Dimon Sees Progress In Economy, Promise In AI

JPMorgan CEO Jamie Dimon’s shareholder letters are closely read for pearls of insight about the economy, the investment climate and even for nuggets about America’s standing in the world.

In his latest annual letter, which debuted Thursday (April 4), the executive set a somewhat optimistic tone for the U.S., stating that a near-term recession does not look likely. He nodded to what he termed observers’ “hyper focus” on problems, yet the economy remains strong and trade negotiations are on track to be resolved.

Of JPMorgan, Dimon said that “we are prepared for – though we are not predicting – a recession.”

In terms of big picture – and why a recession does not seem in the offing – he said that “I would not look at the yield curve and its potential inversion as giving the same signals as in the past,” as central bank and regulators have intervened over the past several years with stimulus measures.

Elsewhere, Dimon stated that while the economy at large may be slowing, employment and wages are still rising. Further growth may lie ahead, as “this has been a very slow recovery, and it is possible that the ‘normal’ increase of inflation late in the cycle, due to wage demands and limited supply, can still happen. We don’t see it today, but I would not rule it out.”

In terms of credit, he said, “the consumer balance sheet and credit are in rather good shape,” yet he warned of “shadow banking.”

Dimon wrote that JPMorgan estimates approximately $500 billion of direct loans are owned exclusively by non-banks. Of such lending, he wrote that “while we do not believe that the rise in non-banks and shadow banking has reached the point of systemic risk, the growth in non-bank mortgage lending, student lending, leveraged lending and some consumer lending is accelerating and needs to be assiduously monitored … growth in shadow banking has been possible because rules and regulations imposed upon banks are not necessarily imposed upon these non-bank lenders.”

The executive also issued a call for more regulation across mortgages, as lawmakers should address “onerous and unnecessary origination and servicing requirements” and open securitization markets. “By taking this step, our economists believe that homeownership and economic growth would increase by up to 0.2 percent a year,” he wrote.

Dimon said that of JPMorgan that “most banks are also constrained by standardized capital (a capital measure that does not risk-adjust for the lower risk of having a properly underwritten prime mortgage), so owning mortgages becomes hugely unprofitable. Because of these significant issues, we are intensely reviewing our role in originating, servicing and holding mortgages. The odds are increasing that we will need to materially change our mortgage strategy going forward.”

Turning to individual technological initiatives, Dimon said the cloud and AI can help build scale and offer a development experience that allows the firm to “prototype quickly and learn fast, as well as increase the speed of delivering new capabilities to our customers and clients…” Later in the letter, he stated as one example that “in our consumer operations, we are using AI and machine learning techniques for ATM cash management to optimize cash in devices, reduce the cost of reloads and schedule ATM maintenance.”