JPMorgan analysing how to cope with zero interest rates, says Dimon
JPMorgan Chase, America’s biggest bank, is analysing how to cope with zero interest rates, chief executive Jamie Dimon told investors on Tuesday as he pulled back the bank’s estimate for this year’s net interest income. Long term US interest rates have fallen sharply in the recent weeks, as investors predicted the Federal Reserve would follow up July’s interest rate cut with several others. The Fed’s benchmark rate now stands at a range of 2.25 per cent to 2.5 per cent.“I don’t think you’ll have zero interest rates in the United States but we’re thinking about how do we be prepared for it,” Mr Dimon told the investors at Barclays’ financials conference in New York. He added it was “very hard” for him to envisage charging customers to hold their deposits, as some banks in Europe have done, mainly for corporate clients. “There are businesses that it (low rates) doesn’t affect and all and there are businesses where it sucks into your margin and there’s very little you can do about it,” Mr Dimon said, adding that JPMorgan will continue to grow deposits even if its margins fall.In July, JPMorgan Chase said its net interest income for 2019 would be $57.5bn, Mr Dimon said the bank now expected net interest income to be “a little bit lower” at around $57bn.JPMorgan’s third quarter trading revenues are running 10 per cent higher than a year earlier, but “we’re not jumping for joy” since 2018 wasn’t a great third quarter, Mr Dimon said. Investment banking fees are “about flat,” he added.Shares were up 0.8 per cent at $116.36 during lunchtime trade on Tuesday, the highest since mid-July.Several other bank executives have addressed the impact of falling rates and rate expectations this week. Wells Fargo chief financial officer John Shrewsberry further reduced the banks’ expectations for 2019 net interest income, to a 6 per cent decline, down from the 5 per cent decline expected a few months ago — a difference of about $500m. Wells Fargo is more sensitive than many peers to rate changes because of its large mortgage servicing business and its portfolio of high-yielding consumer debt, which it is selling off and must replace with low-yielding new loans. But Mr Shewsberry also noted “encouraging actions across the industry on deposit pricing,” including fewer promotional deposit rates. Lower deposit rates help protect banks’ margins when rates fall. Citigroup also trimmed its net interest income forecast this week, from 4 per cent growth to “closer to three to four per cent,” according to chief financial officer Mark Mason.He also said trading revenue would be down slightly from last year’s third quarter.Bank of America gave a more mixed view of trading on Monday, with equities doing “pretty well” but fixed income down slightly.US bank shares as a group have rallied almost 4 per cent since Monday as the yield on the 10-year Treasury has risen and the yield curve has steepened, indicating the possibility of lower pressure on banks’ profit margins.