JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon said Wednesday that banks will have to charge more for lending to get a “fair return” as regulators require the industry to set aside more funds to cushion against losses.
“I don’t think that you’re going to have all these banks around the world holding this amount of capital and the revolvers will cost the same,” Dimon, 57, said at an investor conference sponsored by Goldman Sachs Group Inc. in New York. Revolving loans and repurchase agreements are among products that “use a lot of balance sheet” and will have to be repriced, he said.
U.S. regulators are forcing firms to hold more capital against assets that banks consider low risk by proposing a minimum leverage ratio of 5 percent as an increased buffer against potential losses. Market participants have said that would affect pricing and access to lending in the repurchase agreement, or repo, market, in which borrowers sell lenders securities with an agreement to buy them back later.
Wall Street firms face new curbs, including limits on hedging, designed to prevent financial blowups after the Federal Reserve and four other regulators adopted the Volcker rule, a centerpiece of the 2010 Dodd-Frank Act. The hedging provision drew more attention in the Volcker rule debate after JPMorgan lost $6.2 billion last year in bets on credit derivatives.
“We have control issues we’ve got to fix,” Dimon said. “We’re taking an ax to it. We’re going to fix the problems that have been identified.”
The Volcker rule, issued Tuesday by five U.S. agencies, bars banks from speculating with their own money. In the three years since Dodd-Frank was enacted, regulators also have completed guidelines on how the government will dismantle the largest financial firms when they fail, taken steps to make derivatives trading more transparent and defined which mortgages are considered risky.
The effects of Dodd-Frank began rippling through the financial system even before the rules were written. BarneyFrank, the former Democratic congressman from Massachusetts who co-wrote the legislation, said the fact that rules were pending “had a restraining effect” on bank risk-taking.
“What financial institution executive in their right mind would say, ‘There’s about to be a rule on this. I’ll sneak in under the wire and do this thing’?” Frank said.
Even after repricing loans, profit at New York-based JPMorgan may be squeezed by regulatory changes imposed in the wake of the financial crisis, including the Volcker rule and annual stress tests overseen by the Fed. Some activities will move to unregulated “shadow banks,” Dimon said.
“We have a huge amount of regulatory change,” he said. “All things equal, our expenses will be higher, our return slower.”
The bank, the biggest in the U.S. by assets, is spending $2 billion on legal compliance by the end of 2014, costs that are mostly permanent, Dimon said. When asked about the bank’s relationship with regulators, he said managers still had progress to make.
“We’ve always tried to treat them like partners,” Dimon said. “We’ve lost track of that somehow over the last several years. We’re trying to get back.”
JPMorgan, the bank that earns the most revenue from fixed income, currency and commodities trading, still will be a “big winner” in those businesses, Dimon said.
Information for this article was contributed by Michael J. Moore, Clea Benson and Dave Michaels of Bloomberg News.
Business, Pages 28 on 12/12/2013