JPMorgan (JPM) CEO Jamie Dimon warned Tuesday that the U.S. banking crisis "is not yet over," adding that tighter credit conditions linked to the failure of Silicon Valley Bank and the rescue of Credit Suisse have increased the odds of recession.
In an annual letter to JPMorgan shareholders, Dimon said the current banking crisis, while unlike the one in 2008, will be felt "for years to come." That's even as it focuses on smaller lenders with deposit and liability exposures that the JPMorgan CEO insisted were "hiding in plain sight."
Dimon, in fact, played a key role last month in brokering a pact among a consortium of 11 banks -- in coordination with the Federal Reserve and the U.S. Treasury -- to add a collective $30 billion to the deposit base of struggling San Francisco-based lender and wealth manager First Republic (FRC) as the broader sector reeled from the collapse of Silicon Valley Bank.
'It Is Not Clear When the Crisis Will End': Dimon
"The failures of SVB and Credit Suisse have significantly changed the market's expectations, bond prices have recovered dramatically, the stock market is down and the market's odds of a recession have increased," Dimon wrote.
"And while this is nothing like 2008, it is not clear when this current crisis will end. It has provoked lots of jitters in the market and will clearly cause some tightening of financial conditions as banks and other lenders become more conservative."
JPMorgan shares were marked 0.94% lower in early Tuesday trading to change hands at $128.92 each, trimming the stock's six-month gain to around 14.3%.
The bank in early January posted stronger-than-expected fourth-quarter earnings and said at the time that the U.S. economy remained strong, with solid consumer spending and healthy business activity.
JPMorgan said earnings for the three months ended in December were pegged at $11.1 billion, or $3.57 per share, up 7.2% from the year-earlier period and well ahead of the Wall Street consensus forecast of $3.08 per share.
The bank also built $2.3 billion in reserves -- with $1.4 billion added over the fourth quarter-- to set against bad loans and credit losses, topping analysts' forecast of a $1.8 billion total for credit provisions.
The reserves were driven by "a modest deterioration in the firm’s macroeconomic outlook, now reflecting a mild recession in the central case."
'Storm Clouds' Must Be Monitored: Dimon
Dimon says now that the U.S. economy is in "pretty good" shape, but added that "storm clouds ahead" need to be monitored.
While the current crisis has exposed some weaknesses in the system, it should not be considered, as I pointed out, anything like what we experienced in 2008," Dimon said. "Nonetheless, we do have other unique and complicated issues in front of us."
"Of course, we hope that everything turns out okay and that all of these storm clouds peacefully and painlessly dissipate – and we need to be prepared for that outcome," he added.
"We also need to be prepared for a new and uncertain future. The new risks (in addition to the normal ones, like recession) are higher inflation for longer, the market effects of QT and growing political risks."
"Of course, I cannot be sure this will happen, but I place higher odds on it than the market'," Dimon said.
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