War in Ukraine, inflation and need for higher interest rates create ‘unprecedented’ situation, says Jamie Dimon

JPMorgan Chase & Co. CEO Jamie Dimon said the Western world faces “challenges at every turn” but the U.S. economy remains strong, according to its annual letter to shareholders.

JPM of JPMorgan,
+0.45%
Dimon cited a myriad of challenges, including unprecedented government actions, a strong recovery from a sharp and deep global recession, a highly polarized US election, rising inflation, war in Ukraine and dramatic economic sanctions on Russia and economic recovery from the COVID-19 pandemic.

Russian sanctions could impact the bank’s business by $1 billion over time, he revealed.

Despite these potential setbacks, Dimon said the current times also present an opportunity to “put aside our differences, propose solutions and work with others in the Western world to come together in defense of democracy and essential freedoms, including free enterprise”.

Separately, JPMorgan also filed its proxy statement which disclosed Dimon’s total compensation of $84.4 million for 2021, up from $31.7 million in 2020, according to the bank.

The latest figure includes $52.6 million in option grants for 2021, compared to no option grants in 2020.

“The special award given to Mr. Dimon reflects the Board’s desire that he continue to lead the company for a significant number of years to come,” the company said. “The Board also considered other factors, including the solid performance of the business under Mr. Dimon’s leadership since 2005, his exemplary leadership and his significant contributions to the success of the business during his tenure.

Dimon’s total annual compensation in 2021 fell from $31.5 million in 2020 and 2019 to $34.5 million. This increase is due to a $3 million raise he received in performance share units (PSUs) to $28 million in 2021 from $25 million.

His salary remained at $1.5 million.

Shares of JP Morgan Chase are down 14.6% so far in 2022, compared to a 4.6% decline in the S&P 500 and a 4.2% loss in the Dow Jones Industrial Average. The selected financial sector XLF SPDR ETF,
-0.44%
is down 2.1%.

Russia’s invasion of neighboring Ukraine and sanctions imposed on Russia by other world governments will slow the global economy — and things could get worse, Dimon said.

Add in persistent inflation that will require higher interest rates and a shift from quantitative easing to quantitative tightening, and “the confluence of these factors could be unprecedented,” Dimon said.

The world faced a range of other challenges before war broke out, including nuclear proliferation, cybersecurity risks, terrorism, climate change and vast inequalities in society, he said.

This makes strong American leadership more crucial than ever.

“Power abhors a vacuum, and it should be increasingly clear to all that without strong American leadership, chaos is likely to prevail,” he wrote.

Dimon said the bank’s management looks beyond its short-term stock price because over time the stock has outperformed. Over the long term, its stock price “is a measure of the progress we’ve made over the years,” he noted.

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Dimon said he agreed with “my friend, Warren Buffett” (CEO of Berkshire Hathaway BRK.B,
-1.83%
) that the success of his business rests on the “extraordinary conditions” created by the US government.

Dimon concluded his letter by crediting bank employees with “courage, intelligence, integrity, and tremendous ability to navigate personally difficult circumstances while maintaining high standards of excellence.”

As for the U.S. economy, the consumer “is in excellent financial shape (on average), with some of the lowest leverage on record, great mortgage underwriting (even though we’ve had price appreciation real estate), lots of jobs with pay raises and more than $2 trillion in excess savings, mostly due to government stimulus,” he said.

Consumer spending in recent months is 12% higher than pre-COVID-19 levels, while acknowledging that the account balances of lower-income households, initially smaller, are declining faster and income of these households is not keeping pace. rising inflation, he said.

Read also : Banks on high alert as White House flags potential Russian cyberattacks

Leslie M. Gill