Jamie Dimon has earned his credibility with investors, leading one of the tightest ships in banking and hitting targets multiple times over the years. But as JPMorgan Chase prepares to release one of the season’s earnings reports this week, the longtime Wall Street CEO is busy trying to win a messaging war the bank has been wrestling with in recent years. month. After its latest earnings, when JPMorgan revealed it was spending billions of dollars more than expected, up to $3.5 billion more, analysts and shareholders were thrown off balance.

In his widely read annual letter to shareholders published last week, Dimon provided his final defense of banking spending, and tech spending in particular, writing about the existential threat to traditional banks from fintech rivals and market giants like Walmart and Apple encroaching on its turf.

Threat is an issue Dimon has spoken at length about in recent years — he called a section of the letter “Competitive Threat Redux” — and the related expense issue isn’t likely to go away. Dimon wrote in the letter that spending will continue and that the pullback on Wall Street that began last quarter is also expected to continue.

The rift between investors and JPMorgan may not be resolved in a letter from the CEO or a quarterly report. Investments in technology must be made, but technology is one area of ​​spending where it is difficult to determine the short-term return on investment. And last quarter, the $3.5 billion on top of an already rising investment profile was a lot to take in, even from a management team that has proven its ability to generate returns. .

“None of these things happen in a vacuum and the management team has a track record of executing,” Seaport Global financial services industry analyst Jim Mitchell said in an interview after the latest results. “The management team is important…so there should be a willingness to give them some credibility to spend all that money, but from an investor perspective, it’s a big increase in spending,” Mitchell said.

And that was on top of the multiple times the bank raised its spending forecast last year. “The magnitude was greater than people expected,” he said.

The banking sector has been in the red this year, and JPMorgan’s decline of around 17% year-to-date is among the major banking group’s largest losses.

There’s “a bit of short-term purgatory,” Mitchell said. “It had all just come to an end. I was a little surprised they didn’t have a better response than ‘we have to do it’.”

Dimon’s letter to shareholders attempted to expand on that response, first repeating his warning of recent years that technological threats are everywhere.

“Last year alone, $130 billion was invested in fintech, enabling them to accelerate things — and at scale,” Dimon noted. “The pace of change and the scale of competition are extraordinary, and business is accelerating.”

He called Walmart, which has more than 200 million customers who visit their stores every week and can use new digital technologies to offer banking-like services to their customers. And Apple, which already owns Apple Pay and the Apple Card, and is moving into payment processing, credit risk assessment, person-to-person payment systems, merchant acquiring and purchase offers immediate and subsequent payment.

All this is accompanied by a diminishing role for banks, which Dimon explained in numbers.

• Lending by US banks is now just 8% of total US debt and equity markets, down from 11% in 2010.
• Banks’ share of mortgage loans fell from 91% to 32%.
• Banks’ share of the leveraged loan market has declined over the past 20 years, from 46% to 13%.
• Neobanks now have over 50 million accounts.

“I can go on and on, but suffice it to say we have to be prepared for this trend to continue. … Sometimes it really is change or die,” Dimon wrote.

All major banks are spending on technology and spending similar amounts relative to their assets in recent years, according to Gerard Cassidy, large-cap bank analyst and head of U.S. bank equity strategy at RBC Capital Markets.

“Half the tech spend is running the bank and the other half is switching banks,” Cassidy said in an interview after the latest results.

But JPMorgan’s spending continues to rise while Bank of America’s is flat.

One of the big things that stands out from JPMorgan’s spending is overseas expansion. Investors are finally realizing how much the company’s digital-driven overseas expansion strategy will cost. “We may not all have appreciated the cost of the expansion into England and the all-digital expansion,” Cassidy said.

Dimon addressed this issue in the annual letter, saying that starting from scratch by creating a virtual version of what already physically exists in the United States with its branch networks is the right way to go overseas, but he didn’t provide much clarity.

“We believe the digital world gives us the opportunity to build a consumer bank outside of the United States that over time can become very competitive – an option that does not exist in the physical world,” wrote Dimond. “We can apply what we learned in our main American franchise and vice versa. We can be wrong on this one, but I like our hand,” he wrote.

Investors, however, will be looking for more concrete numbers, and some banks have started increasing digital disclosure.

Bank of America is disclosing more digital metrics and has shown its ability to grow the consumer business digitally, with nearly half of all consumer banking product sales now conducted through digital channels and deposit transactions conducted digitally and ATMs are now approaching 90%.

For all banks, there will be a greater need for more data on how technology investments are being made to “change” the industry.

“These are the metrics we want to see for all banks to see if digital adoption is strong,” Cassidy said.

Analysts admit that metrics on technology gains are difficult to produce in the short term. But on the other hand, “To just give them carte blanche to spend X billion to do it… now people are saying you need to start showing us metrics on what level of return we think is acceptable,” Cassidy said. . “We want to see the metrics that support success, and the more reluctant a bank is to disclose, the more people start scratching their heads.”

In total, investments in technology and operations, at just under $2 billion, “are the most complicated category,” Dimon wrote. And in the letter, he prepared shareholders for continued investment.

“Sometimes people will label some of those expenses modernization or adopting new technologies. … the term implies that once you get to a modern platform, those expenses should drop significantly – which is rarely the case .. Technology always drives change, but now the waves of technological innovation are coming faster and faster,” he wrote.

“Every year we see increases, so when does that level off? Can you spend $20 billion a year methodically, or is it reckless at some point?” Mitchell asked.

Proof over time, measured by above-average growth across all platforms and market share gains, should result in higher operating leverage and additional margins. And analysts say the track record of JPMorgan’s management team should inspire some confidence, along with the fact that it has been one of the most aggressive banks trying to navigate all the changes going on around the technology, fintech and market. .

“At some point there should be a cross between efficiency and improving margins,” Mitchell said. “Right now Dimon is just saying ‘trust me. … I think in the long run they will be winners. It is always difficult to know when the market will be convinced of this and not to worry too much about the expenses. We’ll watch every quarter and check,” Mitchell said.

Cassidy is willing to give JPMorgan the benefit of the doubt. “In three or four years the numbers should prove a successful strategy, but you can’t measure it in less than 6 months.”