Jamie Dimon’s warning for the U.S. economy — nobody knows what comes next

Jamie Dimon, chairman and chief executive officer of JPMorgan Chase & Co., listens during a Business Roundtable CEO Innovation Summit discussion in Washington, D.C., Dec. 6, 2018. Andrew Harrer | Bloomberg | Getty Images

KEY POINTS

• The range of outcomes for the economy in the second half is incredibly wide: JPMorgan Chase sees no fewer than five different paths it can take.
• The bank has gotten more pessimistic, seeing unemployment in its default “base” scenario hitting nearly 11% by the end of this year, 4.3% worse than when it made the same forecast in April.
• In a worst-case scenario where the virus surges further in the fall, forcing another round of widespread shutdowns, unemployment could peak at roughly 23%, the bank said.
• “The word unprecedented is rarely used properly,” Dimon said this week. “This time, it’s being used properly. It’s unprecedented what’s going on around the world, and obviously Covid itself is a main attribute.”

Attempting to forecast the path of the American economy right now is like peering into a dark well — nobody knows how deep the hole goes.

Even Jamie Dimon, CEO of JPMorgan Chase and veteran prognosticator of all things financial, is flummoxed. As head of the financial system’s bellwether, a bank with $3.2 trillion in assets that serves almost half of U.S. households and a wide swath of its businesses, Dimon has a unique vantage on the world’s largest economy.

“The word unprecedented is rarely used properly,” Dimon said this week after JPMorgan reported second-quarter earnings. “This time, it’s being used properly. It’s unprecedented what’s going on around the world, and obviously Covid itself is a main attribute.”

More than four months into the coronavirus pandemic, the financial damage wrought by the outbreak has yet to fully register. Take JPMorgan, for instance: The bank added $15.7 billion to reserves for expected loan losses in the first half of this year. But second-quarter loan charge-offs in its sprawling retail bank actually declined 3% to $1.28 billion, or roughly the same level seen before the virus.

That’s because the $2.2 trillion CARES Act injected billions of dollars into households and businesses, masking the impact of widespread closures. As key components of that law begin to phase out, the true pain may begin. As many as 25.6 million Americans will lose enhanced unemployment benefits by the end of July, and it’s unclear if Congress will extend the $600 per week in additional payments that has buoyed so many households.

“In a normal recession unemployment goes up, delinquencies go up, charge-offs go up, home prices go down; none of that’s true here,” Dimon said. “Savings are up, incomes are up, home prices are up. So you will see the effect of this recession; you’re just not going to see it right away because of all the stimulus.”

The bank has provided forbearance on 1.7 million accounts; so far, more than half of credit card and mortgage customers in the programs have made at least one monthly payment. But these vulnerable customers could stop paying altogether as their federal benefits lapse.

Coupled with the historic steps taken by the Federal Reserve to prop up financial markets, several banks actually had a banner quarter. JPMorgan earned the most revenue ever in the second quarter, $33.8 billion, largely driven by a boom in trading activity and a rush by corporations to tap debt and equity markets. It was the best quarter for Wall Street in a decade, allowing Goldman Sachs and Morgan Stanley to notch records as well.

But investors haven’t piled into bank stocks; shares of JPMorgan have barely budged since posting results. Fear of the future, of the long term impact of defaults and low interest rates, and of potential dividend cuts, is keeping them back.

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Source: Hugh Son | CNBC