CEO Jamie Dimon warns not to get too smug about a soft landing

When it comes to banking, JPMorgan Chase's Chief Executive Jamie Dimon is arguably the most closely watched and influential.

He helms the largest U.S. bank and the fifth largest in the world, with $3.9 trillion of assets. JPMorgan has a fortress-like balance sheet, including $514 billion of loss-absorbing capacity and $1.4 trillion in cash and marketable securities.

Dimon, 67, has made his name steering several banks through tough times and taking advantage of opportunities as they arise. For example, when First Republic Bank collapsed last spring, Dimon and JPMorgan swept in, picking up the bank and its wealthy customers on the cheap. Bank analysts have fawned over him for years.

His reputation and influence as a banker-statesman makes it wise to pay attention to what he says about banking, economics, and geopolitics.

Dimon weighs in on JPMorgan’s earnings

The big news Friday for Dimon and JPMorgan  (JPM) - Get Free Report was the bank’s fourth-quarter earnings report. 

The quarterly results offered Dimon an opportunity to weigh in on JPMorgan's performance, challenges facing the banking industry, and economic risks.

Overall, JPMorgan's revenue and profit were solid.

It registered profit of $9.3 billion in the quarter, or $3.04 a share, down 15% from $11 billion, or $3.57 a year ago.

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However, the results would have been better without a $2.9 billion special assessment payment to the Federal Deposit Insurance Corporation, the agency that protects bank depositors against losses when banks go under.

The FDIC's assessment is designed to replenish its reserves following the failure of First Republic, Silicon Valley Bank, and Signature Bank last spring. 

Those banks were shuttered after they ran shy of liquid assets to cover withdrawals, partly because the value of bonds held on their balance sheet dropped because of the Federal Reserve's increases to the Fed Funds Rate to fight inflation.

JPMorgan's share of the assessment took a hefty 74 cents off its per-share profit, causing it to miss analysts’ forecasts on a GAAP-accounting basis.

On the positive side, JPMorgan’s revenue climbed 8.4% to $38.3 billion, though that too trailed analysts' estimate of $39.8 billion.

Much of the revenue increase stemmed from net interest income, which soared 19% to a record $24.2 billion amid high interest rates. Net interest income represents the interest payments a bank receives on its loans and bonds minus the interest payments it makes to depositors.

On the negative side, JPMorgan’s merger activity dropped 18% last year from 2022 to $3 trillion in deals completed, the lowest in 10 years, according to LSEG data.

Not surprisingly, Dimon sees the earnings glass as half-full. 

“We ended the year with a solid quarter,” he said. “Our record results in 2023 reflect over-earning [higher than normal numbers] on both net interest income and credit [lending]. But we remain confident in our ability to continue to deliver very healthy returns even after they normalize.”

Dimon warns about policy and the economy

However, Dimon’s not too happy about regulatory and legislative proposals in the U.S. and overseas that are designed to make banks less risky, including Basel III.

"These proposals could cause serious harm to consumers, businesses, and markets,” said Dimon bluntly. 

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Dimon says that as these proposals are currently written, they risk "causing undue consequences for end users." 

He also warned those in the economic soft-landing camp not to get too confident.

“The U.S. economy continues to be resilient, with consumers still spending, and markets currently expect a soft landing,” said Dimon. "It is important to note that the economy is being fueled by large amounts of government deficit spending and past stimulus.”

And even more spending is required for the transition to clean energy, the restructuring of global supply chains, defense and healthcare, he said. “This may lead inflation to be stickier and rates to be higher than markets expect.”

The Federal Reserve's rate cuts and quantitative tightening (selling bonds to shrink its balance sheet) are wringing some of that stimulus out of the system, but there's still a lot of money sloshing around, especially regarding government spending related to the Infrastructure Act and CHIPS Act, and we don't really know how quantitative tightening will play out.

"Quantitative tightening (QT) is draining over $900 billion of liquidity from the [financial]system annually, and we have never seen a full cycle of tightening,” Dimon said.

Geopolitical risk remains a potential black swan that shouldn't be ignored, either. 

“The wars in Ukraine and the Middle East have the potential to disrupt energy and food markets, migration, and military and economic relationships, in addition to their dreadful human cost,” Dimon said. “These significant and somewhat unprecedented forces cause us to remain cautious.”

The author owns shares of JPMorgan.