We extracted the big lessons for investors and leaders from the JPMorgan CEO’s 27,000-word letter to shareholders. Apr 9, 2024 https://www.afr.com/chanticleer/jam...sks-and-his-leadership-secret-20240409-p5fifc When JPMorgan chairman and chief executive Jamie Dimon spoke at The Australian Financial Review Business Summit last month, he was putting the final touches to his widely watched annual letter to shareholders. With the publication of the letter on Monday night, it’s clear we got a great preview of his views across a wide range of issues. Three risks that Dimon highlighted at the event come across even more clearly in the letter, which runs to more than 27,000 words. JPMorgan’s Jamie Dimon says investors are too obsessed with monthly inflation figures. David Rowe The first is the economy. As Dimon made clear in March, he remains wary of a market that has ascribed a 70 per cent to 80 per cent chance to a soft landing and says JPMorgan has prepared for a wide variety of economic outcomes, from strong economic growth to the nightmare of a soft landing. Perhaps most notably, Dimon says the bank is braced for rates to land anywhere between 2 per cent and 8 per cent; he says the obsession with monthly inflation data risks ignoring the long-term outlook for inflation, whereby high fiscal spending, high defence spending, higher energy spending and the restructuring of supply chains combine to keep inflation and interest rates higher than expected. Dimon warns we have little idea of how well economies are really prepared for a period of higher-for-longer inflation. “If long-end rates go up over 6 per cent and this increase is accompanied by a recession, there will be plenty of stress – not just in the banking system but with leveraged companies and others. Remember, a simple 2 percentage point increase in rates essentially reduced the value of most financial assets by 20 per cent.” Connected to this is the second big risk Dimon highlights for finance: the shift to private markets. He says the big reduction in publicly listed companies over the two decades (from a peak of 7300 public US companies in 1996 to 4300) and the big jump in private equity-owned firms (from 1900 to 11,200 in the past 20 years) reflects the increasing pressure to go private. That is to avoid a laundry list of issues, including “higher litigation expenses, costly regulations, cookie-cutter board governance, shareholder activism, less compensation flexibility, less capital flexibility, heightened public scrutiny and the relentless pressure of quarterly earnings”. ‘Undue influence’ He particularly savages proxy advisers for their “undue influence”, although Chanticleer suggests CEOs have a habit of overestimating the power of this group. Connected to this is the rise and rise of private credit. Dimon sees benefits from smart players in this sector moving “quickly, discreetly and flexibly”. But he fears that “not all players are that good” and when a mishap eventually occurs, the kind of regulation in public markets may be forced into private ones, too. That will include, inevitably, the way private credit values assets. But the bigger worry for Dimon is that we haven’t seen how many private credit products will perform in a bad market. “When credit spreads gap out, when interest rates go up and when some leveraged companies suffer in the recession, we will find out how those loans survive stress testing.” Dimon’s third big risk is geopolitics. He says we tend to overestimate the risks to the economy from events such as Russia’s invasion of Ukraine. But the conflagration of risks we are seeing from hot and cold conflicts could “very well be creating risks that could eclipse anything since World War II – we should not take them lightly…The ongoing wars in Ukraine and the Middle East could become far worse and spread in unpredictable ways. Most important, the spectre of nuclear weapons – probably still the greatest threat to mankind – hovers as the ultimate decider, which should strike deep fear in all our hearts.” Artificial intelligence risks Dimon does talk about risks associated with artificial intelligence in his letter, noting it has “the potential to augment virtually every job”. But his most striking comment on AI is essentially a promise: that the bank “will aggressively retrain and redeploy our talent to make sure we are taking care of our employees if they are affected by this trend”. It’s a lovely sentiment, but it will be fascinating to see how this actually plays out when Dimon (or a future JPMorgan boss) has the chance to deliver huge cost reductions by deploying AI at scale. Maybe, given what Dimon describes as the “secret sauce” of his leadership style, he will resist replacing his staff with robots. Dimon is wary of the idea of vision (“often it is the basic BS of corporate speak”). But he says leading with heart – constantly earning the respect of staff by showing your trenches with them, owning up to and correcting mistakes, fighting bureaucracy and demonstrating consistency – is vital. “Heart matters,” Dimon says. “And it makes a difference when people know and see that you actually care.” He recalls how JPMorgan sacked and then re-hired its security guards to save money on the guards’ healthcare costs, which are now worth about $US15,000 ($22,700) a year. “This was a heartless thing to do – and the second I found out, I reversed the decision. JPMorgan Chase’s success will not be built off the backs of our guards – it will be the result of fair treatment of all of our employees.”
CNBC news Jamie Dimon says AI may be as impactful on humanity as printing press, electricity and computers Hugh Son CNBC Tue, 9 April 2024 https://thewest.com.au/business/cnb...ng-press-electricity-and-computers-c-14246641 Jamie Dimon, the veteran chief executive and chair of JPMorgan Chase, says he is convinced that artificial intelligence will have a profound impact on society. In his annual letter to shareholders released overnight Monday in the US, Dimon chose AI as the first topic in his update of issues facing the biggest US bank by assets — ahead of geopolitical risks, recent acquisitions and regulatory matters. “While we do not know the full effect or the precise rate at which AI will change our business — or how it will affect society at large — we are completely convinced the consequences will be extraordinary,” Dimon said. The impact will be “possibly as transformational as some of the major technological inventions of the past several hundred years: Think the printing press, the steam engine, electricity, computing and the internet.” Dimon’s letter, read widely in the business world because of his status as one of the most successful leaders in finance, hit a wide variety of topics. The CEO said that he had ongoing concerns about inflationary pressures and reiterated his warning that the world may be entering the riskiest era in geopolitics since World War II. But his focus on AI, first mentioned in Dimon’s annual letter in 2017, stood out. The technology, which has gained in prominence since OpenAI’s ChatGPT became a viral sensation in late 2022, can generate human-sounding responses to queries. Enthusiasm for AI has fuelled the meteoric rise of chipmaker Nvidia and helped propel tech names to new heights. JPMorgan now has more than 2000 AI and machine-learning employees and data scientists working on 400 applications including fraud detection, marketing and risk controls, Dimon said. The bank is also exploring the use of generative AI in software engineering, customer service and ways to boost employee productivity, he said. The technology could ultimately touch all of the bank’s roughly 310,000 employees, assisting some workers while replacing others, and forcing the company to retrain workers for new roles. “Over time, we anticipate that our use of AI has the potential to augment virtually every job, as well as impact our workforce composition,” Dimon said. “It may reduce certain job categories or roles, but it may create others as well.” Here are excerpts from Dimon’s letter: Inflationary pressures: “Many key economic indicators today continue to be good and possibly improving, including inflation. But when looking ahead to tomorrow, conditions that will affect the future should be considered. “All of the following factors appear to be inflationary: ongoing fiscal spending, remilitarisation of the world, restructuring of global trade, capital needs of the new green economy, and possibly higher energy costs in the future (even though there currently is an oversupply of gas and plentiful spare capacity in oil) due to a lack of needed investment in the energy infrastructure.” On the economy’s soft landing: “Equity values, by most measures, are at the high end of the valuation range, and credit spreads are extremely tight. These markets seem to be pricing in at a 70 per cent to 80 per cent chance of a soft landing — modest growth along with declining inflation and interest rates. I believe the odds are a lot lower than that.” On interest rates & commercial real estate: “If long-end rates go up over 6 per cent and this increase is accompanied by a recession, there will be plenty of stress — not just in the banking system but with leveraged companies and others. “Remember, a simple 2 percentage point increase in rates essentially reduced the value of most financial assets by 20 per cent, and certain real estate assets, specifically office real estate, may be worth even less due to the effects of recession and higher vacancies. “Also remember that credit spreads tend to widen, sometimes dramatically, in a recession.” On a breakdown between banks and regulators: “There is little real collaboration between practitioners — the banks — and regulators, who generally have not been practitioners in business. “Unfortunately, without collaboration and sufficient analysis, it is hard to be confident that regulation will accomplish desired outcomes without undesirable consequences. Instead of constantly improving the system, we may be making it worse.” On rising geopolitical risks: “Russia’s invasion of Ukraine and the subsequent abhorrent attack on Israel and ongoing violence in the Middle East should have punctured many assumptions about the direction of future safety and security, bringing us to this pivotal time in history. “America and the free Western world can no longer maintain a false sense of security based on the illusion that dictatorships and oppressive nations won’t use their economic and military powers to advance their aims — particularly against what they perceive as weak, incompetent and disorganised Western democracies. “In a troubled world, we are reminded that national security is and always will be paramount, even if its importance seems to recede in tranquil times.” On social media: “One common sense and modest step would be for social media companies to further empower platform users’ control over what they see and how it is presented, leveraging existing tools and features — like the alternative feed algorithm settings some offer today. “I believe many users (not just parents) would appreciate a greater ability to more carefully curate their feeds; for example, prioritising educational content for their children.” An update on the First Republic deal: “The acquisition of a major company entails a lot of complexity. People tend to focus on the financial and economic outcomes, which is a reasonable thing to do. “And in the case of First Republic, the numbers look rather good. We recorded an accounting gain of $US3 billion ($4.54b) on the purchase, and we told the world we expected to add more than $US500 million to earnings annually, which we now believe will be closer to $US2b.” JPMorgan acquired most of the assets of First Republic last year for more than $US10b after regulators seized the firm amid the regional banking crisis. CNBC