Jamie Dimon, CEO of JP Morgan Chase, speaking at the Business Roundtable CEO Innovation Summit in Washington, DC on December 6, 2018.
Janvhi Bhojwani | CNBC
Jamie Dimon, CEO of JPMorgan Chase, didn’t mince words when it came to the regulatory process that forced his bank to suspend share buybacks.
Asked by veteran banking analyst Betsy Graseck of Morgan Stanley on Thursday about the Federal Reserve’s recent stress test, Dimon unleashed a string of critiques about the annual exercise, which was conducted after the 2008 financial crisis nearly capsized the global economy.
“We disagree with the stress test,” Dimon said. “It’s inconsistent. It’s not transparent. It’s too volatile. It’s actually erratic, random.”
JPMorgan, the largest US bank by assets, is trying to raise more capital to meet the results of the Fed test. Last month, steadily increasing capital requirements during the test hit the largest global financial institutions, forcing the New York-based bank to freeze its dividend. While Citigroup made a similar announcement, rivals including Goldman Sachs and Wells Fargo increased investor payouts.
Under the exam’s hypothetical scenario, JPMorgan was expected to lose about $44 billion as markets collapsed and unemployment rose, Dimon said. He essentially referred to that figure on Thursday as bunk, claiming his bank would continue to make money during a recession.
After JPMorgan released its second quarter results, it announced a series of other measures it is taking to increase the man’s capital, including by temporarily suspending share buybacks. This move in particular was not welcomed by investors, because the stock has not been this cheap in years.
Shares of the bank fell as much as 5%, reaching a new 52-week low.
Adding to the conversation, CFO Jeremy Barnum said that while regulators provide a lot of information about the outline of the annual exam, a key element of the so-called stress capital buffer is not being released to banks, making it “very, very difficult to understand every moment of it.” what actually drives it.”
“We feel very good about building [capital] fast enough to meet the higher demands,” Barnum said. “But it’s pretty big changes that are going to take effect pretty quickly for banks, and I think that’s probably not healthy.”
Other steps the bank has had to take: JPMorgan is withdrawing capital spent on volatile trades called “risk-weighted assets,” as well as reducing some forms of deposits and dumping mortgages from its portfolio, Dimon said.
As a result of these moves, JPMorgan, a huge institution with a $3.8 trillion balance sheet, is being forced to take out credit to the financial system just as storm clouds are gathering over the world’s largest economy.
The moves happen to coincide with the Fed’s so-called quantitative tightening plans, which call for a reversal of the central bank’s bond-buying efforts, including for mortgages, which could further shake the market and lower borrowing costs. push up.
‘Make it worse’
As a result, the bank has to act at “exactly the wrong time to reduce credit to the market,” Dimon said.
The measures will ultimately affect ordinary Americans, especially lower-income minorities, who typically have the hardest time getting loans, he said.
“It’s not good for the United States economy and especially for lower-income mortgages,” Dimon said. “You haven’t solved the mortgage business and we’ll make it worse.”
During a media appeal Thursday, Dimon told reporters that while JPMorgan is not exiting the company, capital rules could force other banks to waive home loans altogether. Wells Fargo has said it would downsize the company after rising interest rates caused a sharp drop in volume.
Instead, JPMorgan will provide mortgages and then pay them off immediately, he said.
“It’s a terrible way to run a financial system,” Dimon said. “It just creates huge confusion about what to do with your capital.”