Jamie Dimon, CEO of JP Morgan Chase, speaks at the Business Roundtable Executive Innovation Summit in Washington, DC on December 6, 2018.
Janvhi Bhojwani | CNBC
Asked by veteran banking analyst Betsy Graseck of Morgan Stanley On Thursday about the Federal Reserve’s recent stress test, Dimon delivered a series of criticisms of the annual exercise, conducted after the 2008 financial crisis that nearly capsized the economy. world economy.
“We don’t agree with the stress test,” says Dimon. “It’s inconsistent. It’s not transparent. It’s too volatile. It’s essentially capricious, arbitrary.”
JPMorgan, America’s largest bank by assets, is trying to generate more capital to help it comply with the results of the Fed’s tests. Last month, steadily increasing capital requirements in the trial affected the largest global financial institutions, forcing the New York-based bank to freeze its dividends. While Citigroup made a similar announcement, opponents included Goldman Sachs and Wells Fargo promote investor payments.
Under the exam’s hypothetical scenario, JPMorgan expects to lose about $44 billion as the market crashes and unemployment soars, Dimon said. He essentially called that number a bunk on Thursday, asserting that his bank will continue to make money during the downturn.
After JPMorgan announced the results of the second quarter, it revealed a host of other measures it is taking on stack capital, including a halt to share buybacks. That move, in particular, was not welcomed by investors because the stock hasn’t been that cheap in years.
Shares of the bank fell nearly 5%, hitting a 52-week low.
Chief Financial Officer Jeremy Barnum added to the conversation, saying that while regulators provide a lot of information about the contours of the annual exam, a key element of the so-called stress buffer not disclosed to the banks, making it “really very difficult any time to understand what is really driving it.”
“We feel very good about building [capital] fast enough to meet the higher demands,” says Barnum. But they are pretty big changes that go into effect pretty quickly on banks, and I think that’s probably not healthy. “
According to Dimon, other steps the bank was forced to take: JPMorgan is recovering capital spent on volatile trading operations known as “risk-weighted assets,” as well as reducing some forms of deposits. and sell mortgages from his portfolio, according to Dimon.
As a result of these moves, JPMorgan, a giant institution with a balance sheet of $3.8 trillion, was forced to withdraw credit from the financial system like storm clouds gathered on the largest economy in the world.
These actions coincide with the Fed’s so-called quantitative tightening plan, which calls for a reversal of the central bank’s plan to buy bonds, including mortgages, which could continue. continue to stir up the market and raise borrowing costs.
As a result, the bank had to act “exactly at the wrong time to reduce credit to the market,” Dimon said.
The moves will ultimately impact ordinary Americans, especially lower-income minorities, who often have the hardest time getting loans, he said.
“It’s not good for the U.S. economy, and it’s not good for lower-income mortgages in particular,” Dimon said. “You didn’t tackle the mortgage business and then we’re making it worse.”
During a media call on Thursday, Dimon told reporters that while JPMorgan is not exiting business, capital rules could force other banks to pull out of loans altogether. buy house. Wells Fargo has said it will scale back its business after soaring interest rates caused a sharp drop in volume.
Instead, JPMorgan will create mortgages, then immediately offload them, he said.
“It’s a terrible way to run a financial system,” said Dimon. “It just causes great confusion about what you should do with your capital.”