Jamie Dimon, chief executive officer of JPMorgan Chase & Co., said that artificial intelligence could be the biggest problem his bank is grappling with. He compared its potential impact to that of the steam engine and said that technology could “augment virtually every job.”
The CEO dedicated part of his annual letter to shareholders to the importance of artificial intelligence for the Wall Street giant’s business and for society in general. The bank has identified more than 400 use cases for the technology across marketing, fraud and risk, has assembled thousands of AI experts and data scientists and has begun exploring the implementation of generative AI, Dimon said .
“We are absolutely convinced that the consequences will be as extraordinary and perhaps as transformative as some of the major technological inventions of the last few centuries,” Dimon said in the letter. “Think of the printing press, the steam engine, electricity, computing, and the Internet, among others.”
Dimon delivered his verdict on the importance of AI in a wide-ranging cable that also criticized a series of regulatory proposals, issued a stark warning about geopolitics, took aim at shareholder advisory firms and offered a spirited defense of the role of market making in the financial system. And as expected, the 68-year-old weighed in on the economy, reiterating his concern that the risks of persistent inflation, quantitative tightening and ongoing wars in Ukraine and the Middle East loom large even if the U.S. economy remains strong.
“These markets appear to be pricing in a 70-80% chance of a soft landing: modest growth coupled with falling inflation and interest rates,” Dimon wrote. “I think the odds are much lower than that.”
Profit record
Dimon published his letter after JPMorgan achieved the highest annual profit in the history of the American banking sector last year. The lender, which will report first-quarter earnings on Friday, has benefited from turmoil among regional lenders that began just over a year ago, prompting depositors to seek the safety of larger financial institutions. JPMorgan played an important role in the unfolding of those events, ultimately arranging the rescue of the First Republic after its bankruptcy.
The deal “was not something we would do just for ourselves,” Dimon wrote. At the time, JPMorgan said the acquisition would add more than $500 million to annual earnings, acknowledging that it was probably a prudent choice. In his letter, Dimon said the figure would likely be “close to $2 billion.”
Regional banking turmoil has unfolded as regulators put the finishing touches on proposals that would burden U.S. banks with tougher capital requirements, known as the Basel III Endgame. Dimon, an outspoken critic of the proposals, devoted an entire section of his letter to shareholders to what he said was the need for a serious overhaul of the bank regulatory and oversight process. He also reiterated previous criticisms that the proposals could cause economic damage.
Market creation
According to the CEO, the proposed rules could also harm market making, where banks help investors buy and sell securities. Dimon has devoted numerous pages to defending the role banks play in this industry, which he says some regulators appear to view as a speculative activity, similar to hedge funds.
“This thinking is what may lead them to steadily increase capital requirements,” he wrote.
According to Dimon, JPMorgan earns about $100 million in daily revenue from the firm, which has only lost money on 30 trading days over the past decade. The proposed rules, which Federal Reserve Chair Jerome Powell signaled last month would be scaled back, could harm market stability, Dimon wrote.
Votes by proxy
Dimon also used his letter to target proxy advisors, firms that investors, such as state pension funds and other large asset managers, pay for advice on how they should vote their shares on controversial topics such as executive compensation .
Dimon has long chastised shareholders for casting votes based solely on recommendations from companies deemed lazy and irresponsible. But on Monday he went further, accusing the two main U.S. consultants, Institutional Shareholder Services and Glass Lewis & Co., of having what he sees as excessive influence in determining the outcome of shareholder elections.
“While asset managers and institutional investors have a fiduciary responsibility to make their own decisions, it is increasingly clear that proxy advisors have undue influence,” Dimon wrote.
Over the years, Dimon has had to fight off a number of resolutions supported by the two companies. He noted Monday that ISS is owned by German firm Deutsche Boerse AG, while Canadian private equity firm Peloton Capital owns Glass Lewis, and questioned whether American corporate governance should be determined by for-profit institutions with “their strong feelings about what constitutes a good company.” government”.
Dimon also said the bank is taking steps to reduce the role of proxy advisor recommendations. By the end of this year, JPMorgan Asset Management will have largely eliminated voting recommendations from third-party voting consultants from its voting systems, he said. The firm will also work with third-party proxy voting advisors to remove their voting recommendations from research reports provided to the division by the 2025 proxy season.
Other highlights from the letter:
- On the growing private credit sector: “Often, the weaknesses of new products, in this case private credit lending, can only be seen and exposed in challenging markets, which private credit lending has not yet addressed,” Dimon wrote . “When credit spreads widen, when interest rates rise, and when some indebted companies suffer recession, we will find out how these loans survive stress tests.”
- Dimon addressed JPMorgan’s recent decision to exit Climate Action 100+, an investor group formed in 2017 to fight climate change. His company “has invested in our internal experts and matured our risk management processes over the years,” he wrote. “As a result, we will go our own way and make our own independent decisions.”