JPMorgan Chase & Co.’s (NYSE: JPM) CEO Jamie Dimon, has written a letter to shareholders forecasting a “bad recession” and warning that the bank “cannot be immune” to one of the “greatest health threats of a generation.”

Major Economic Downturn Mirroring 2008

Dimon is not optimistic about the unfolding pandemic.

He wrote, “At a minimum, we assume that it will include a bad recession combined with some kind of financial stress similar to the global financial crisis of 2008.”

He warned that JPMorgan was not immune to the effects of “this kind of stress.” The bank has run an extremely adverse scenario that assumes a 35% contraction in the U.S. GDP in Q2 that lasts through the end of the year, with unemployment peaking at 14% in Q4.

In this scenario, JPMorgan would “end the year with strong liquidity” and a common equity Tier 1 capital ratio of approximately 9.5%.

The bank would only consider suspending dividends if uncertainty were to continue. It is thus unlikely that JPMorgan would suspend dividends under less severe circumstances.

Regulatory Framework Reform and Recalibration

The longstanding CEO of JPMorgan, who weathered the 2008 financial crisis, is of the opinion that there is space for a review of  the regulatory process, “We should use the opportunity to closely review the economic response and determine whether any additional regulatory changes are warranted to improve our financial and economic system.”

Dimon admitted that it was not the time to address such issues presently.
The CEO revealed that JPMorgan has been working closely with the government, and the company will not “request any regulatory relief.”

He warned that capital and liquidity requirements could change.

“Some rules can improperly prevent healthy, well-capitalized banks from lending freely in times of stress,” Dimon observed, adding, “This can hurt customers as the crisis deepens. Leaving high-quality, available liquidity undeployed in times of need is an opportunity forever lost.”

Prepared For Disasters But Not For COVID-19

Calling COVID-19 “one of those extraordinary times,” Dimon laid out his approach in dealing with the crisis caused by the disease.

Admitting that the company had not prepared for a pandemic, he expressed confidence that having prepared for other types of crisis would help the bank retain daily operations.

The CEO revealed that during the present crisis, JPMorgan had been utilizing their disaster recovery sites and implementing alternative work arrangements; 180,000 employees are now working from home. Three-quarters of 5,000 Chase branches are open for customers, with most of the bank’s 16,850 ATMs being functional.

Supporting Businesses and Vital Institutions

Dimon revealed that the bank had extended $950 million in the past 60 days alone to small businesses.

At the close of business on March 31, 2020, the bank maintained undrawn revolving commitments in its wholesale business to the tune of $295 billion. Companies have already drawn more than $50 billion of their “revolvers” to prepare for the crisis, and this number is already more than the 2008 financial crisis.

More than $25 billion of new credit extensions were given out in March in judiciously exercised lending.  The bank is also supporting “vital institutions” by funding hospitals and healthcare companies, educational institutions, non-profits, and state and local governments.

Price Action

JPMorgan shares traded 0.045% higher at $89.50 in the after-hours session on Monday. The shares had closed the regular session 6.44% higher at $89.46.

Photo Credit: World Economic Forum via Wikimedia.

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