Unprecedented federal rescue programs have blunted unemployment and averted further economic deterioration, according to Dimon, who said banks entered the crisis strong and able to help communities weather the storm. While lenders also benefited from U.S. stimulus, they built up buffers against future loan losses and performed well in stress tests, he said.
Dimon also pointed to U.S. consumers, who used stimulus checks to reduce debt to the lowest level in 40 years and stashed them in savings, giving them — like corporations — an “extraordinary” amount of spending power once lockdowns end. The latest round of quantitative easing measures will have created more than $3 trillion in deposits at U.S. banks, a portion of which can be lent out, he said.
It could all add up to a Goldilocks moment, according to Dimon, where growth is fast and sustained while inflation ticks up gently. Threats to that outcome include virus variants and a rapid or sustained jump in inflation that prompts rates to rise sooner.
At 65, Dimon is the most prominent executive in global banking, serving as a spokesman for the industry while leading a titan of both Wall Street and consumer lending. He’s run the company since the end of 2005, and is the only CEO still at the helm after steering a major bank through the financial crisis.
The 65-page letter (plus a page of footnotes) is Dimon’s longest yet, following last year’s abbreviated one that came less than a week after he returned to work from emergency heart surgery. As always, it is wide-ranging, touching on topics from financial regulation to China to inequality and institutional racism.
Dimon, who built the biggest and most profitable U.S. bank in history, also warned shareholders that his industry’s disruption by technology is finally at hand. Shadow lenders are gaining ground. Traditional banks are being consigned to a shrinking role in the financial system.
“Banks have enormous competitive threats — from virtually every angle,” he said. “Fintech and Big Tech are here… big time!”
The letter expands on predictions Dimon has offered for years, this time declaring many of those threats have now arrived. Financial-technology firms are more formidable, offering easy-to-use, fast and smart products, he said. Shadow banks — a group that includes investment funds and online platforms offering financing to companies and consumers — are winning market share too.
Those groups have outpaced the growth of banks by some measures, often thanks to less regulation. They have also done “a terrific job in easing customers’ pain points” with slick online platforms, he said.
“While I am still confident that JPMorgan Chase can grow and earn a good return for its shareholders, the competition will be intense, and we must get faster and be more creative,” the CEO wrote. “Acquisitions are in our future, and fintech is an area where some of that cash could be put to work.”
As with previous annual letters, Dimon touched on geopolitical issues. On Brexit, he said that uncertain financial regulations coupled with political pressure may lead to a “tipping point many years out when it may make sense to move all functions that service Europe out of the United Kingdom and into continental Europe.”
Dimon mentioned China more than 30 times throughout the letter, predicting it will probably overtake the U.S. in the next 20 years as the biggest economy and financial market. He lauded China’s growth over the last 40 years but said the country will have to confront serious issues in the next 40, including pollution, corruption and inefficiency.
“China does not have a straight road to becoming the dominant economic power,” Dimon said. “For the near term, if China and the United States can maintain a healthy strategic and economic relationship, it could greatly benefit both countries – as well as the rest of the world.”
He also touched on the bank’s future need for real estate, expecting it to drop significantly as remote working outlasts the pandemic. The bank could require some 60 seats for every 100 employees as some staff work under a hybrid model, he said. The lender still intends to build its new headquarters in New York City, he added.
Despite a warning just two days ago from Senate Minority Leader Mitch McConnell that corporate leaders should refrain from taking stances on divisive political issues, Dimon waded into areas including immigration, health care and education.
“Our problems are neither Democratic nor Republican — nor are the solutions,” Dimon wrote. “Unfortunately, however, partisan politics is preventing collaborative policy from being designed and implemented, particularly at the federal level.”
For all the brightness in his economic outlook, Dimon found cause for far darker laments.
The pandemic has thrust profound inequities and their devastating effects into the spotlight. On issues such as health care and immigration, people have lost faith in the government’s ability to solve problems, he said.
“Americans know that something has gone terribly wrong, and they blame this country’s leadership: the elite, the powerful, the decision makers — in government, in business and in civic society,” he wrote. “This is completely appropriate, for who else should take the blame?”
That fuels populism on the right and left, he said. “But populism is not policy, and we cannot let it drive another round of poor planning and bad leadership that will simply make our country’s situation worse.”
The CEO even put it in economic terms: He estimates wide-ranging “dysfunction” has cut a percentage point off the U.S. growth rate. He suggested studying solutions abroad, pointing to apprenticeship programs in Germany, health care in Singapore and infrastructure in Hong Kong.
Dimon also reiterated a call for a national Marshall Plan, referring to the U.S. effort to help Western Europe recover from World War II, to address the structural challenges behind the country’s racial and economic crises.
“Fixing America’s problems is going to take hard work. But if we divide them into their component parts, we will find many viable solutions,” he said. “With thoughtful analysis, common sense and pragmatism, there is hope.”