Some interesting news out of JPMorgan Chase courtesy of Jamie Dimon’s (CEO & Chairman) presentation at Goldman Sachs US Financial Services Conference (full transcript available here).
Chase Sapphire Reserve Loss
Here is the relevant section relating to the Chase Sapphire Reserve loss:
Richard Ramsden
Okay. So you talked about your card business, I mean that’s an area that you have taken considerable market share and I think you said that the Sapphire Reserve card sold tens of thousands in the first few weeks, which was your annual budget at the time of the launch, can you talk a little bit about why you think that that was as successful as it was and can talk a little bit about the customers you have acquired and how they are being different from your expectations?
Jamie Dimon
Yes. The customers, we did the Sapphire Reserve and before we had any marketing, it just took off. So, it’s got a very attractive reward proposition and it was aimed at I think at super prime, very high FICOs, high spenders and stuff like that and older. We got the high FICO and good spender, but surprisingly a lot of millennials. So the card is being doing great. So one negative, which I think is very good thing and I think we have told to the analysts, it’s going to reduce our earnings by $200 million or $300 million this quarter because how you have to account for acquisition costs in that business, because you have to get the revenues over 5 years, 6 years, 7 years, but your acquisition costs expense over 12 months, so doing great. It’s got a great reward proposition. And if you don’t have one, you should get one and take it up.
Before you feel too bad, keep in mind they are expected to post $5 billion profit this quarter.
New Cards
This Reuters article makes mention of new cards (no real details given) but during the talk itself the subject is brought up very briefly. Here is the relevant section (p5):
You have the private banking one also called the reserve cards. We are going to come up with one and I think it’s probably not public yet, so I can’t say it. So we have some more good cards coming up.
To me that reads like he is talking about a possible Chase Private Client Reserve card (there is already the JPMorgan Reserve card, but that has launched). I expect we might see a premium Chase Ink Reserve card at some stage as well.
Branches
Having a Chase branch near you is likely to of interest to readers due to the fact in branch pre-approvals can bypass 5/24, Chase checking/savings bonuses regularly require you to open them in branch and in branch offers are frequently better than online offers (e.g Chase Freedom Unlimited, Chase Sapphire Preferred & Chase Ink Preferred). Relevant info:
So every business every year is opening the new branches, adding bankers. For example, in commercial banking, I think we added 110 bankers last year. This year, we are probably going to add something less than – next year we will probably add something less than that. But that includes going to new cities so that where we weren’t before
Looks like the number of consumer branches will be decreasing.
Our Thoughts
Big loss on the Chase Sapphire Reserve was expected, I think they will get hit again in early 2017 with people using up the $300 travel credits again but that will likely rebound late 2017 with annual fees becoming due. That will really be the tipping point with the card, depending on how many people cancel will determine what changes Chase make to the card.
Hat tip to PFDigest and these two reddit threads (1,2) and of course Seeking Alpha for the transcript.
How is he so out of touch that he didn’t know people were literally lined up waiting to apply? He has the “older generation” of customers he is trying to keep with premier products and he doesn’t understand the largest generation that is actually using his cards, not to mention managing their parents money. No one cares about bank loyalty or wants to make sure they have a “personal banker” anymore. My personal banker is my phone. If he refined 5/24 he could make it more advantageous for those customers to not cancel because they have so many chase points they are trapped. But once I drain the bonus and the second year travel credit I will limit my use of the card to times I want the travel insurance and when I get 3x points. Limiting them to my $150 per year fee, after the travel credit, but very few juicy merchant swipe fees, where they really make money.
Doc Private Client and Private bank are two different things. Chase Private Client is the regular $250k account. Private Bank is the $10m asset…
I dont understand this: “To me that reads like he is talking about a possible Chase Private Client Reserve card (there is already the JPMorgan Reserve card, but that has launched). I expect we might see a premium Chase Ink Reserve card at some stage as well.”
Why do you think he is reffering to a new private client reserve card? I see no mention of private client.
Its just an accounting loss, since you are accounting for all the expense now but not the revenue. It will be a true loss if people cancel at the end of 1 year.
this is not a liability accrual. this is QUARTERLY estimated losses. as someone above mentioned, $1B with a “B” is likely. not sure what they are thinking with 7 year projections. they just dont want to say.
whats even more funny is their statement – “it was aimed at I think at super prime, very high FICOs, high spenders and stuff like that and older. We got the high FICO and good spender, but surprisingly a lot of millennials”.
not sure how that was surprising. cant wait for their earnings call next AUG 2017.
Right but I think they would consider the 100,000 points as acquisition cost, since it is a one-time expense. They would have to amortize that over 12 months but the actual revenue comes as people keep using the card.
right.
but then again.. hmm.. he does mention “acquisition costs expense over 12 months” so need more clarification on what he was referring to.. hes kinda rambling…
Acquisition costs refer to the cost to acquire a new customer. In any industry, you have to spend money (sometimes considerable amounts) to get new customers. All that is up-front costs such as marketing, rewards, etc. Dimon knows that over the next 7 years, they will see a lot of profits from the Reserve and he is not worried about these acquisition costs.
yea. i see what ur saying. but whats interesting is how he thinks he can accurately project revenue over 7 years on this initial blockbuster CC when all major variables will not be stable over that long period. thats just ridiculous forward-looking guidance that nobody will take seriously.
hence im super curious what happens next year and totally see chase busting out a citi prestige damage control. we will see!!!
If they didnt have the 5/24 rule on the reserve
It would probably be closer to 1 Billion loss.
“$300 Million Loss Due To Chase Sapphire Reserve”
BAHAHAHA…
AMEX be like…
“Let me give you some Preparation H Anti-Itch Cream”