JPMorgan Chase & Co CEO Jamie Dimon in a letter to shareholders said that the US Banking crisis is not over and it will have repercussions for years to come. The 43-page letter by the head of a prominent global financial institution covered a range of topics, including the bank’s performance, regulation, and geopolitics.
Jamie Dimon, Chairman, and Chief Executive Officer of JPMorgan Chase & Co said, “As I write this letter, the current crisis is not yet over, and even when it is behind us, there will be repercussions from it for years to come. But importantly, recent events are nothing like what occurred during the 2008 global financial crisis (which barely affected regional banks).”
On the Banking Turmoil, Dimon wrote, “The recent failures of Silicon Valley Bank (SVB) in the United States and Credit Suisse in Europe, and the related stress in the banking system, underscore that simply satisfying regulatory requirements is not sufficient. Risks are abundant, and managing those risks requires constant and vigilant scrutiny as the world evolves.”
He said further said the current disruption in the US banking system, most of the risks were hiding in plain sight. Interest rate exposure, the fair value of held-to-maturity (HTM) portfolios, and the amount of SVB’s uninsured deposits were always known — both to regulators and the marketplace. The unknown risk was that SVB’s over 35,000 corporate clients — and activity within them — were controlled by a small number of venture capital companies that moved their deposits in lockstep.
“It is unlikely that any recent change in regulatory requirements would have made a difference in what followed,” Dimon added.
“The market’s odds of a recession have increased,” Dimon wrote. “And while this is nothing like 2008, it is not clear when this current crisis will end. It has provoked lots of jitters in the market and will clearly cause some tightening of financial conditions as banks and other lenders become more conservative.”
JPMorgan CEO also said, “While it is true that this bank crisis ‘benefited’ larger banks due to the inflow of deposits they received from smaller institutions, the notion that this meltdown was good for them in any way is absurd.”
“While this crisis will pass, lessons will be learned, which will result in some changes to the regulatory system. However, it is extremely important that we avoid knee-jerk, whack-a-mole or politically motivated responses that often result in achieving the opposite of what people intended,” he added.
Jamie Dimon also talked about a variety of issues including climate change, AI, and the economy.
“Until the collapse of Silicon Valley Bank, the current economy was performing adequately, both here in the United States and remarkably better than anyone expected in Europe,” Dimon wrote, adding, “There has been a lot of market volatility over the past year, partially, in my opinion, as people over-extrapolate monthly data, which is highly distorted by inflation, supply chain adjustments, consumer substitution, basically poor assumptions about housing costs and other factors.”
However, he said that we’ve had 10 years of home and stock price appreciation, and even if we go into a recession, consumers would enter it in far better shape than during the great financial crisis.
Om the rise of Artificial Intelligence, JPMorgan CEO wrote, “AI and the raw material that feeds it, data, will be critical to our company’s future success. AI has helped us to significantly decrease risk in our retail business and improve trading optimization and portfolio construction. We have spent over $2 billion building new, cloud-based data centers and are working to modernize a significant portion of our applications (and their related databases) to run in both our public and private cloud environments.”
On Climate Crisis he wrote, “The window for action to avert the costliest impacts of global climate change is closing. The need to provide energy affordably and reliably for today, as well as make the necessary investments to decarbonise for tomorrow, underscores the inextricable links between economic growth, energy security and climate change. Bolstering growth must go hand in hand with both securing an energy future and meeting science-based climate targets for future generations.”
The Ukraine crisis is “leading to the rethinking of many economic alliances, as well as trade and national security. All these factors create more risk and potentially higher inflation,” said Jamie Dimon.