Global Courant 2023-05-23 02:15:24
Jamie Dimon, CEO, JP Morgan Chase, during interview with Jim Cramer, February 23, 2023.
CNBC
Deposit runs have led to the collapse of three US banks this year, but another concern is looming on the horizon.
Commercial real estate is the area most likely to cause problems for lenders, JPMorgan Chase That’s what CEO Jamie Dimon told analysts on Monday.
“There’s always an offside,” Dimon said in a question-and-answer session at his bank’s investor conference. “The off-sides in this case will probably be real estate. It will be certain locations, certain office properties, certain construction loans. It can be very isolated; it won’t be every bank.”
US banks have experienced historically low loan defaults in recent years, thanks to low interest rates and the deluge of stimulus money unleashed during the Covid pandemic. But the Federal Reserve has raised interest rates to fight inflation, which has changed the landscape. Commercial buildings in some markets, including technology-focused San Francisco, could take a hit as remote workers are reluctant to return to their offices.
“There will be a credit cycle; my view is it will be very normal,” with the exception of real estate, Dimon said.
For example, if unemployment rises sharply, credit card losses could be as high as 6% or 7%, Dimon said. But that will still be lower than the 10% during the 2008 crisis, he added.
Separately, Dimon said banks — especially the smaller ones most affected by the recent industry turmoil — should plan to raise interest rates much higher than most expect.
“I think everyone should be prepared for higher rates from here,” Dimon said to 6% or 7%.
The Fed concluded last month that mismanagement of interest rate risk contributed to the bankruptcy of Silicon Valley Bank earlier this year.
The industry is already building up capital for potential losses and regulation by reining in its lending, he said.
“You can already see lending tightening because the easiest way for a bank to preserve capital is not to make the next loan,” he said.
