Recently CNBC interviewed Jamie Dimon, CEO of J.P. Morgan (JPM) about his thoughts on the bank’s exposure in Europe and its operations.
On the bank exposures in Europe
Jamie Dimon said J.P. Morgan has been in Europe for hundreds of years, and they continue to do business there. The bank has managed exposure to all of the banks. It doesn’t just cut and run and he felt comfortable with that. It has 17% of its revenue and 21% of its assets exposed there. The bank’s exposure to Portugal, Italy, Ireland, Greece and Spain was about $15 billion, and if there is an extreme outcome, the bank might lose $3 billion after tax. Jamie doesn’t believe that is going to happen. But the bank will stay in those countries; it still does a lot of business there. The biggest are Italy and Spain. Besides those exposures, a lot of them are also corporate. These are corporations that will probably be fine regardless of what happens in Italy and Spain.
S&P ratings on the U.S.
S&P is just an opinion, and they have very strict guidelines. Most people Jamie spoke to in the marketplace, the big participants, don't rely on S&P ratings to make their decisions. He doesn’t think it’s a material thing. But he does think underlying what S&P says, and you can argue all you want, the U.S. needs to show fiscal discipline, not with China and not with S&P. He doesn’t run the company based on one rating or one company. We will do fine regardless of the downgrade.
J.P. Morgan operations
J.P. Morgan is growing all around the world. The mission is to grow, expand and create more clients. Jamie thinks the bank is doing quite fine with that. He doesn’t run the business based upon what happens in the market in a day. He and his people working in the bank never have. The markets are volatile, probably for pretty good reasons. And there are a lot of uncertainties, but the bank will still open branches tomorrow and hire bankers tomorrow and create clients tomorrow.
If rates go up the bank can probably make some more money, and the bank will always try to match those funds. What really drives the business are more clients, more deposits, more loans, and more investment banking business. That's what he is looking at fundamentally. If people look at underlying J.P. Morgan, they will see more credit card clients, more consumer banks, more mortgage clients, etc. — that is what will drive the bank over time.
All businesses have things that change including interest rates, cost of wages, demand supply, and they have to manage around that. J.P Morgan Chase since Lehman Brothers went bankrupt has lent or raised for companies around the world $4.5 trillion. The credit card business sales are up 10% year over year, more checking accounts, more branches, more small businesses — small business lending is up around 25% this year, and last year 25% up from the year before. Middle market lending is up the last four or five quarters. Corporations can raise all of the money they want. Of course, a bad economy is a head wind. Volatility may not be, but people being scared is a head wind. The most important thing they love to see is recovery in jobs. The growth is the most important thing. He thinks the banks are lending a lot of money to people who have valid credit. J.P. Morgan has $4 billion in mortgage loans the last two and half years and $30 billion in small business loans the last two and a half years.
Jamie thinks credit standards went up, but it has nothing to do with interest rates. Take the mortgage loan — credit standards were so loose and part of that caused these problems. The bank is generally very match funded. It borrows the money to make a small spread in the meantime. It is not rates.
The interview can be viewed at this below link:
About the author:
Anh HoangMoney manager into global equities, especially with US and Vietnam markets. CFA level 3 candidate. Lecturer for Stalla - CFA course in Vietnam