Inside JP Morgan’s annual report–the economy, inflation, war in Ukraine and more

I’ve made a summary of some of the key highlights from Jamie Dimon’s annual report to the shareholders of JP Morgan Chase & Co. Jamie Dimon is the current CEO of JP Morgan Chase & Co.

Following the outbreak of COVID and subsequent lockdowns in 2020, the US Fed decided to stabilize the economy by way of Quantitative Easing (introduction of new money into the money supply by a central bank). Fed pumped approximately $4.4 trillion, or 18% of 2021 US GDP, and a fat fiscal stimulus of approximately $5 trillion, or 21% of 2021 US GDP. This saved many small businesses and put more than $2.5 trillion in the hands of consumers.

Now with the threat of COVID waning & the economy returning to normalcy along with rising inflation due to global supply chain constraints and Russia’s evasion of Ukraine, Fed is shifting towards Quantitative Tightening (decreasing the amount of liquidity within the economy) from Quantitive Easing.

Here’s what Jaime Dimon had to say on it: He expects a strong recovery because of a few important decisions by the fed which will eventually be in a strong QT.

The fed shouldn’t worry about volatile markets as long as they affect the actual economy, he says. “A strong economy trumps market volatility.”

On War in Ukraine and the sanctions on Russia:

The hostilities in Ukraine and the sanctions on Russia are already having a substantial economic impact:

  • Global oil, commodity, and agricultural markets are taking a toll.

  • The fallout from the war and resulting sanctions reduced Russia’s GDP by 12.5% by midyear.

  • U.S. economy to advance roughly 2.5% versus a previously estimated 3%.

  • JPMorgan Chase has also played its part in the implementation of the Western world’s policies and sanctions regarding Russia.

On the impact of this on JPMC: We are not worried about our direct exposure to Russia, though we could still lose about $1 billion over time.

On the impact of Russia’s invasion of Ukraine on the world economy: “We need to pursue short-term and long-term strategies with the goal of not only solving the current crisis but also maintaining the long-term unity of the newly strengthened democratic alliances. We need to make this a permanent, long-lasting stand for democratic ideals and against all forms of evil.”

  • A lot of global trade (and trade with China) will remain even after trade partnerships have been altered.

  • China’s trade with the West and the United States in 2021 totaled $3.6 trillion (exports and imports).

  • China’s total trade with Russia in 2021 totaled almost $150 billion. Clearly, these economic relationships are critical to both China and the West–China also has a huge interest in making this work.

Another interesting point put across by Jamie is he feels that the role of banks in the global financial system is diminishing. Why so? Here are some supporting facts:

  • Banks’ size and market cap have dramatically diminished relative to their nonbank competitors (Google, Amazon, Facebook, Apple, etc.).

  • U.S. banks’ loans in an 11-year period have only grown 65% and now represent only 8% of total U.S. debt and equity markets, down from 11% in 2010.

  • U.S. banks’ liquid assets are up more than 300% to $8.6 trillion, most of which is needed to meet liquidity requirements.

  • Banks’ share of mortgage originations has gone from 91% to 32%.

What are your views on the Annual report?