Jamie Dimon says ‘prepare’ for economic hurricane caused by Fed-Ukraine war

JPMorgan Chase CEO Jamie Dimon said he was preparing the biggest US bank for an economic hurricane on the horizon and advised investors to do the same.

“You know, I said there were storm clouds but I’m going to change it…it’s a hurricane,” Dimon said Wednesday at a financial conference in New York. While conditions appear “good” at the moment, no one knows if the hurricane is “a minor hurricane or Superstorm Sandy,” he added.

“You better get ready,” Dimon told the room full of analysts and investors. “JPMorgan is preparing and we are going to be very conservative with our balance sheet.”

Since late last year with high-flying tech names, stocks have been hammered as investors brace for the end of the Federal Reserve’s era of cheap money. Inflation at multi-decade highs, exacerbated by supply chain disruptions and the coronavirus pandemic, has sown fears that the Fed could inadvertently tip the economy into recession as it battles the price increases.

As stocks rebounded from a precipitous decline in recent weeks on optimism that inflation might ease, Dimon appeared to dash hopes that the bottom was hit.

“Right now the weather is kinda nice, things are good, everyone thinks the Fed can handle this,” Dimon said. “This hurricane is right over there, on the road, coming in our direction.”

Dimon is worried about two main factors: first, the Federal Reserve has announced that it will cancel its emergency bond buying programs and reduce its balance sheet. The so-called quantitative tightening, or QT, is expected to begin this month and will increase by up to $95 billion per month in reduced bond holdings.

“We’ve never had a QT like this, so you’re looking at something you could write history books about for 50 years,” Dimon said. Several aspects of quantitative easing programs “backfired”, including negative rates, which he called a “huge mistake”.

Central banks “have no choice because there is too much liquidity in the system,” Dimon said, referring to the tightening measures. “They have to take some of the cash out to stop speculation, reduce house prices and stuff like that.”

The other big factor that worries Dimon is the war in Ukraine and its impact on basic commodities, including food and fuel. Oil “nearly needs to go up in price” due to disruption from Europe’s worst conflict since World War II, potentially hitting $150 or $175 a barrel, Dimon said.

“Wars turn out badly, [they] going south with unintended consequences,” Dimon said. “We are not taking the appropriate measures to protect Europe from what will happen to oil in the short term.

“Huge Volatility”

Last week, at an investor conference for his bank, Dimon called his economic concerns “thunderclouds” that could dissipate. Presentations from Dimon and his deputies at the day-long meeting bolstered JPMorgan’s stock by providing more investment details and updated interest income figures.

But his concerns appear to have since worsened.

During the response to the 2008 financial crisis, central banks, commercial banks and exchange firms were the top three buyers of US Treasuries, Dimon said. Players won’t have the ability or desire to absorb as many US bonds this time around, Dimon warned.

“It’s a huge shift in the flow of funds around the world,” Dimon said. “I don’t know what the effect will be, but I’m prepared, at a minimum, for huge volatility.”

One step the bank could take to prepare for a coming hurricane is to push customers to move a lower-quality type of deposit called “non-operating deposits” to other places, such as money market funds, by example. This would help the bank manage its capital needs in accordance with international rules, potentially helping it to absorb an increase in bad debts.

“With all this momentous uncertainty, we are going to have to take action,” Dimon said. “I kind of want to throw the non-operating depots back in, which we can do in size, to protect ourselves so we can serve customers in difficult times. That’s the environment we’re facing.”

Banks with a “fortress balance sheet” and prudent accounting are the best protection against a downturn, Dimon said.

The bank has been hesitant to service many federal FHA loans, he said, because delinquencies could reach 5% or 10% there, “which is guaranteed in a downturn,” Dimon said.

‘Shame on you’

Dimon broke into tears during the hour-long session, flipping through topics like the “greatest hits” of his observations and rebukes, often getting lost in profanity.

He lambasted investors for voting with proxy advisers like Glass Lewis, who disagrees with JPMorgan’s board on recent issues including executive compensation and whether the bank should separate the roles of chairman and CEO in the future.

“Shame on you if that’s how you vote,” Dimon said. “Seriously, you should be embarrassed. Do your homework.”

Companies are being driven out of public markets “because of litigation, regulation, press, cookie-cutter governance”, he added.

Meanwhile, other critics often confuse stakeholder capitalism as “woke,” Dimon said. “I’m a red-blooded free-market capitalist, and I’m not awake,” Dimon said.

“All we’re saying is that when we wake up in the morning, we care about serving customers, earning their respect, building customer loyalty.”

This story is developing. Please check for updates.

Jamie Dimon says ‘prepare’ for economic hurricane caused by Fed-Ukraine war

Source link Jamie Dimon says ‘prepare’ for economic hurricane caused by Fed-Ukraine war

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