Dimon Cautious, JPMorgan Positions for a Recession

Dimon Cautious, JPMorgan Positions for a Recession

$JMP, $GS, $USD

FLASH: Jamie and ‘Goldie’ have different outlooks

JPMorgan (NYSE:JPM) CEO Jamie Dimon does not agree with economic doomsayers.

The boss of the largest US bank acknowledged a growing number of potential obstacles to the economy that carried his firm to record profits last year.

That caution was reflected in JPMorgan Chase & Co.’s annual presentation to investors Tuesday, as the bank held its profitability goal steady and told shareholders to expect a slowdown in lending growth.

“We are prepared for a recession,” Dimon said at the event. “We’re not predicting a recession. We’re simply pointing out that we are very conscious about the risks we bear.”

The bank said its loan book would not expand as quickly as last year because a “focus on high-quality loans,” according to the presentation. The firm kept its profitability target at the 17% return on tangible equity it achieved last year.

It is a shift from the optimism of the last few years when the bank forecast billions in profits tied to rising interest rates and, most recently, the US tax overhaul.

For now, the bank is expecting loss rates to stay near Y 2018 marks which Mr. Dimon last month described as “pristine.”

Mr. Dimon built JPMorgan into the most profitable lender in banking history in part by being a careful risk manager and insisting on a “fortress balance sheet.”

Investors credit that discipline with helping ensure the bank had enough capital to withstand the last financial crisis.

“We do believe there’s more room to run this cycle and we are optimistic global growth will stabilize,” CFO Marianne Lake said. Still, “recent declines in business sentiment have driven recessionary indicators higher. They are not flashing red, but they are off the floor.”

JPMorgan has been outpacing rivals in lending growth, with what it considers core loans rising 7% last year and averaging 11% annually over the past 5 years. The firm is not pulling back too sharply, as it introduced new credit card features Tuesday that aim to capture more of the $250-B that its customers borrow from other lenders.

“Recession planning does not mean we’ll stop doing branches, our marketing,” Mr. Dimon said. “It’s the opposite. We will take advantage of the recession to hire more bankers, hopefully do things and hire people we maybe could not before. Obviously the financial results are going to get a little bit worse, but it’s also an opportunity to shine.”

The bank also indicated that the tough trading environment from Q-4 has carried over into Y 2019.

JPMorgan’s trading revenue is likely to drop by a high-teens percentage in Q-1 from last year’s $6.6-B. Declines in the currencies and emerging markets units are leading the decline.

HeffX-LTN’s overall outlook for JPM is Neutral to Bullish in here.

Stay tuned…

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Paul Ebeling

Paul A. Ebeling, polymath, excels in diverse fields of knowledge. Pattern Recognition Analyst in Equities, Commodities and Foreign Exchange and author of “The Red Roadmaster’s Technical Report” on the US Major Market Indices™, a highly regarded, weekly financial market letter, he is also a philosopher, issuing insights on a wide range of subjects to a following of over 250,000 cohorts. An international audience of opinion makers, business leaders, and global organizations recognizes Ebeling as an expert.

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