There has been quite a bit of coverage of the JP Morgan CEO (Jamie Dimon) Letter to Shareholders in the press this last week. The exchanges between Jamie Dimon and Bernie Sanders have received quite a bit of attention. Couple that with all of the disruption that there is within, and coming up in, banking and the fact that JP Morgan is the largest bank in the US i thought i would take a peek at the 2015 Annual Report and see what Jamie Dimon has to say. I have gotten too much into the fluffy stuff, but as i read through the 51 page Annual Letter i noted the following 11 points.
1. JP Morgan is sitting on a huge war chest
- JP Morgan earned a record $24.4 billion, net income, in 2015
- Stress testing by the Fed predicts that JP Morgan could lose $55 billion over a nine-quarter period – an amount that according to Jamie Dimon could easily be managed due to the size of the JP Morgan war chest
- In fact Jamie went a step further and explained that in the stress tests modelling, JP Morgan was so strong that it alone could absorb all of the losses assumed by 31 of the largest banks in the United States
Its probably why politicians such as Bernie Sanders believe that “Wall Street and corporate America is destroying the fabric of our nation [the US]”.
2. Control and risk are key focus areas
- There is now a Oversight and Control Group auditing and reviewing cross the organisation the controls in place
- People involved in control have grown from 24,000 (2011) to 43,000, and the budget over this time period has grown from $6 billion to $9 billion
- A new Anti-Money Laundering (AML) system called Mantra has been implemented
3. Some thoughts on China, Brazil and Argentina
- China – As it develops into a developed nation, China will face challenges reforming state owned enterprises into an open, free market economy. Based on JP Morgan stress test modelling, losses in China could amount to $4 billion – not a problem according to Jamie Dimon
- Brazil – Despite a shrinking (3%-4%) economy and a uncertain political climate, JP Morgan is committed to Brazil
- Argentina – Jamies describes Argentina as a country with incredible opportunity and is optimistic the new leader can make progressive changes
4. And on the upcoming Brexit Referendum
Jamie talks about the bureaucracy and “sometimes dysfunctional European Union” and understands some of the long term benefits of Britain leaving the EU. But Brexit would in his opinion create uncertainty which would be bad for both Britain and the European Union. A Brexit would also threaten the unity and stability of the whole European Union. Continuing political union, peace and a common market were the foundations of the European Union, and according to Jamie, should continue to be the goals of the European member states.
The Telegraph go into a bit more detail on Jamie Dimon’s views on Brexit.
5. Interest rates and liquidity
In short, Jamie Dimon is worried about:
- Interest rates rising faster than people expect
- Lower liquidity and extreme volatility – but acknowledges that JP Morgan is “prepared to handle violent markets”
6. Protecting customer data
Jamie Dimon focuses in on is customer authorising third parties to access their bank accounts and financial information, and particularly the consequences of clicking “I Accept”. Jamie explains that:
- Often third parties extract more information than they need
- Many third parties may sell and use the data for their own benefit and not necessarily in the interests of their customers
- The data may continue to be used for long periods, sometimes even after the customer stops using the original subscribed service
- The preferred approach would be for the bank to “push” specific data that the customer has agreed to, rather than a blanket share all
Jamie Dimon talks about the balance between centralisation and decentralisation. Recognising the benefits of centralisation around enabling common standards at JP Morgan but at the same time needing to meet the demands of customers and making use of the skills of employees at the bank. Not sure what this really means, or if its just corporate speak. But the example Jamie gives is adhering to KYC guidelines, which previously took 10 days after a re-engineering effort was reduced down to 3 days. Interesting stuff.
8. Innovation, Technology and FinTech
- On investing on the future, Jamie Dimon says it is critical for the growth and views this type of spending as “good spending”. He explains that JP Morgan views “this type of cost cutting like an airline scaling back on maintenance – it’s a bad idea”
- Jamie Dimon talks about the need to innovate in big and small ways at the same time
- Initiatives include:
- Improving the digital experience – with almost 23 million Chase Mobile customers, up 20% from last year
- Investing $300 million in digital projects for asset management over the next 3 years
- Improving JP Morgan ACCESS – this will be of interest to corporates for their Treasury stuff – but its a bit fluffy, and talks about improving the overall user experience in areas such as entitlements and workflow
- Protecting against cybersecurity threats – by building malware and fraud detection capabilities – and embarking on customer education campaigns
- Fintech will make it simpler, cheaper and enable financial inclusion for groups traditionally outside of the formal banking system both inside and outside of the US
- Jamie Dimon talks about fintech forcing “financial institutions to move more quickly, and banks, regulators and government policy will need to keep pace”
- Payments – interestingly Jamie talks about JP Morgan being one of the biggest payments companies in the world (across various payment types) and discusses how the following products will keep them in that space: Chase Paymentech (merchant payment processing), ChaseNet (merchant payments via Visa), Chase Pay (digital wallet), Realtime P2P payments and Corporate QuickPay (a digital alternative to cheques)
- Big data – Jamie describes big data as “truly powerful and can be used to extensively to improve our company [JP Morgan]”
9. Does the US need big banks?
Well of course, Jamie Dimon is going to say Yes”. Following is a summary of why Jamie think the US needs big banks:
- Big corporates and institutions need big banks
- Large banks with diversified earnings can ride through economic and political crises
- Large banks will invest in innovation to develop new products and services which is good for the customer and for the bank
- Large banks partner with smaller banks to offer correspondent banking services
- Jamie talks about “banks cannot be utilities”, which is an interesting phrase to use given that many believe that the fintech revolution will result in banks becoming utilities. Anyway, what Jamie is referring to here is that multiple companies/banks are required in the marketplace
- Lastly, banks bring in knowledge and financial resources (cash) to a country, corporations and the wider economy
And to counter all of the above, read Truthout on why the Letter is nothing more than an over-exaggerated, grandiose Jamie Dimon smooch with shareholders.
10. Regaining Trust….
Here Jamie talks about the usual stuff such as great products and services, honesty, transparency, blah, blah, blah – but the following are noteworthy comments:
- Admit to mistakes, fix them and learn from them
- Focus on the customer and treat them the way you would want to be treated
- Treat regulators like full partners
- Across the industry, make fewer mistakes and behave better
There are a few lessons there for all of us, eh?
11. Political Do’s and Don’ts
Many have said that this is a direct dig at the US Presidential Political Party candidates. I won’t list the Do’s, you can probably guess what they are – But check out the Don’t and see if you can guess who they are aimed at….
- Believe in the “my way or the highway” mantra
- Oversimplify situations and create scapegoats
- Attack a whole class of people or society
- Confuse perception with reality
- Fail to listen and understand
Interesting stuff, eh?
- Investors.com – 5 Takeaways From JPMorgan CEO Jamie Dimon’s Annual Letter
- CNN Money – Jamie Dimon brags about how mighty JPMorgan is
- Fortune – JPMorgan’s Jamie Dimon Says His Bank Could Lose $4 Billion in China
- Business Insider – JAMIE DIMON: ‘There will be another crisis’
- Quartz – JPMorgan Chase’s Jamie Dimon delivers an epic takedown of Donald Trump without even naming him
- The Atlantic – What Bernie Sanders Thinks Is Wrong With the Fed
- Fortune – How Jamie Dimon Defies Conventional CEO Wisdom