Jamie Dimon Says Inflation and War in Ukraine Could Drastically Raise Risks for US

Jamie Dimon, CEO of JPMorgan Chase, speaks at the Economic Club of New York in New York, January 16, 2019.

Carlos Allegri | Reuters

Jamie Dimon, CEO and chairman of the largest US bank by assets, highlighted a potentially unprecedented combination of risks facing the country in his annual letter to shareholders.

Three forces are likely to shape the world in the coming decades: a US economy rebounding from the Covid pandemic; high inflation that will usher in an era of rising rates; and Russia’s invasion of Ukraine and the resulting humanitarian crisis currently underway, according to Dimon.

“Each of these three factors mentioned above is unique in its own right: the dramatic recovery fueled by the stimulus from the COVID-19 pandemic, the likely need for rapid rate hikes and the required reversal of QE, and the war in Ukraine and sanctions on Russia,” Dimon wrote.

“They present completely different circumstances than we have experienced in the past – and their confluence may significantly increase the risks ahead,” he wrote. “While it is possible, and hoped, that all of these events will have peaceful resolutions, we must be prepared for potential negative outcomes.”

Dimon’s letter, widely read in business circles due to the JPMorgan CEO’s status as his industry’s most prominent spokesperson, took on a more downcast tone compared to his missive last year. . While he has written extensively about the challenges facing the country, including economic inequality and political dysfunction, this letter revealed his belief that the United States was in the midst of a boom that could “easily” continue. until 2023.

Now, however, the outbreak of Europe’s biggest conflict since World War II has changed things, upending markets, realigning alliances and restructuring global business patterns, he wrote. This presents both risks and opportunities for the United States and other democracies, according to Dimon.

“War in Ukraine and sanctions against Russia, at a minimum, will slow the global economy – and it could easily get worse,” Dimon wrote. This is due to uncertainty over the outcome of the dispute and its impact on supply chains, particularly those involving energy supplies.

Dimon added that for JPMorgan, management isn’t worried about its direct exposure to Russia, even though the bank could “still lose about $1 billion over time.”

Here are excerpts from Dimon’s letter.

On the economic impact of the war

“We expect the fallout from the war and resulting sanctions to reduce Russia’s GDP by 12.5% ​​by the middle of the year (a worse drop than the 10% drop after the default of 1998).Our economists currently believe that the Eurozone, heavily dependent on Russia for oil and gas, will experience GDP growth of around 2% in 2022, instead of the high pace of 4.5 % that we expected just six weeks ago. In contrast, they expect the US economy to grow by around 2.5% vs. 3%. I caution that these estimates are based on a fairly static of the war in Ukraine and the sanctions currently in place.”

On Russian sanctions

“Many more sanctions could be added – which could dramatically and unpredictably increase their effect. Together with the unpredictability of war itself and the uncertainty surrounding global raw material supply chains, this creates a situation potentially explosive. I’ll talk later about the precarious nature of the world’s energy supply, but for now, simply put, that supply is easy to disrupt.”

A “wake-up call” for democracies

“America must be prepared for the possibility of a protracted war in Ukraine with unpredictable results. … We must view this as a wake-up call. We must pursue short-term and long-term strategies with the aim of not only to resolve the current crisis, but also the maintenance of the long-term unity of the newly strengthened democratic alliances.We must make this a permanent and enduring stand for democratic ideals and against all forms of evil.

Implications beyond Russia

“Russian aggression has another dramatic and important result: it merges the western democratic world – across Europe and the countries of the North Atlantic Treaty Organization (NATO) to Australia, Japan and in Korea. […] The outcome of these two issues will transcend Russia and will likely affect geopolitics for decades, potentially leading to both a realignment of alliances and a restructuring of global trade. How the West behaves and the West’s ability to maintain its unity will likely determine the future world order and shape America’s (and its allies’) important relationship with China.”

On the need to reorganize supply chains

“It is also clear that trade and supply chains, where they affect national security issues, need to be restructured. You simply cannot rely on countries with different strategic interests for essential goods and services. Such a reorganization doesn’t have to be a disaster or a decoupling. With thoughtful analysis and execution, it should be rational and orderly. It’s in everyone’s interest.


“For any products or materials critical to national security (think rare earths, 5G, and semiconductors), the U.S. supply chain must either be domestic or open only to totally friendly allies. We don’t can and should never be dependent on processes that can and will be used against us, especially when we are most vulnerable.For similar national security reasons, activities (including investment activities) that contribute to creating risk for national security – that is, the sharing of critical technologies with potential adversaries – should be restricted.

Brazil, Canada and Mexico will benefit

“This restructuring will likely unfold over time and need not be hugely disruptive. There will be winners and losers – some of the main beneficiaries will be Brazil, Canada, Mexico and friendly countries of Southeast Asia. Along with reconfiguring our supply chains, we need to create new trading systems with our allies. As mentioned above, my preference would be to join the TPP – this is the best geostrategic arrangement and possible trade with allied nations.

On the Fed

“The Federal Reserve and the government did the right thing by taking bold dramatic action following the misfortune unleashed by the pandemic. In hindsight, it worked. But also in hindsight, the medicine (tax spending and QE) was probably too much and lasted too long.”

“Very volatile markets”

“I don’t envy the Fed for what it has to do next: the stronger the recovery, the higher the rates that follow (I think this could be significantly higher than what the markets are pricing in) and the higher the quantitative tightening (QT) is strong. If the Fed gets it right, we can have years of growth and eventually inflation will start to come down. Either way, this process will cause a lot of consternation and highly volatile markets. The Fed should not be concerned about market volatility unless it affects the real economy. A strong economy outweighs market volatility.”

Fed flexibility

“One thing the Fed should be doing, and appears to have done, is to exempt itself – give itself ultimate flexibility – from the model of only raising rates by 25 basis points and do it on a regular schedule. that they can announce how they intend to reduce the Fed’s balance sheet, they should be free to modify this plan at any time in order to respond to real events in the economy and markets. to real-time data and events will ultimately create more confidence. Either way, rates will have to rise significantly. The Fed is struggling to do that, let’s wish them all the best.

On JPMorgan’s skyrocketing spending

“This year, we announced that investment spending will increase from $11.5 billion to $15 billion. I’ll try to describe the ‘incremental investments’ of $3.5 billion, although I can’t I won’t review them all (and for competitive reasons I wouldn’t), but we hope that a few examples will reassure you in our decision-making process.

Some investments have a fairly predictable time to generate positive cash flow and a good, predictable return on investment (ROI), however you measure it. These investments include branches and bankers, all over the world, in all of our businesses. They also include certain marketing expenses, which have a known and quantifiable return. This combined category will add $1 billion to our spending in 2022.

On acquisitions

“Over the past 18 months, we have spent nearly $5 billion on acquisitions, which will increase ‘incremental capital’ spending by approximately $700 million in 2022. We expect most of these acquisitions to generate positive returns and strong earnings within a few years, fully justifying their cost. In a few cases, these acquisitions are making money and, in our view, helping to avoid erosion in other areas of our business.”

Global Expansion

“Our international consumer expansion is an investment of a different nature. We believe the digital world gives us the opportunity to build a consumer bank outside of the United States that, over time, can become very competitive – a option that does not exist in the physical world. We are starting with several advantages that we believe will grow stronger over time. … We have the talent and know-how to deliver them through cutting-edge technology, which allows us to leverage the full range of these capabilities across our businesses. We can apply what we’ve learned in our main US franchise and vice versa. We could be wrong on this one, but I like our hand .

On JPMorgan’s Diversity Push

“Despite the pandemic and talent retention challenges, we continue to increase our representation among women and people of color. … More women were promoted to CEO in 2021 than ever before; likewise, a record number of women promoted to leadership positions At year-end, based on self-identified employees, women made up 49% of the company’s total workforce. was 20%, Asian representation increased to 17% and Black representation to 14%.

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