In every economy around the world, there are some people who by virtue of their position should have a macro level understanding that most other people do not. Very often it is not the person, it is the job that intersects with trends that the organization needs to grasp and make money from. If the person can do that successfully, they are listened to when they speak for they have lived through various cycles and still made money. One of those jobs is the head of the biggest bank in the economy, in the case of the US it is Jamie Dimon at JPMorgan Chase. Besides being the biggest bank in terms of retail, in terms of Wall Street trading which means information on both the institutional side and individual side crosses his desk. Mr. Dimon is also Chair of the Business Roundtable (many of the larger companies who are represented are clients of his bank). This means when Mr. Dimon releases his annual message, many people will read and try to understand it.
In an article by Tatiana Bautzer of Reuters, Mr. Dimon released his annual message and the report was 43 pages long if you wish to read it, the report is on the JPMorgan Chase website.
In terms of the banking crisis which happened when the SVB went bankrupt and was sold to First Citizens Bank, Mr. Dimon believes the current crisis is not yet over and there will be repercussions in the future. This will include possible increase in recession and the bank will lend less money or lending to people who are 95% plus guaranteed to repay their loans. What happens is the loan officers have their ability to lend money chopped to fewer clients and the loan officers need to make a extremely good case to lending money. Similar to most jobs, when people have to guarantee, they become less prone to take possible risks or are risk adverse.
Mr. Dimon writes the risks were hiding in plain sight in terms of the Silicon Valley Bank’s interest rate exposure and level of uninsured deposits. Mr. Dimon does not believe the crisis is similar to the global financial crisis of 2008, because most banks around the world held some form of mortgage-backed securities in their portfolios and their values all went down.
Mr. Dimon as the top banker in the US played a role in helping First Republic with 11 large lenders gave a $30 billion lifeline.
Linking to dividend paying stocks, the theory is large corporations which make profits and can pay dividends, can and do employ multiple analysts including those who worked in the government to do risk analysis for them and their competitors. When Mr. Dimon says the risk was hiding in plain site, that tends to mean those with the best analysis could see it but could do nothing about it, including what will or would be the fallout. In the SVB, the government react reasonably quickly but still there was a large cost to the banks which had to pay increased insurance premiums. If hiding in plain site on looking back is the biggest risk, even with AI and big data on your side, there will fallout of risks. How much did the stock fall and did when it bounce back to normal? are those buying opportunities if you have done your homework?
There are more questions than answers, till the next time – to raising questions.