Jamie Dimon, chief executive officer of JPMorgan Chase & Co.
Jamie Dimon believes cash is king – at least for the time being.
Because of the possibility that higher inflation will force the Federal Reserve to raise interest rates, JPMorgan Chase has been “effectively stockpiling” cash rather than using it to buy Treasuries or other investments, Dimon said at a conference on Monday. According to him, the largest bank in the United States has positioned itself to benefit from rising interest rates, which will allow it to purchase higher-yielding assets.
“We have a lot of cash and capability, and we’re going to be very patient, because I think there’s a very good chance inflation will be more than transitory,” said JPMorgan CEO Jamie Dimon.
“If you look at our balance sheet, we have $500 billion in cash, and we’ve effectively been stockpiling more and more cash waiting for opportunities to invest at higher rates,” Dimon explained. “I expect higher rates and higher inflation, and we’re ready for it.”
Dimon weighed in on the ongoing debate over whether higher inflation is a result of temporary aspects of the reopening, such as raw material shortages or supply chain issues, or if it is more long-term. The current inflationary surge, according to Fed officials, is transitory, which means it will be temporary and short-lived. However, a growing number of voices, including Deutsche Bank economists and hedge fund billionaires, are warning of dire consequences if the Fed ignores inflation.
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Later that day, Morgan Stanley CEO James Gorman told Frost on the Closing Bell that he, too, believes higher inflation will last and that the Fed will be forced to raise rates sooner than expected.
“The question is, when will the Fed act?” Gorman stated. “It has to move at some point, and I believe the bias is more likely to be earlier rather than later than what the current dots suggest.”
According to Dimon, JPMorgan’s decision to accumulate cash accounts for roughly half of the decrease in expected net interest income this year. According to him, the other half comes from lower credit card balances. The bank now expects net interest income of $52.5 billion in 2021, down from $55 billion in February.
Dimon touched on several familiar themes during the wide-ranging discussion. He warned that banks were under attack from fintech and Big Tech players such as PayPal, which has a larger market capitalization than nearly all US banks combined.
Despite the fact that “we don’t even think it’s a very good product yet,” Dimon revealed that the bank’s automated investing service You Invest has amassed approximately $50 billion in assets.
According to Dimon, the bank’s second-quarter trading revenue will be “a little north of $6 billion,” down from the “exceptional” period a year ago. Investment banking revenue is expected to be about 20% higher than a year ago, and it could be one of the bank’s best quarters due to strength in mergers and acquisitions advice, as well as equity and debt issuance, he said.