Jamie Dimon, chairman and chief executive officer of JPMorgan Chase & Co., listens during a Business Roundtable CEO Innovation Summit discussion in Washington, D.C., U.S. (Photographer: Andrew Harrer/Bloomberg)

Dimon Sounds a Cautious Note as JPMorgan Prepares for Recession

(Bloomberg) -- Jamie Dimon doesn’t agree with economic doomsayers. That doesn’t mean he hasn’t heard them.

The chief of the largest U.S. bank acknowledged a growing number of potential obstacles to the economy that carried his firm to record profits last year. That caution was reflected in JPMorgan Chase & Co.’s annual presentation to investors Tuesday, as the bank held its profitability goal steady and told shareholders to expect a slowdown in lending growth.

“We are prepared for a recession,” Dimon said at the event. “We’re not predicting a recession. We’re simply pointing out that we are very conscious about the risks we bear.”

The bank said its loan book wouldn’t expand as quickly as last year amid a “focus on high-quality loans,” according to the presentation. The firm kept its profitability target at the 17 percent return on tangible equity it achieved last year.

It’s a subtle shift from the optimism of the last few years when the bank forecast billions in profits tied to rising interest rates and, most recently, the U.S. tax overhaul. For now, the lender is expecting loss rates to stay near 2018 levels, which Dimon last month described as “pristine.”

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Dimon built JPMorgan into the most profitable lender in banking history in part by being a sober risk manager and insisting on a “fortress balance sheet.” Investors credit that discipline with helping ensure the bank had enough capital to withstand the last financial crisis.

“We do believe there’s more room to run this cycle and we are optimistic global growth will stabilize,” Chief Financial Officer Marianne Lake said. Still, “recent declines in business sentiment have driven recessionary indicators higher. They are not flashing red, but they are off the floor.”

JPMorgan has been outpacing rivals in lending growth, with what it considers core loans rising 7 percent last year and averaging 11 percent annually over the past five years. The firm isn’t pulling back too sharply, as it introduced new credit card features Tuesday that aim to capture more of the $250 billion that its customers borrow from other lenders.

“Recession planning does not mean we’ll stop doing branches, our marketing,” Dimon said. “It’s the opposite. We’ll take advantage of the recession to hire more bankers, hopefully do things and hire people we maybe couldn’t before. Obviously the financial results are going to get a little bit worse, but it’s also an opportunity to shine.”

The bank also indicated that the tough trading environment from the fourth quarter has carried over into 2019. JPMorgan’s trading revenue is likely to drop by a high-teens percentage in the first quarter from last year’s $6.6 billion, co-President Daniel Pinto said. Declines in the currencies and emerging markets units are leading the drop, he said.

JPMorgan shares fell 0.8 percent to $105.29 at 4 p.m. in New York.

JPMorgan said overall expenses could jump by more than $2 billion to around $66 billion in 2019 as it expands into new states for the first time in more than a decade and constructs a new headquarters in New York. The technology budget will increase by $600 million to about $11.4 billion, solidifying JPMorgan’s spot as a top spender in the tech arms race among financial firms.

That increase was more than most analysts were anticipating, which will fuel a debate over whether the investments will pay off, Susan Katzke, a bank analyst at Credit Suisse Group AG, wrote in a note.

“The guidance provided was generally worse relative to KBW analysts’ model, mainly led by a higher than expected expense guide,” wrote KBW’s Brian Kleinhanzl.

More highlights:

  • The bank expects net interest income to climb by an additional $2.5 billion in 2019 as the lender benefits from higher rates. The Federal Reserve raised its benchmark rate four times last year, but has signaled it could slow down this year.
  • JPMorgan lowered profitability targets for its investment bank and asset-management divisions as each required more capital in 2019. Mary Erdoes, who runs the asset management unit, said the firm was being conservative and she expects to top the stated medium-term target of 25 percent ROE, which was down from 35 percent last year.
  • Dimon said the bank could at some point roll out its JPM Coin for commercial purposes or make it available to consumers.

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