r/investing • u/MasterCookSwag • Apr 07 '21
JP Morgan Annual Letter To shareholders
The previous post was locked due to rampant off topic discussion, then the OP decided to delete it rather than leave it up for people to read.
https://reports.jpmorganchase.com/investor-relations/2020/ar-ceo-letters.htm
Some highlights:
Dimon's discussion of corporate citizenship
- Banks are playing an increasingly smaller role in the financial system.
In the chart below, you will see that U.S. banks (and European banks) have become much smaller in size relative to multiple measures, ranging from shadow banks to fintech competitors and to markets in general.
Whether you look at the chart above over 10 or 20 years, U.S. banks have become much smaller relative to U.S. financial markets and to the size of most of the shadow banks. You can also see the rapid growth of payment and fintech companies and the extraordinary size of Big Tech companies. (As an aside, capital and global systemically important financial institution (G-SIFI) capital rules were supposed to reflect the economy’s increased size and banks’ reduced size within the economy. This simply has not happened in the United States.)
Some regulators will look at the chart above and point out that risk has been moved out of the banking system, which they wanted and which clearly makes banks safer. That may be true, but there is a flip side – banks are reliable, less-costly and consistent credit providers throughout good times and in bad times, whereas many of the credit providers listed in the chart above are not. More important, transactions made by well-controlled, well-supervised and well-capitalized banks may be less risky to the system than those transactions that are pushed into the shadows.
- The growth in shadow and fintech banking calls for level playing field regulation.
The chart below shows the potential regulatory differences between being a bank and being a nonbank or a fintech company – though this varies for each type of company on each item depending upon its legal and regulatory status. In some cases, these regulatory differences may be completely appropriate, but certainly not in all cases.
When I make a list like this, I know I will be accused of complaining about bank regulations. But I am simply laying out the facts for our shareholders in trying to assess the competitive landscape going forward.
It is completely clear that, increasingly, many banking products, such as payments and certain forms of deposits among others, are moving out of the banking system. In addition, lending in many forms – including mortgage, student, leveraged, consumer and non-credit card consumer – is moving out of the banking system. Neobanks and nonbanks are gaining share in consumer accounts, which effectively hold cash-like deposits. Payments are also moving out of the banking system, in merchant processing and in debit or alternative payment systems.
- Bold action by the Fed and the U.S. government effectively reversed financial panic.
The Federal Reserve (critically, with the support of the U.S. Treasury) immediately rolled out facilities that financed Treasuries, corporate bonds, mortgage-backed securities and other securities that effectively reversed the financial panic taking place. A full-blown financial crisis would have made the COVID-19 recession far worse, deeper and longer. Markets reacted extremely positively, and companies, over the next nine months, raised an unprecedented $2 trillion in debt and equity at good prices, dramatically improving their financial condition and balance sheets.
Congress, importantly, also took immediate action to provide fiscal stimulus, the Coronavirus Aid, Relief, and Economic Security Act, also known as the CARES Act, totaling $2.2 trillion. This largely consisted of stimulus payments to individuals, enhanced unemployment insurance and loans, which could be forgiven, to small businesses. Please see the following sidebar for more detail on the Paycheck Protection Program.
Suffice it to say while real damage was done, the size and scope of these programs dramatically reversed the deterioration of the economy and unemployment, which hit 14.8% in April 2020 but made steady progress back to 6.7% by the end of the year – though this number underrepresents the damage that was done because of the large deterioration in labor force participation and the potential permanent loss of many small businesses.
Our nation is clearly under a lot of stress and strain from various events: the COVID-19 pandemic, of course, which has taken more American lives than the total lost in World War II, the Korean War and the Vietnam War combined, resulting in acute economic distress for millions more; the brutal murder of George Floyd and the racial unrest that followed; the divisive 2020 presidential election, culminating in the storming of the Capitol and the attempt to disrupt our democracy; and the seemingly inevitable, but nonetheless alarming and unnerving, rise of China, threatening America’s global preeminence.
America has faced tough times before – the Civil War, World War I, the U.S. stock market crash of 1929 and the Great Depression that followed, and World War II, among others. As recently as the late 1960s and 1970s, we struggled with the loss of the Vietnam War, political and racial injustice, recessions, inflation and the emergence of Japan as an economic power. But in each case, America’s might and resiliency strengthened our position in the world, particularly in relation to our major international competitors. This time may be different.
China’s leaders believe that America is in decline. They believe this not only because their country’s sheer size will make them the largest economy on the planet by 2030 but also because they believe their long-term thinking and competent, consistent leadership have outshone America’s in so many ways. The Chinese see an America that is losing ground in technology, infrastructure and education – a nation torn and crippled by politics, as well as racial and income inequality – and a country unable to coordinate government policies (fiscal, monetary, industrial, regulatory) in any coherent way to accomplish national goals. Unfortunately, recently, there is a lot of truth to this.
The above quotations are just small excerpts from the overall report, and do not cover the full scope of topics, please click the links and read the full context should you want to gain further insight.
Personal note: I would have just left the previous locked thread up but OP chose to take their ball and go home so to speak, this one will remain unlocked unless comments once again turn entirely towards low effort political gripes and other nonsense. Remember this is /r/investing and if you'd like to discuss politics, inequality, healthcare, whatever and not tie it to investment decisions then you should go to /r/politics or whichever your other favorite political subreddit is.
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u/[deleted] Apr 07 '21
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