Jamie DimonThe chairman and CEO of America’s largest bank, by assets, highlighted a unique combination of risk to the nation in an annual shareholder letter.
Over the next few decades, three factors are most likely to influence the world: A U.S. recovery from the Covid epidemic; high inflationThis will bring Russia into an age of increasing rates. invasion of UkraineDimon said that the humanitarian crisis that resulted is now in full swing.
Dimon stated that each of the three mentioned factors is unique.
“They present completely different circumstances than what we’ve experienced in the past – and their confluence may dramatically increase the risks ahead,” he wrote. While it’s possible and even hopeful that these events will all resolve peacefully, we need to be prepared for negative consequences.
Dimon’s letter was widely circulated in business circles, mainly because it contained the following: JPMorganThe CEO, who is the most well-known industry spokesperson, adopted a less optimistic tone. missive just last year. Although he spoke extensively on challenges facing the nation, such as economic inequalities and political dysfunctions, his letter expressed the belief that the U.S. was undergoing a boom which could “easily” continue to 2023.
He wrote that the destruction of European markets has led to the largest European conflict since World War II. This is causing turmoil, realigning allies and restructuring international trade patterns. Dimon says that there are both risks and benefits for America and all other democratic countries.
“The war in Ukraine and the sanctions on Russia, at a minimum, will slow the global economy — and it could easily get worse,” Dimon wrote. This is due to uncertainty over how the conflict will end and the impact it has on supply chains, particularly those that involve energy supplies.
Dimon stated that JPMorgan management does not worry about the company’s future. direct exposure to Russia,The bank can “still lose around $1 billion over the course of time,” however.
Below are extracts taken from Dimon’s book letter.
Economic impact of war
“We anticipate that the fallout of the war and the resulting sanctions will reduce Russia’s economy by 12.5% by the mid-year. This is a worse drop than the 10% after the default in 1998. Our current economists believe that GDP growth in the euro zone, which is heavily dependent upon Russia for oil, will be around 2% by 2022 instead of the 4.5% rate we expected six weeks ago. Instead, the economists expect the U.S. to grow by 2.5% in 2022 instead of the previously projected 3%. These estimates, however, are not based on a static view of Ukraine’s war and current sanctions.
“Many more sanctions could be added — which could dramatically, and unpredictably, increase their effect. This situation, along with war’s unpredictable nature and uncertainty around global commodities supply chains makes it potentially dangerous. Although I’ll speak about the fragility of the global energy supply later, the supply can be disrupted easily for now.
Democracies need to wake up
The United States must prepare for the possibility that a prolonged war with Ukraine could occur, and it should be prepared to deal with unpredictable outcomes. … We must look at this as a wake-up call. It is important to have both short- and long-term strategies in place with the aim of solving the crisis, but also maintaining long-term unity within newly-formed democratic alliances. It is essential that we take a strong, consistent and long-lasting stand in support of democratic ideals as well as against any form of evil.
“Russian aggression is having another dramatic and important result: It is coalescing the democratic, Western world — across Europe and the North Atlantic Treaty Organization (NATO) countries to Australia, Japan and Korea. […]These two issues are likely to have a profound impact on geopolitics over the next few decades. It could lead to both a realignment and restructuring of international trade and alliances. The future order of the world will be determined by how the West behaves and whether it can keep its unity. This could also impact America’s important relationship with China (and those of its allies).
Reordering supply chains is a necessity
It’s also obvious that supply and trade chains need to be restructured, especially if they have an effect on national security. For critical goods and services, you cannot depend on different countries. Reorganization of this nature does not have to lead to decoupling and disaster. This should only be possible with careful analysis and proper execution. It is best for everyone.
For any materials or products that are vital to national security, such as rare earths and 5G (or semiconductors), U.S. supplies must be either domestically controlled or only open to friendly allies. It is not possible and wise to rely on any processes that could or will be used against you, particularly when we are at our most vulnerable. For similar national security reasons, activities (including investment activities) that help create a national security risk — i.e., sharing critical technology with potential adversaries — should be restricted.”
Brazil, Canada, and Mexico all to Benefit
This restructuring is likely to take place gradually and doesn’t need to cause any disruption. There will be winners and losers — some of the main beneficiaries will be Brazil, Canada, Mexico and friendly Southeast Asian nations. We must also reconfigure our supply chains and create new trading arrangements with our allies. As mentioned above, my preference would be to rejoin the TPP — it is the best geostrategic and trade arrangement possible with allied nations.”
The Federal Reserve and government did what was right by taking dramatic, bold actions after the disasters caused by the pandemic. The decision was correct in hindsight. However, it was also obvious that the QE and fiscal spending were probably excessive and took too long.
“Very volatile markets”
I don’t envy the Fed what it will do next. The more robust the recovery is, the higher rates that will follow. (I think this could be much higher than markets anticipate) And the greater the QT. We can enjoy years of growth if the Fed does it right. Inflation will soon start to decline. This process, however, will create a lot of confusion and volatile markets. If volatile markets are not affecting the real economy, then there should be no concern by Fed. A strong economy trumps market volatility.”
“One thing the Fed should do, and seems to have done, is to exempt themselves — give themselves ultimate flexibility — from the pattern of raising rates by only 25 basis points and doing so on a regular schedule. While they might announce plans to lower the Fed balance, they should still be able to modify this plan as needed to respond to market events and changes in the economy. Confidence will increase if the Fed reacts to real-time data and changes in market conditions. Rates will have to rise substantially in any event. Let’s wish the Fed a difficult job.
JPMorgan’s booming spending
“This is the year that we made it clear that this was our plan for the expenses related to investments would increaseBetween $11.5 billion and $15 billion While I’m unable to review every one of these ‘incremental investment’, $3.5 Billion is what I’m going to attempt to write about. However, we do hope you will find some comfort during our decision-making.
Some investments offer a predictable cash flow and good return on investment. This includes branches, bankers and other financial institutions around the globe, in all of our business areas. These expenses also include marketing costs, which are known to have quantifiable returns. In 2022, this category will account for $1 billion of our total expenses.
“In the 18 months to date, we have spent close to $5B on acquisitions. These will result in an increase of ‘incremental investing’ expenses by around $700M in 2022. Most of these acquisitions will produce strong earnings and positive returns within the next few years. This is fully justified by their costs. In a few cases, these acquisitions earn money — plus, we believe, help stave off erosion in other parts of our business.”
The international expansion of our consumer bank is an investment that’s different. We believe the digital world gives us an opportunity to build a consumer bank outside the United States that, over time, can become very competitive — an option that does not exist in the physical world. We begin with several benefits that we expect to grow over the years. We are able to use cutting-edge technology to bring these benefits to our customers. It is possible to apply the knowledge we gained in our U.S. leading franchise, and vice versa. Although we may not be right on this, I prefer our hand.”
JPMorgan’s Diversity Push
We continue to despite the talent retention and pandemic challenges. boost our representation among women and people of color. … More women were promoted to the position of managing director in 2021 than ever before; similarly, a record number of women were promoted to executive director. According to employees who self-identified, the number of women in the company’s workforce was 49% by the end of 2018. Hispanic overall representation was 20%. Asian representation rose to 17%, and Black representation rose to 14%.