According to an internal memo to all employees, JPMorgan Chase & Company (JPM) will lift a salary freeze it put in place last year. The salary freeze was applicable for employees making more than $60,000 a year.
The decision to lift the salary freeze is a part of JPMorgan’s compensation review process, following its profits for last several quarters in its investment-banking operations.
The bank also intends to pay a $500 special award globally to employees who receive less than $60,000 a year.
Additionally, the bank also plans to add more than 300 staff to its branches to support a $4 billion increase in small business lending in an effort to help revive the U.S economy. Also, to boost new loans and refinancing, JPMorgan will hire 1,200 mortgage loan officers by the end of 2010. This addition will increase the company’s sales force by approximately 60%.
According to the company, lifting the salary freeze and hiring new employees will help it to increase access to working capital, term loans for expansion, commercial mortgages, lines of credit and business credit cards.
JPMorgan is among the large financial institutions that have already repaid government funds. In the second quarter of 2009, the company repaid the full $25 billion in preferred capital received as part of the Troubled Asset Relief Program (TARP). In fact, this has partly enabled it to take the recent decision to lift the salary freeze.
However, for many other firms, like Citigroup Inc. (C) and Bank of America Corporation (BAC), the full repayment of TARP money is uncertain at this point as they are facing a difficult situation.
JPMorgan’s third quarter earnings came in at 82 cents per share, substantially ahead of the Zacks Consensus Estimate of 49 cents. This also compares favorably with 9 cents in the prior-year quarter. Better-than-expected results were primarily aided by continued strong performance by the Investment Bank group.
All the other segments except Consumer Lending and Card Services also delivered solid results during the quarter. However, a continuation of high levels of credit costs in Consumer Lending and Card Services loan portfolios and an increased provision for credit losses were the primary factors that negatively impacted the results.
We are also impressed with JPMorgan’s initiatives to remove the salary freeze and hire new employees, which will help increase its new loans and refinancing, contributing to the economic recovery.
We anticipate continued synergies from the company’s diversification and strong capital position, but increasing provisions and worsening credit quality will be a drag on upcoming results. Therefore, we are maintaining our Neutral recommendation on the shares of JPMorgan.
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