Dimon, regarded as one of the most powerful investment bankers on Wall Street, wrote in his annual shareholder letter that elevated consumer spending and the massive savings that households accumulated during the lockdown-induced recession are likely to produce a strong economy in the near future, notwithstanding the market volatility of the past year.
“Unemployment is extremely low, and wages are going up, particularly at the low end,” the executive wrote. “Even if we go into a recession, consumers would enter it in far better shape than during the great financial crisis. Finally, supply chains are recovering, businesses are pretty healthy and credit losses are extremely low.”
Dimon commented only last summer that JPMorgan Chase would prepare for an imminent economic “hurricane” and said his firm would “be very conservative” with their balance sheet. The executive shifted his position and expressed optimism that the “hurricane” has been downgraded to “storm clouds” that he hopes will “peacefully and painlessly dissipate.”
He added in the letter that discussion about risk “begins to cloud your judgment” and distracts from true economic realities. “Looking ahead, the positives are huge,” he continued.
The shareholder letter comes weeks after American medium-sized financial institutions Silicon Valley Bank and Signature Bank unexpectedly collapsed as depositors rushed to withdraw their balances, prompting the Federal Deposit Insurance Corporation to assume control of the firms. Credit Suisse, a Swiss investment bank and formerly the eighth largest in the world, was acquired by competitor UBS amid lackluster risk and compliance management.
Dimon, who leads the largest investment bank in the world, asserted in the letter that the failures “underscore that simply satisfying regulatory requirements is not sufficient” for banks to ensure their own durability through tumultuous conditions. He said that the risks in the American banking sector were “hiding in plain sight” due to investment exposure from rising interest rates and the high percentage of uninsured depositors.
A bond portfolio sold by Silicon Valley Bank to cover withdrawals had declined substantially in value amid Federal Reserve actions to hike interest rates. Assets in the banking system are now $2 trillion lower than their book value due to the rollback in monetary stimulus, which had been previously maintained to stimulate the economy during the recession, according to a study from analysts at the National Bureau of Economic Research.
Dimon clarified that the present volatility is not nearly as severe as the conditions which induced the 2008 financial crisis.
“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,” he wrote. “This current banking crisis involves far fewer financial players and fewer issues that need to be resolved.”
Dimon also cited the robust business climate in the United States and called the federal government a “very important silent partner” in protecting a stable economy relative to those in other nations. He referenced Berkshire Hathaway CEO Warren Buffett’s sentiment that his firm’s success is “predicated upon the extraordinary conditions our country creates.”