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.
Industrial actual property is the world probably to trigger issues for lenders, JPMorgan Chase CEO Jamie Dimon advised analysts Monday.
“There’s all the time an off-sides,” Dimon mentioned in a question-and-answer session throughout his financial institution’s investor convention. “The off-sides on this case will most likely be actual property. It’s going to be sure areas, sure workplace properties, sure building loans. It could possibly be very remoted; it will not be each financial institution.”
U.S. banks have skilled traditionally low mortgage defaults over the previous couple of years on account of low rates of interest and the flood of stimulus cash unleashed in the course of the Covid-19 pandemic. However the Federal Reserve has hiked charges to struggle inflation, which has modified the panorama. Industrial 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 likely be a credit score cycle. My view is it is going to be very regular” apart from actual property, Dimon mentioned.
For instance, if unemployment rises sharply, bank card losses would possibly surge to six% or 7%, Dimon mentioned. However that can nonetheless be decrease than the ten% skilled in the course of the 2008 disaster, he added.
Individually, Dimon mentioned banks — particularly the smaller ones most affected by the trade’s current turmoil — have to plan for rates of interest to rise far greater than most count on.
“I believe everybody must be ready for charges going greater 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 Financial institution earlier this yr.
The trade is already constructing capital for potential losses and regulation by reining in its lending exercise, he mentioned.
“You are already seeing credit score tighten up as a result of the best method for a financial institution to retain capital is to not make the following mortgage,” he mentioned.