Few bankers have been as prescient and as prepared as JPMorgan chairman and chief executive Jamie Dimon to face a crisis and bail out those who get into trouble. In an interview with MC Govardhana Rangan, Bodhisatva Ganguli and Joel Rebello, the go-to banker even for the US Federal Reserve said he expects that global financial metrics could get worse before getting better. When few thought the 10-year US bond yield would rise to 3%, Dimon was preparing for 5%, and he says he is now ready to face even 7% by way of risk-free rates. There could be accidents, but nothing like a global crisis after the Lehman Brothers implosion. And above all, he’s betting on an enduring India-US partnership – lasting not years or decades, but a century. Edited excerpts:
Among Indian policymakers there is a conviction that this is India’s moment. How does it sound to you?
There is no question. The US-China relations have gotten so complicated. I’m not against China, but you’re going to see a lot of companies moving supply lines because of resilience reasons, not because they’re angry at China. I was surprised how many were reliant on this supply line. So you have Apple coming here. For manufacturing, possibly for services, anything trade related, it’s a huge opportunity. But India has also been making its own progress away from that in terms of when they got Aadhaar in place. I think that’s brilliant. And then I remember years ago, the GST reforms to eliminate bureaucracy and your infrastructure spending. It’s a democracy. I think the power of freedom of people and entrepreneurs is extraordinary. You see it in your technology here.Does India feel like China 15 to 20 years ago?
Yes. But I think India is a little bit more complicated. And also remember China when they started, it was really small, they had a long way to go just to start. They were able to bypass it and they don’t have the sloppiness of democracy. They have serious issues too. You have a lot you can do here.
Are your clients also talking about moving some of the supply chains from China to India, which the government is hoping for?
Several of them, yes. We have already seen some, but I think it’s not just that. When you go into nations, you need things that are conducive to people wanting to do business here. Fair regulations, not regulations that are used to defend the incumbent. Transparency, consistency of taxes, rule of law. It’s all of those things that will get more people to do things here. So, all those policies including trade, openness, less protectionism, America has a huge opportunity to dramatically use this relationship with India for the benefit of both nations. And I will be pushing that very hard right now.
What are the few things that the country must do in terms of policymaking to push that forward?
Things people talk about, inconsistent taxes. I remember companies debating huge tax bills from 10 years ago. Companies avoid putting direct investment on the ground because they are not sure they can get it done properly. Companies now in the US are cancelling projects because it is taking so long to get the permits, you know, for solar and wind. That’s true for all nations. If you really want solar and wind, if you really want people to build plants, you got to have consistent rule of law. There are examples in the US, where companies won’t come because regulations are favouring the local American company.
Your colleagues in the index team have added India after years of wait. What does that mean for India?
It’s great for the country. While I don’t think it’s a huge material effect, it’s a sign of maturity. It’s the country, it’s the ratings, it’s the transparency, it’s the government finances, all those various things. But in general, it is a very good thing.
In a recent conference, you spoke about many issues facing the global economy. What are those?
Right now, America is doing fine and India is obviously the fastest growing nation. But when you look at the future, it is very different because of huge fiscal deficits, quantitative tightening. These are kind of global things. I am not sure we have had deficits so large with debt already very high. Obviously, it’s going to end. Does that mean it’s a soft or hard landing? I don’t know. But I think far more important is this Ukraine war. We’ve never had nuclear blackmail. Wars don’t end predictably. It is going to push oil, gas and food prices up again this winter. And then America’s relationship with China, because they’re on the other side of this. It’s affecting all relationships. I think it is a huge opportunity for India and America. I love the fact that we’ve been speaking more and embracing each other more. We will be your best natural ally for the next 100 years. It’s pretty obvious to me.
This geopolitical realignment is coming at a time of quantitative tightening. What does that mean for the global economy?
Today, we are doing fine but you have got the storm clouds out here. We don’t know the timetable of that, we can’t even figure the timetable of when the fiscal stimulus will slow down. But it has to slow down. And these things, in my view, tend to surprise you. They go slower, slower, and then they’re faster. So it could be 12 months or it could all come at once. They may come in drips and drops. People shouldn’t waste too much brain power trying to predict one outcome when they’re better off trying to look at a range of outcomes and then be prepared for them. So JPMorgan is prepared for 7% rates because I want to continue serving my clients. We are here consistently and whatever happens to the global economy. I want our Indian clients, including the government, to know that JP is here for good. You don’t have to worry about backing out every time there’s a hiccup of some sort. There’s a large potential range of outcomes, including some bad ones. I think that the extent to these problems is higher than they’ve been since World War II. So if you look at history, there have always been problems, but not this big.
There is the US debt burden and Chinese property collapse. Which could be the black swan?
China can get through the property crisis. They can manage their country in a way very differently than India or America. They can just fund their banks and fund their companies and they’ll probably do more of that. They have been a little slow. They’ve had a dramatic drop in FDI, a dramatic drop in investment in China by Chinese companies and individuals. They have neighbours and you already have a very complex relationship with them, but it’s becoming increasingly complex, with the Philippines, Korea, Japan, Vietnam, Indonesia. And that is not America’s fault. It just means slower growth and a little more inflation.
At the beginning of the year, you had to do what you did in 2008 – bailing out banks. It looked like a repeat of the global financial crisis. What’s your reading of that?
It was never a global financial crisis. It was always a very limited mini bank crisis. There were only a handful of banks that had those kinds of problems. And those problems were too concentrated deposits. Most of the banks were actually doing fine or they wobbled because people worry but they were earning money. And that was known to regulators, the bank boards and so it was just mismanagement. And I don’t think we run a system where no one can ever fail.
It was due to a sudden rise in interest rates. And the rates are still climbing.
If rates go up from here that will add more problems, not just for banks, that will be for real estate companies, that will be for credit. That could be for private markets, that could be for developing markets. So just because it stopped, that crisis is over, but other people can get caught in it if they’re surprised that rates went up again. If I was advising a company, I would say, “Are you prepared for 7% rates? Are you prepared for a recession?”
Do you think 7% rates are likely or possible?
I absolutely think they’re possible. And two years ago I said 5% was possible, but I’m not saying they’re gonna happen. I’m just saying how can you take it out of the range of possibility? Global fiscal spending is higher than we’ve ever seen probably in the history of mankind other than maybe World War II. And then we had quantitative easing. We’ve never had quantitative tightening. I think there are some long-term trends, which have gone from disinflationary to inflationary. I’m gonna put trade in that category. The benefit of all this trade going to China is gone. The green economy, we estimate will need $4 trillion a year, the IRA Act, the Chips Act, the remilitarisation of the world, fiscal spending, what part of that’s disinflationary? So I think you may have gone from, you know, more of what we’ve seen in the last 20 years to what we saw 20 years before that.
You have the possibility of 7% and here we have had instances like real estate investment funds freezing redemptions.
When you have problems in the financial system, they rear their ugly head in a place where you don’t expect. and you might have some in the private credit world. Also the private leverage lending world to private companies who are owned by private equity have some leverage in it. They’ve been conservative generally but that doesn’t mean someone’s not going to have problems.
Given how sharply interest rates have risen over the past year, would you say there hasn’t been as many bad outcomes so far?
So far. I think they did the right thing to raise rates rapidly. I mean, it’s clear in hindsight that it was too late to slow, but now they’ve caught up so it makes sense to wait and see what it does. You know, it’s just not quite enough. In my mind, the negative interest rates were a huge mistake. The rise from zero to two or three – you had to expect. People didn’t expect like the three to five. They definitely don’t expect five to seven. So my guess is the five to seven will have more of those consequences than the three to five and then if you have the recession and people have to roll over bonds and credit spreads gap out you are going to see more pain there. So let’s all hope it doesn’t happen.
How much does India matter to you and JPMorgan?
I am happy to be back here. I love coming to India, and have always learned so much. This is our eighth equity conference now. I’ve been coming since 2005. We’ve gone from some 6,000 employees here to over 50,000 and the global service centres now have everything. It used to be just call centres but now it’s everything. We’re one of the biggest international investment banks here. It’s been extraordinary. One of the things that we will do after this is have a tech meeting with some 20 entrepreneurs. I mean, that kind of stuff can change the nation and, you know, is bred out of freedom of people.
