeownership grants and expanding its program to be available across the country.

Messrs. Dimon and Smith added that changes in Federal Housing Administration rules could lead to further growth in that type of lending. Since the financial crisis, JPMorgan has slimmed its mortgage business and worked with higher-end borrowers.

Mr. Dimon wrote in his 2017 annual shareholder letter that FHA reform "can bring banks back and expand access to credit."

Meanwhile, some of the bank's planned investments will directly benefit employees.

JPMorgan said it would boost wages for 22,000 lower-paid, full- and part-time U.S. employees largely in branches and customer service centers. Wages will increase to between $15 to $18 an hour, starting Feb. 25, up from $12 to $16.50 an hour. This is the second time the bank has boosted wages in the past two years; the most recent raise follows a number of large banks' increases announced in December.

JPMorgan is also giving eligible lower-paid employees an annual award of $750 later in January, which it has done in prior years. Bank of America Corp. and U.S. Bancorp, among other large companies in other sectors, previously announced $1,000 one-time bonuses to many employees.

And for employees making less than $60,000, JPMorgan will reduce medical-plan deductibles by $750 a year.

The bank said it also plans to boost its philanthropic giving by 40% to $1.75 billion over five years, aiming to drive economic growth in local communities.

Write to Emily Glazer at emily.glazer@wsj.com

(END) Dow Jones Newswires

January 23, 2018 05:45 ET (10:45 GMT)