Commentary

JPMorgan Chase's Dimon Sees 'A Bad Recession' In The Making

Even as the Dow soared 7.7% yesterday and futures continue to surge this morning, business people are pondering the bleak outlook for the economy predicted by JPMorgan Chase chief Jamie Dimon in his annual letter to shareholders released yesterday.

“Dimon said the coronavirus pandemic will lead to a major economic downturn and stress mirroring the meltdown that nearly brought down the U.S. financial system in 2008,” writesBloomberg’s Michelle F. Davis.

“Dimon, Chase’s chief executive since 2005, is the sole CEO of a global, systemically important U.S. bank during the 2008 recession to remain in his position. A frequent presence in Washington, D.C., Dimon typically uses his shareholder letter to opine on topics far beyond the bank’s financials, including public policy and politics,” points out  Sylvan Lane for The Hill. “His warning comes amid deepening economic harm caused by the coronavirus pandemic, which has forced millions of Americans out of work while shuttering thousands of businesses.”

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Dimon said “in the most adverse scenario, gross domestic product could plunge at a 35% annual rate in the second quarter and that a downturn would last through the rest of the year. The unemployment rate would spike as high as 14% in this environment,” writes  Paul R. La Monica for CNN Business.

“But Dimon added that ‘this scenario is quite severe and, we hope, unlikely.’ And even if the worst case situation bears out, JPMorgan Chase -- the largest U.S. bank by assets -- still plans to lend an additional $150 billion to its customers,” La Monica continues.

“The 23-page letter, his shortest since 2008, came less than a week after Dimon told staff he’d returned to work after undergoing emergency heart surgery. It was his first public commentary about the coronavirus since the bank’s investor day on Feb. 25. At the time, the outbreak still seemed a distant threat, with fewer than 60 cases in the U.S. and none in New York,” Bloomberg’s Davis adds.

“We stopped buying back our stock: We have always held the position that the highest and best use of our equity is to reinvest it in our own business and, of course, to be able to withstand tough times. Halting buybacks was simply a very prudent action -- we don't know exactly what the future will hold -- but at a minimum, we assume that it will include a bad recession combined with some kind of financial stress similar to the global financial crisis of 2008. Our bank cannot be immune to the effects of this kind of stress,” Dimon wrote.

“He also warned that in an ‘extremely adverse’ downturn in the U.S. economy, JPMorgan would probably consider suspending its dividend to preserve capital,” writes  CNBC’s Hugh Son.

“That message is likely to reverberate among bank investors and analysts. Executives have said that while the biggest U.S. banks voluntarily pulled back on share repurchases at the onset of the crisis, their dividends were safe. Now, with the leader of the world’s most valuable bank by market capitalization broaching the topic of a dividend cut, it would seem that most banks could also be vulnerable if the economy doesn’t recover later this year,” Son continues.

“JPMorgan has steadily raised its dividend in recent years, reaching a quarterly payout of 90 cents a share,” he adds.

“Typically Mr. Dimon’s annual letter is full of ideas on fixing public policy, but that was largely removed this year other than to urge the country to come together and to criticize the initial U.S. response,” observes  David Benoit for The Wall Street Journal. “The country was not adequately prepared for this pandemic -- however, we can and should be more prepared for what comes next,” he said.

In addition, “Mr. Dimon wrote of a need for a ‘disciplined’ return to work once the rate of infection slows and the health care system is under less strain. He cites the need for antibody testing that shows who is likely not to get sick again or infect anyone. That makes Mr. Dimon one of the few corporate leaders to speak publicly, if gently, about restarting the economy and 'minimize the time, extent and suffering caused by the economic downturn,’” The New York Times’ “Dealbook Newsletter” observes.

“He also wrote that JPMorgan won’t ask for ‘regulatory relief’  --  but criticized what he views as poor financial regulations. Now isn’t the time to debate any wider overhaul, he wrote,” it continues.

Nor, it would appear, is it a time for sugarcoating the short-term prospects for a return to prosperity for those fortunate enough to have been enjoying it.

 
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