Jamie Dimon, chairman and ceo J. P. Morgan: «This is the time to invest in Italy»
by Isabella Bufacchi
6' di lettura
How important is Italy for JP Morgan? You came from the US for the inauguration of your new headquarters in Milano: is it the confirmation of your strong commitment to Italy?
We always make a long term commitment in a country. We have been here in Italy for the past 105 years. And yes, absolutely Italy is a growing and strong nation. IT is going to have some good growth this year, and it has exceptional leadership in prime minister, Mario Draghi, who is trusted and respected by both Italian and the wider European people. Draghi has put in place great reforms, with a focus on innovation, he has great capabilities and knowledge. So this is the time for people to have confidence and invest in Italy. Moreover Italy has the Recovery fund: if it is put into good use, it will help to accelerate growth. And the reform path put in place by Draghi can accelerate growth too and make it more permanent.
Draghi said Italy will outperform forecasts and outpace growth expectations. Do you share his optimism, what is your view on the prospects of the recovery after the pandemic, not only in Italy but also in Europe and the United States?
We have strong economic growth in the United States. There is a huge fiscal and monetary stimulus, there is euphoria as we come out of the pandemic. I think the US government did the right thing to stabilize the economy in the pandemic. People are now going back to offices. Many now have a lot of savings, their assets are way up, there is relatively little debt, companies are generally in very good shape and have plenty of money too. And what I have just said about the United States is true for Europe as well. Maybe Europe is about six months behind the United States but its growth is going to be as strong and I believe it will keep growing until at least 2023.
You said that the United States need a new Marshal plan. Europe says it needs a new Marshal plan. Do you see a chance to come out of the pandemic recreating a stronger and more sustainable growth and a better world?
Infrastructure, education, AI, clean energy, digitalization: the visions and the plans on a global scale sound very good but what is more important is proper policies and regulations. At one point you need to focus on execution and outcomes. How many roads were built? How many bridges were fixed? One thing I like about your Recovery fund in Europe is the milestones structure: before down payments are made, targets must be met as planned. I think the United States should have the same discipline. We have very few milestones built into our trillion-dollar plans. I am going to take this “milestones idea” back to the United States.
These plans do need a lot of money to finance investments. And fiscal stimulus and monetary stimulus is unprecedented. The liquidity is huge. And now the main worry is: when governments and central banks are going to withdraw this liquidity, what will happen?
People worry all the time. We should focus on execution and healthy growth. Yes, there is a lot of fiscal and monetary stimulus around: but we should spending all this money well in effective plans. If we carry out these plans in the right way, we will reduce the need to worry. So let's focus on getting out of the pandemic and investing this money wisely.
Isn't there the risk that unprecedented fiscal and monetary stimulus will push up inflation strongly?
Obviously there is a whole range of outcomes that could take place and that is what we look at as business people. There is a chance there is going to be an ideal situation (what I called a Goldilocks situation) of strong growth for years, and inflation going up gently. Central banks want inflation to go up and, I tell you, central bankers are going to get their wish.
In what way?
Inflation is going to go up and this is not going to be temporary. The question is: how bad is this going to be? And how soon will central banks have to act? We just have to spend the money wisely because healthy and proper growth is the most important thing for the economies in the world and for poorer countries. A 3% or 4% growth will make it easier to finance deficits too.
Yet markets do worry about tapering and they worry about monetary stimulus being withdrawn prematurely, damaging growth.
This is not going to happen. In my view, there is no chance that central banks are going to withdraw monetary stimulus until they see actual sustained growth. And they have been quite clear about that. Central banks would rather risk too much inflation than doing anything that stops growth. We are coming out of a pandemic, many people died IN this pandemic, many companies around the world closed down because of the pandemic. So now let's get strong and real growth with unemployment coming down, people going back to normal working patterns, and companies back into investing. And we start to see this: in the United States domestic spending is going up, travel is going up, and bookings for cruiseships in the fourth quarter of this year are higher than pre-crisis levels. People are going to go back to exactly what they were doing before the pandemic.
Also financial markets and banks are going to go back to where they were. Andrea Enria said that two thirds of credit intermediation to non financial corporates is made by banks in Europe and this is a much higher percentage than in the US. And banking segmentation in Europe is an important inefficiency: what is your opinion on this?
Twenty years ago, all European banks were worth one trillion dollars, and today they are worth ABOUT the same amount. If you want a healthy economy, you need a healthy financial system: banks, capital markets, private equity, and all players allocating capital. I completely agree with Enria. You need banks to become truly pan-European in size, scope and able to make economies of scale. This was the dream of the euro area, although now it has backed down a bit. You need pan-European regulations, AND a pan-European deposit guarantee scheme. I understand why some countries and banks are cautious on risk sharing. BUT you can take out some of the smaller banks if that's the concern. If Germany does not want the Sparkassen to be part of it, for example, just take them out. Just focus on the biggest banks to have a pan-european insurance scheme. It does not have to be put in place today, it can be phased IN over time. Give banks time to get there, make a plan in stages, make a road map. I agree with European banks that the lack of EDIS is a huge disadvantage.
European banks complain also about over-regulation. Rules were softened during the pandemic but banks did not like the limits on dividends payments. JP Morgan has just announced a 30 bn dollars buyback and you just increased the quarterly dividend by 10 cents from 90 cents to 1 dollar.
Companies want to be able to have sustainable dividends in tough times. And our dividend at JP Morgan was sustainable even if the situation were to get dramatically worse. So (you do not need) to have a government come in and dictate your dividend and control your capital…These limits hurt capital, hurt markets, hurt banks. They lead to lower valuations. If I were a regulator, I would look at individual situations. The same limits were introduced and applied on every bank and that is unfair: I am quite sympathetic ON that with European banks. At JP Morgan if capital were to go below a certain level, we WOULD cut the dividend, and if it went below another level, we would have zero dividend. However, we announced a buy back because we have far too much capital. JP Morgan has enough capital to bear the stress tests of the top thirty banks combined. We have 1.5 trillion dollars deposits at central banks, Treasuries and marketable securities: with one trillion locked up for liquidity purposes. One day, maybe in 10 or 20 years time or so, someone is going to ask why this trillion dollars was not given to the economy, and that would eb a good question. I believe in proper liquidity but we are now way beyond what is needed. And anyway, JP Morgan never needed government help.
During the pandemic the relaxation of rules for banks was very minimal. There was no significant relaxation in the US. And I would not expect that anyway: I think you should not have a relaxation of rules when things get tough. Rules are put in place precisely for when things get tough. After the great financial crisis, rules increased capital, increased liquidity and gave governments the power to manage resolutions and avoid disorderly resolutions. And this was needed to fix a situation. We in JP Morgan try to protect ourselves from an amazing number of events, from inflation to war, and we protect ourselves to be able to always serve our clients: we run around a hundred stress tests internally every week.
Do you think that now it is time to fix the FinTech booming sector?
Competition from FinTech companies is going to be very tough for all the banks around the world. I am in favour of competition but FinTech companies are very smart, they look for weaknesses in the system and go after them. For example, trade finance with banks takes too long, transfer of money with banks is too expensive: we should fix that. Banks have a lot of regulations: capital, liquidity, social obligations, asset and liability management, and insurance requirements. FinTech for the most part don't have these regulations. But I do not expect they are going to have them and I do not ask for that: banks will just have to compete with FinTechs, now and for the next one hundred years.
There are great expectations about M&A booming in the European banking sector: are you going to be in the market only for the fees or to do your shopping?
We have bought a handful of smaller companies in the last six-nine months. But IT is unlikely we are going to buy a big bank: in the US we are forbidden from doing so. We will be investing 3-4 billion dollars in forward looking sectors such as AI, cloud, and digital.
What about central banks digital currencies. It is a project still in the making. Do you think it is a good idea? And crypto assets, are they a good idea too?
Cryptoassets often have no underlying assets backing them so I would be cautious. They should be regulated with taxes and reporting. Crypto often involves moving money and this should be supervised just as the potential for money laundering is supervised. As for digital currencies, they should be studied by central bankers. For example, they should ask themselves what would people do with their deposits in a big crisis? - Would they move their savings to a central bank? And central banks are not in the business of lending money to people. Moreover, banking consumer services are much more than a digital currency: they are about mortgages, consultancy, planning, credit scores, alerts, and paying bills. So what I am saying on digital currencies is that central banks should study them very closely.