Jamie Dimon, CEO, JP Morgan Chase, throughout a Jim Cramer interview, Feb. 23, 2023.
Deposit runs have led to the collapse of three U.S. banks this yr, however one other concern is constructing on the horizon.
Commercial real estate is the world almost definitely to trigger issues for lenders, JPMorgan Chase CEO Jamie Dimon advised analysts Monday.
“There’s at all times an off-sides,” Dimon mentioned in a question-and-answer session throughout his financial institution’s investor conference. “The off-sides on this case will in all probability be real estate. It’ll make sure places, sure workplace properties, sure development loans. It could be very remoted; it will not be each financial institution.”
U.S. banks have skilled traditionally low mortgage defaults over the previous few years as a result of low rates of interest and the flood of stimulus cash unleashed in the course of the Covid-19 pandemic. But the Federal Reserve has hiked charges to struggle inflation, which has modified the panorama. Commercial buildings in some markets, together with tech-centric San Francisco, could take successful as distant employees are reluctant to return to places of work.
“There will probably be a credit score cycle. My view is it is going to be very regular” excluding real estate, Dimon mentioned.
For instance, if unemployment rises sharply, bank card losses would possibly surge to six% or 7%, Dimon mentioned. But that may nonetheless be decrease than the ten% skilled in the course of the 2008 disaster, he added.
Separately, Dimon mentioned banks — particularly the smaller ones most affected by the trade’s latest turmoil — must plan for rates of interest to rise far larger than most anticipate.
“I feel everybody ought to be ready for charges going larger from right here,” as much as 6% or 7%, Dimon mentioned.
The Fed concluded final month mismanagement of interest-rate dangers contributed to the failure of Silicon Valley Bank earlier this yr.
The trade is already constructing capital for potential losses and regulation by reining in its lending exercise, he mentioned.
“You’re already seeing credit score tighten up as a result of the simplest manner for a financial institution to retain capital is to not make the subsequent mortgage,” he mentioned.