Jamie Dimon says souring loans threaten banks
Jamie Dimon, CEO, JP Morgan Chase, throughout a Jim Cramer interview, Feb. 23, 2023.
Deposit runs have led to the collapse of three U.S. banks this yr, however one other concern is constructing on the horizon.
Industrial actual property is the realm most certainly to trigger issues for lenders, JPMorgan Chase CEO Jamie Dimon instructed analysts Monday.
“There’s at all times an off-sides,” Dimon mentioned in a question-and-answer session throughout his financial institution’s investor convention. “The off-sides on this case will in all probability be actual property. It will make sure areas, sure workplace properties, sure development loans. It might be very remoted; it will not be each financial institution.”
U.S. banks have skilled traditionally low mortgage defaults over the previous couple of years because of low rates of interest and the flood of stimulus cash unleashed throughout the Covid-19 pandemic. However the Federal Reserve has hiked charges to combat inflation, which has modified the panorama. Industrial buildings in some markets, together with tech-centric San Francisco, might take a success as distant staff are reluctant to return to places of work.
“There might be a credit score cycle. My view is will probably be very regular” except for actual property, Dimon mentioned.
For instance, if unemployment rises sharply, bank card losses may surge to six% or 7%, Dimon mentioned. However that can nonetheless be decrease than the ten% skilled throughout the 2008 disaster, he added.
Individually, Dimon mentioned banks — particularly the smaller ones most affected by the business’s latest turmoil — have to plan for rates of interest to rise far larger than most count on.
“I feel everybody needs to be ready for charges going larger from right here,” as much as 6% or 7%, Dimon mentioned.
The Fed concluded final month mismanagement of interest-rate dangers contributed to the failure of Silicon Valley Financial institution earlier this yr.
The business is already constructing capital for potential losses and regulation by reining in its lending exercise, he mentioned.
“You are already seeing credit score tighten up as a result of the best method for a financial institution to retain capital is to not make the following mortgage,” he mentioned.