JPMorgan CEO Dimon Raises Specter of Zero Rates
11 September 2019 - 7:04AM
Dow Jones News
By David Benoit
The biggest bank in the U.S. is starting to prepare for how to
make money if interest rates in the U.S. drop to zero.
James Dimon, chief executive of JPMorgan Chase & Co., said
at an industry conference Tuesday the bank has begun discussing
what fees and charges it could introduce if interest rates go to
zero or lower.
While Mr. Dimon stressed he wasn't expecting zero rates at this
point, the fact that he would entertain such a conversation is a
sign of how sharply the environment has changed. A year ago, the
Federal Reserve was still raising rates, and many bankers including
Mr. Dimon expected the rate increases to continue into this
year.
Instead, the Federal Reserve lowered its key benchmark rate in
July by a quarter point to a range of 2% to 2.25%, its first rate
cut in more than a decade, and it is expected to cut another
quarter point as soon as this month.
If the Fed were to go all the way to zero, or to negative rates
as some European central banks have, it would likely be against a
backdrop of a U.S. recession or a worsening global economy. Yields
in some countries including Germany, France and Holland have fallen
below zero already.
Low interest rates squeeze margins banks make on loans. Hitting
zero or negative rates raises complex questions about how to charge
customers for loans and still make money. Banks would also have to
grapple with whether to charge customers for their deposits without
alienating them, a dynamic U.S. consumers and businesses haven't
yet dealt with.
The change in tone about U.S. interest rates has weighed on bank
stocks this year, as the KBW Nasdaq Bank Index has underperformed
the S&P 500.
Wells Fargo & Co., Citigroup Inc. and JPMorgan all told
investors at this week's Barclays financial services conference in
New York that lending profitability in the second half of the year
would likely be less than the banks had previously expected.
The bankers blamed falling interest rates along with a growing
list of global concerns including Brexit and protests in Hong Kong,
which they say are hampering business clients from making
decisions. The trade war between China and the U.S. remains the
biggest impediment, the bankers said.
"People are a little less willing to make bets," Bank of America
Corp.'s Chief Operating Officer Thomas Montag said. Some clients
are changing supply chains, while others are holding off on drawing
down on their revolving lines of credit, he said. "There's enough
uncertainty going on in the world that they're going to wait."
There were some brighter spots: Bank of America and JPMorgan
were more upbeat on trading revenue. Lower interest rates have
spurred increased mortgage origination. And generally the banks
said U.S. consumers remained strong.
Rachel Louise Ensign contributed to this article.
Write to David Benoit at david.benoit@wsj.com
(END) Dow Jones Newswires
September 10, 2019 16:49 ET (20:49 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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