JPMorgan’s Jamie Dimon is worried about 'stickier inflation and higher rates'

JPMorgan Chase (JPM) CEO Jamie Dimon said in a new shareholder letter Monday that he is worried about a number of risks to a resilient US economy that could "lead to stickier inflation and higher rates than markets expect."

He cited large amounts of government spending and efforts by the Federal Reserve to shrink its balance sheet as well as the ongoing wars in the Middle East and Ukraine and their potential to disrupt essential commodities markets, migration, and geopolitical relationships.

"These significant and somewhat unprecedented forces cause us to remain cautious," he added, noting that the bank is prepared for interest rates "from 2% to 8% or even more."

The CEO of the largest US bank used his 61-page letter to sound off on a number of topics — from banking and AI to global economic risks and geopolitical concerns to management lessons and ways to strengthen the country.

The 68-year-old executive didn't say anything about when he might leave the bank, but JPMorgan said in a separate filing Monday that one of the board's top priorities is "enabling an orderly CEO transition to take place in the medium-term."

The board "has developed, and will continue to develop, several operating committee members who are well-known to shareholders as strong potential candidates to succeed Mr. Dimon."

The bank recently reshuffled some executives as part of that process, reinforcing that there are now roughly a handful of executives with a shot at succeeding Dimon, the longest-serving CEO of a major national bank.

One of the clear frontrunners is Jennifer Piepszak, who became co-CEO of a new division encompassing JPMorgan’s commercial and investment bank.

If the bank needs to move more quickly "in the near-term," the filing said, the board views JPMorgan's president and COO Daniel Pinto "as a key executive who is immediately ready to step into the role of sole CEO."

An 'endgame winner'

Dimon used his letter Monday to return to some familiar themes, particularly his concerns about the regulation of banks in the US.

Dimon said the relationships between banks and US regulatory agencies "have deteriorated significantly" and "are increasingly less constructive" in the years since the passage of the Dodd-Frank legislation following the 2008 financial crisis.

The latest flash point between banks and Washington is a controversial rule requiring financial institutions to hold greater buffers against future losses. The concerns about the capital rule range from harm it could do to the US economy to ways in which it would reduce access to mortgages for disadvantaged home buyers.

Dimon in his letter Monday said the proposal "damages market making, hurts Americans and drives activity to less transparent, less regulated markets." He added that the "whole process" could "be much more productive, streamlined, economical, efficient and safe."

The CEO even asked in his letter for a review of the "thousands" of bank rules passed since Dodd-Frank in 2010 and hinted that a lawsuit was possible if regulators don’t change the new capital proposal.

"You can imagine that no one wants to sue their regulators," he added.

Dimon also spent time in his letter reflecting on the 20-year anniversary of JPMorgan’s merger with Bank One, a deal that brought him to the company in 2004. He was named CEO in 2005.

During that past era of big bank mergers, "most of the nation’s larger banks were trying to position themselves to be an 'endgame winner,'" he said.

"We have made our company an endgame winner," he continued.

Last year, JPMorgan played the role of rescuer yet again by purchasing San Francisco lender First Republic Bank after it was seized by regulators in May. JPMorgan recorded a $3 billion accounting gain and told investors the bank anticipated the acquisition would give it more than $500 million in annual earnings.

In his letter Monday, Dimon said JPMorgan now expects the extra annual earnings to be "closer to $2 billion."

Dimon defended his recent decision to withdraw from Climate Action 100+, a coalition formed in 2017 to encourage companies to reduce their emissions. Financial giants BlackRock (BLK), State Street (STT), and Pimco also ended their US involvement with the group.

"We are going to go our own way and make our own independent decisions," he said.

Dimon also expressed concern over the dynamic between proxy advisers and public companies. Specifically, he called out the two most prominent advisers, Institutional Shareholder Services (ISS) and Glass Lewis, which recommend how shareholders should vote on certain proposals.

He criticized the firms for what he called a tendency to "automatically judge directors unfavorably if they have a long tenure on the board" and recommend "split[ing] the chairman and CEO role when there is no evidence this makes a company better off."

JPMorgan stockholders will have a chance to vote again this spring on whether Dimon's chair and CEO roles should be split, a proposal the company has defeated in the past. JPMorgan's annual meeting is May 21.

Glass Lewis and ISS have more recently offered recommendations to split Goldman Sachs's CEO and executive chair roles. Both are currently held by CEO David Solomon.

Dimon ended his letter on a somewhat wistful note.

"Through these annual letters, I hope shareholders and all readers have gained a deeper understanding of what it takes to be an 'endgame winner' in a rapidly changing world."

"More important, I hope you are as proud of what we all have achieved — as a business, as a bank and as a community investor — as I am. Thank you for your partnership."

Correction: A previous version of this article listed an incorrect name for Institutional Shareholder Services. We regret the error.

David Hollerith is a senior reporter for Yahoo Finance covering banking, crypto, and other areas in finance.

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