An Optimistic Jamie Dimon Sees a 3rd Quarter Recovery

JPM chief points to massive Washington relief efforts as the economy’s savior.

The battered US economy should begin a recovery in the third quarter, according to JPMorgan Chase CEO Jamie Dimon.

This optimistic call rests on the largescale Washington action to counter the economic downturn spawned by the coronavirus-inspired lockdown of much of the US economy. Also, the US consumers’ solid situation going into the downturn should help, he said.

“You could see a fairly rapid recovery,” he told an online conference run by Deutsche Bank. “The government has been pretty responsive; the Federal Reserve has been very responsive. Large companies have huge wherewithal. Hopefully, we’re keeping the small ones alive.”

And there are “pretty good odds” he went on, that the turnaround will start in the third quarter.

For more stories like this, sign up for the CIO Alert newsletter.

Nonetheless, he acknowledged that the economy, and hence the stock market, might continue to suffer up ahead. “If it does go on for a year, it won’t be very good,” he said. “You can’t prop up the stock market forever.”

Dimon talked up the banking goliath’s prospects, saying that “I think JPMorgan is a very valuable company at these prices.” The CEO recently bought $26 million in JPM shares.

The company now is trading at a thrifty price/earnings (P/E) ratio of just under 11, some 10 percentage points lower than that of the S&P 500. JPM is the leading US bank by assets ($2.74 trillion), followed by Bank of America.

The bank’s shares have taken a pounding since late February, tumbling 42% over March before nudging up amid the unveiling of the federal rescue package. But Dimon’s remarks seemed to cheer the market Tuesday, and investors bid up the stock by almost 8%.

JPM’s earnings sank 69% in the first quarter, to $2.9 billion, partly because it channeled $6.8 billion into reserves to get ready for credit losses from a stumbling economy.

Economists’ projections indicate a steady recovery from the current woes, Dimon declared. In April, the official unemployment rate more than tripled to 14.7% amid massive layoffs. The economists’ forecasts hold that the jobless rate will peak at 18% in the current quarter, then descend to 14% in the third period and end the year at around 10% to 11%.

“This wasn’t the bazooka,” he said of the Federal Reserve’s aggressive maneuvers to bolster the flagging economy by pushing short-term interest rates to zero and buying bundles of bonds.

“The Fed,” he went on, “took out the whole military and applied it. Just announcing these programs reduced spreads in the market,” between corporate bonds and Treasuries.

Related Stories:

After Phase One Trade Pact, Talks Will Get Really Hard, Dimon Says

Cyber Attacks Are Financial World’s Worst Threat, Says Jamie Dimon

JP Morgan’s Dimon Criticizes US Policies During Earnings Call

Tags: , , , , , ,

New Jersey to Postpone Pension Payments

A September payment has been deferred to October, or the start of the next fiscal year, as the state makes deep cuts and deferrals to stanch revenue losses.

New Jersey’s state government pension fund, projected to lose billions in revenue to the coronavirus crisis, is planning to defer some pension payments to the next fiscal year. 

The state is planning to postpone a September pension payment of $950.9 million to October, the start of the next fiscal year, according to a grim budget report from the state treasury released last week. Its current fiscal year has already been extended to September from June. 

New Jersey, expecting a $10 billion shortfall through the end of fiscal year 2021, is looking to cut more than $5 billion in planned spending across nearly all sectors of government. That includes delaying more pension contributions, as well as school aid and municipal property tax relief. 

“While there are many moving parts, what is clear is that a decline of this magnitude would be worse than the Great Recession,” state Treasurer Elizabeth Maher Muoio said in the budget report. “This means the sizable surplus and rainy day fund we have built together will easily be depleted.” 

Never miss a story — sign up for CIO newsletters to stay up-to-date on the latest institutional investment industry news.

Prior to the pandemic, New Jersey had been making strides to improve its economic situation, worsened by its large debt load and pension liabilities. Over the past two years, the state made record payments into its retirement system, and it made its first rainy day fund deposit in over a decade. 

However, any surplus in the budget will soon be drained, as the coronavirus compounds the state’s financial problems. Even before the economic fallout, the state had budgeted just 70% of its annual actuarially determined contribution (ADC) for the pension fund. The state pension fund is roughly 40% funded. 

New Jersey is also losing tax revenues at a time when health care and unemployment costs are spiking as a result of the public health crisis. The state has reported about 11,200 deaths through this week, roughly one-tenth of the national death toll from the coronavirus. 

The state treasurer also noted that more “significant” budget cuts will be needed in fiscal year 2021 to stem the losses if the state is not allowed to borrow or if it does not get additional federal funding. 

As it is, Gov. Phil Murphy has been appealing for additional federal aid for state governments over the past month. He argued the state may have to lay off front line workers, such as teachers, police officers, firefighters, emergency medical personnel, and health care employees without it. 

Related Stories: 

New Jersey Likely to Cut Pension Contributions, S&P Global Says

New Jersey Is Enlisting State Pensioners to Return to Work

New Jersey Freezes Nearly $1 Billion in Spending Over COVID-19

Tags: , , , , , , , , , ,

«