JPMorgan Chase 's Jamie Dimon Has a China Ambition
DATE:  Nov 06 2017
/ SOURCE:  Yicai
JPMorgan Chase 's Jamie Dimon Has a China Ambition JPMorgan Chase 's Jamie Dimon Has a China Ambition

(Yicai Global) Nov. 6 -- In 1931, great economic thinker John Maynard Keynes once said, "A sound banker, alas, is not one who foresees danger and avoids it, but one who, when he is ruined, is ruined in a conventional way along with his fellows, so that no one can really blame him." Many bankers previously deemed 'sound' fell victim to the 2008 financial crisis, but Jamie Dimon, chairman and chief executive of  JPMorgan Chase [NYSE:JPM], sidestepped this fate.

Dimon won the respect of many investors, who dubbed him the 'Prince of Wall Street.' In 2008, he led  JPMorgan Chase to shy from Wall Street's fastest-growing business, subprime mortgages. He thus weathered the storm these later unloosed and worked closely with regulators to maintain financial stability in the crisis. This enabled him to become the 'last man standing' on Wall Street.  

Today, against the backdrop of a global economic recovery,  JPMorgan Chase's business is growing and leading its peers. Dimon has kept up the pace, welcoming innovative, cutting edge technology, and growing his firm's China business on the road forward.

Last November, speculation swirled that Dimon would be asked to become the next US treasury secretary. He quelled these rumors, however. "I have no political ambition whatsoever, and the Treasury is not a position I've ever wanted," he told Yicai Global.

This is also the first time in recent years for Dimon to accept a Chinese media interview. Dimon repeatedly mentioned throughout the interview that proper public policy demands implementation of tax cuts, renewal of infrastructure and retooling regulation after the crisis to allow the US economy to grow faster.

The role of banker suits him better than politician. As Chairman of the Business Roundtable (BR), he also actively promotes good policy and decision-making.

Dimon has also voiced his own 'China Ambition.' He hopes that  JPMorgan Chase will one day have a building with 7,000 employees in mainland China, just as in Hong Kong, New York and London.  JPMorgan Chase has a very strong 'China ambition.' China is expected to host 35 percent of the global top 3,000 companies in the next 20 years, and this is the target for  JPMorgan Chase's services, Dimon told Yicai Global.

The longest journey starts with the smallest step. Even for a universal bank, the greatest ambition must have small beginnings. Dimon always holds a long-term view and can foresee what will happen in the next 10 to 20 years. He steers a steady ship, and relies on consistent investment in people, technology, products, systems and operations and a policy of sticking by countries and companies around the world through thick and thin.

On this visit to Shanghai, Jamie Dimon attended the annual meeting of  JPMorgan Chase International Council, whose members comprise former US Secretary of State Henry Kissinger, ex-UK Prime Minister Tony Blair and previous US Secretary of Defense Robert Gates. China has been selected as the venue for this year's key meeting, demonstrating the firm's determination to cultivate the country.

Recovery Will Offset Negative Impact of Normalization

Yicai Global: Since the second half of last year, the global economy has experienced synchronized recovery, this year in particular. Many economists believe that this is a cyclical recovery, and global economic growth potential cannot return to pre-crisis levels. Are you worried about this?

Dimon: I don't think it is just a cyclical recovery. The synchronized global growth that we are seeing today is a good thing. My personal view is that policy matters. For example, policies on infrastructure, taxation, education, business formation, proper regulation (not too much but not too little), are important and can lead to a healthier economy. There is no reason that the economy should slow down in the future.

I don't agree with the "secular stagnation" as proposed by some economists. As for the US, in particular, if it had put in place the right public policies, it would have grown faster. But it did not do that to some extent, especially with tax reform: We haven't had the proper tax reform in the past three decades. For infrastructure, the government should permit and build more infrastructure, including airports, bridges and highways. Some of our regulations in my opinion damage business formation and hold back certain kinds of lending, including mortgages. The list goes on. If we fix these policies, we will grow faster.

Yicai Global: The Fed has started to raise interest rates and shrink the balance sheet; the world's major central banks will follow suit to start the normalization of monetary policy. How do you think the global financial market environment will change in the future in the post UMP (un-conventional monetary policy) ear?

Dimon: It's hard to know what will happen to the market during the normalization process. We've had quantitative easing (QE) for a very long time, and getting back to a normal environment is good. But remember if you are getting back to a normal environment with a healthy economy, it is very different from getting back with no QE in a weak economy. So, a strong economy is really an important part of that. It's the right thing that we try to normalize. There are risks as always, and things don't always turn out perfectly. We've never had a reversal of QE, so it is uncertain and could be a little rockier than people think.

Yicai Global: UMP has brought about unprecedented new phenomena and challenges to the global financial market such as Zero Lower Bound, low returns, low volatility, market bubbles, liquidity glut, together with structural liquidity shortage, etc. How will the market evolve during the normalization process down the road?

Dimon: The world is growing, and if everything is happening in a healthy economy, it's much better to deal with than in a weaker economy. There is a chance that the market would be rockier than we think, and asset prices could come down a little more, and investors might get a little bit scared, but we need to normalize.

Raising rate probably won't have any meaningful effect on our growing economy.   For an economy like the US that is worth hundreds of trillions of financial assets, balance sheet deleveraging isn't that consequential as long as the economy is strong. If they have to do it under more complex circumstances, it could be a lot wobblier. But that's life.

Yicai Global: The whole world is waiting for the news who will be next chair of the Fed. Who do you think will be the next chair? What qualities does the chosen chair of the Federal Reserve need? (The nomination was not yet forthcoming at the time of the interview)

Dimon: My own guess is irrelevant, and I can't comment on the candidates. But whoever the Fed Chairman would be, he/she should be strong, firm and responsible for the monetary policy; he/she should raise rates, try to normalize, and always should have the ability to un-normalize if things go badly. Plus, he/she should properly review all regulations. I do not want to throw out Dodd Frank, just to review or recalibrate it. This will also help grow the economy.

The Beauty of a Long-Term View

Yicai Global:  JPMorgan Chase is firing on all cylinders and has once again delivered brilliant quarter result that smashed Wall Street estimates, an increase of 7 percent from the previous year. What are the things driving this growth?

Dimon: I never worry about a single quarter. We always lay our eyes on the long-term, say 10-20 years. It's about adding people, technology, operations, systems, helping countries and companies through thick and thin. One quarter of good results only reflects what you did in the past. We build businesses, add people, help clients, and we are doing so very consistently. The reason why we are doing well today is because we have been investing in and building our business over many years.

Yicai Global: For many Wall Street financial institutions, this year's trading and FICC (Fixed Income, Currencies and Commodities) business is not doing very well, dragging down the overall performance. Analysts have also expressed concern about  JPMorgan Chase's narrowing of net interest margin (NIM) in the previous quarter. What do you think of the industry as a whole along this line, and what challenges face  JPMorgan Chase in the particular?

Dimon: NIM reflects loans, deposits, interest rate curve, etc. NIM is rather predictable and is doing fine. It would be up USD4 billion year-on-year. It may be a bit lower than many people think but it's still a big amount of money. I think people focus on completely the wrong things. As for FICC trading, we look at it as a business. We cover 16,000 investors around the world and support them with research, sales, and execution across mortgagee, FX, rates, sovereigns, credit etc. FICC is doing fine, and for a whole bunch of reasons, maybe the low volatility, FICC will go up and down in unpredictable ways, just like the weather.

Yicai Global: You are talking about the synergy of a 'universal bank;' this model tests management capability and strength, especially at a difficult time in terms of  regulatory landscape. What are J.P. Morgan's secrets?

Dimon: We always serve our clients well. Actually, every one of our businesses helps the other part of the businesses. For example, even in fixed income trading, we get something out from our commercial bank; our private bank's clients are often the same clients we have in our investment bank, so we can both bank their personal and corporate affairs. Even the consumer bank adds a lot of clients to our asset management businesses. They help each other and create efficiency and diversification.

We don't have any secrets. We have great management and we try to be very detailed and disciplined about the way we run our businesses. We don't change our strategy and try to be very consistent over time. There are other companies getting in and out of some businesses all the time, but we always try to be consistent and steadfast.

Yicai Global: Even if  JPMorgan Chase stays strong with consistent strategy, you still need to greet changes and adapt to new realities, say regulation.

Dimon: You have to meet all regulatory requirements. We always should look at the business from the standpoint of our clients rather than from J.P. Morgan's standpoint. If David Li has a corporate customer in China who needs overseas services, we provide those services to them globally, and we also adjust our services to meet various regulatory requirements of different jurisdictions. It could mean less or more capitals and different reporting requirements, etc. Despite the changing regulatory requirements, clients still need our services. So, it doesn't change our strategy. We just do what the regulators want us to do, in addition to serve our clients. Sometimes it may add costs or reporting burdens, but it's true for everybody.

Recalibrating Post-Crisis Regulation  

Yicai Global: Regarding regulation, you were very vocal that the US should re-calibrate the stringent regulation that has been drafted and implemented in the post crisis era, which may drag down US economic growth. What is your comment on the new plan rolled out by the Treasury?

Dimon: Treasury wrote a very detailed report, which definitely did not mean to throw out Dodd Frank but recalibrate it. Dodd Frank did a lot of good things. Recalibration is very technical thing, for example it's about SLR, GSIFI, and it's about how C-CAR should be done, mortgage requirements, securities requirements, etc. And in total, that slowed down the economic growth of America. I do hope they can modify some of those unnecessary and redundant requirements. But remember, whether they do or don't, J.P. Morgan would be fine. They should do it for the sake of the US, not because we want it.

Yicai Global: Wall Street deems stress testing too expensive. Do you think the stress test needs to be fine-tuned in the future? What do you think of the Volcker Rule?

Dimon: The government's stress testing is once a year, but we do 200 a week. I'm in favor of stress testing, but the question is where it is efficient and where is not and how can it be modified to benefit everybody. It is hugely costly. A company bears all kinds of risks and the government's testing often turns out just to test one scenario, so it's often inadequate. We test hundreds of scenarios, and we want to survive all hundreds.

Volcker's Rule is unnecessary to some extent. We already have capital, transparency, and reporting requirements. I have no problem about not investing in hedge funds or cutting out the proprietary trading, but the issue has always been about how you define market making and rules or regulations on that. It has become onerous and most people realize that. We should figure out simpler and easier way to do that. That's what we do every day.

Standing Up to Disruptive Technology

Yicai Global:  JPMorgan Chase spent $9.5 billion on technology in 2016 and has plans this year to introduce products for digital banking, online investment advice and electronic trading. How do you see the importance of embracing tech and disruptive innovation?

Dimon: All businesses including us have been embracing new technology for a whole lifetime. Again, our goal is to serve our customers, so we should use technology to do a better job for them, and that means faster, cheaper, simpler, etc. You have a lot of ways to measure "better," but we need technology to do that, such as mobile banking. We have to do a better job for our clients every year, because if you don't, someone else will. We mostly do it with technology.

You have to add a lot of new things as well, such as electronic trading for our clients. You should always test and learn what your clients want. We do all businesses, and we want our clients to wake up seeing what they want to see not what we want them to see. The root is technology.

Banks have been using data for a long time. Fundamentally, we want to serve our customers better, which never changes. API is making a huge difference, and what we call agile management can help grow market share and reduce operational costs.

Yicai Global: Now with deep learning and the rapid rise of artificial intelligence (AI), the future of everything will be novel, what do you think of the power of machine intelligence? How to check its competition with human being?

Dimon: Machine learning or AI sounds disruptive, but with these technologies we can also help our clients. We can give them ideas and help them allocate the assets. I don't see there is competition between human and machine.

I think technology is the best thing that has ever happened to mankind. For example, healthcare technology adds 25 years to our life. Technology does change things and we adjust to that, but for the most part it's better for all people. If somehow it becomes too disruptive to the society, government can slow it down and retrain people, but you are not going to stop it and it's not the right thing to do.

JPMorgan Chases China's Ambition

Yicai Global: What do you see as China's function in today's global economy?

Dimon: China has been successfully entering the modern world over the last 30-40 years. It's a reasonable expectation that China will become a large, successful and developed nation. It will probably house 35% of the Fortune 3,000 companies in 20 years or so and take its rightful place in the world stage. It's not going to be the American way or the Japanese way, it will be the Chinese way. In that path, there will be ups and downs or confusion. China does have some issues that Chinese leaders openly talk about, like corruption, inefficiency, needs for further market reforms and they have to navigate these issues. But the outcome is pretty clear. The Chinese leaders are pretty serious and working very hard trying to do what is right to the country.

Yicai Global: What do you think of the position of the yuan in the future global financial system after it joins the SDR?

Dimon: As China has become a bigger and bigger part of the global economy, naturally the yuan will become a reserve currency, but that is not going to happen overnight. China has been taking steps but there are a lot more steps to take.

With a reserve currency like the dollar, you can buy everything with it in the US and in the world, whether it is currency, bond or equity. But fundamentally you can't do them yet with the yuan. China still has capital management. Although there are some programs like the Stock Connect and Bond Connect, these bring in relatively small flows of money. But in one day, the yuan will become a full convertible global currency and China will be a fully open market, and it will be a different thing for the government to manage.

Yicai Global: What is  JPMorgan Chase's China strategy?

Dimon: If you think I am right that China will become a fully developed economy housing 35 percent of Fortune 3,000 in 20 years or so. That's what we bank. We bank investors and companies. We bank Chinese companies in China, Chinese companies going around the world and multinationals around the world coming into China. We bank investors in China going around the world and we help people around the world come invest in China. And the growth path is going like this (upward).

It won't always be a straight line, and I don't worry about a single quarter of result. We build that over time by adding people, products, technology, systems and all the support our bankers need, including HR, finance, marketing, etc. For example, we do research on 343 Chinese companies. It is not just research. We educate the world about the Chinese companies. We will bank more and more Chinese companies in the years to come. It's hard to do, because it's about the recruiting efforts. We should add and train people from time to time. Here in China, we are not that well-known in universities like we are in the US but we want to be known. One day I hope we have a huge building with 7,000 people here, like we do in Hong Kong, the US, and London. We always have a "China Ambition."

Yicai Global: Last year the media was speculating that you were best candidate for treasury secretary. Do you have any political interest?

Dimon: Steve Mnuchin is very smart and qualified. I have no political ambition whatsoever, and Treasury is not a position I've ever wanted.

Yicai Global: Finally, what keeps you up at night?

Dimon: What keeps me up at night? Normally a banker would say concerns about credit or economic growth, but for me it's always been about public policy. If governments make bad policy decisions, that would damage the economy. Our tax system has been not good for American economic growth for a protracted period of time. I don't want to be a politician, but I chair the Business Roundtable (BR). I spent quite some time with Steve Mnuchin and Gary Cohn and other key members of the Congress, which I hope may help the decision-making.

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Keywords:   JPMorgan Chase,Jamie Dimon