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JPMorgan Chase boss Jamie Dimon said the bank stands to take a $1 billion hit as it unwinds its business interests in Russia over the Ukraine war – warning the invasion will have major implications for the global economy and geopolitics for years to come.
Dimon’s bleak forecast in his annual letter to shareholders released Monday marked the first time he has detailed JPMorgan’s potential losses over the war.
The bank chief warned the Russia-Ukraine war and its resulting sanctions against the Kremlin represent a significant challenge that will “at a minimum, will slow the global economy — and it could easily get worse.”
“We are not worried about our direct exposure to Russia, though we could still lose about $1 billion over time,” Dimon said in the letter. “But we are actively monitoring the impact of ongoing sanctions and Russia’s response, concerned as well about their secondary and collateral effects on so many companies and countries.”
DImon said the bank’s economists expect the European Union, which is “highly dependent on Russia for oil and gas,” to experience slowing economic growth due to fallout from the war. They also expect the US economy to experience negative effects, with GDP growing at a projected 2.5% pace in 2022 rather than the 3% economists previously expected.
The JPMorgan executive warned the economic trouble could get worse as Western nations ratchet up sanctions in response to escalating Russian military aggression.
“Many more sanctions could be added — which could dramatically, and unpredictably, increase their effect. Along with the unpredictability of war itself and the uncertainty surrounding global commodity supply chains, this makes for a potentially explosive situation,” Dimon added.
JPMorgan Chase was one of countless financial institution and companies that have cut or limited their ties to Russia in response to the Ukraine war. Sanctions against Russia, such as the ejection of Russian banks from the SWIFT international payments system, have effectively severed the Kremlin’s access to the broader global economy and put Russia at risk of default.
Dimon said JPMorgan’s effort to comply with the sanctions has been an “enormous undertaking” for the bank – including efforts to facilitate sanctions on individuals and stop “billions of dollars of payments” based on government guidance.
Dimon outlined what he called an “extraordinary need for strong American leadership” as a check against geopolitical and economic uncertainty.
“Power abhors a vacuum, and it should be increasingly clear to all that without strong American leadership, chaos likely will prevail,” he said.
The billionaire banker noted the threefold effects of the Russia-Ukraine war, the ongoing recovery from the COVID-19 pandemic and likely aggressive action from the Federal Reserve to address rampant inflation were having an effect that “may be unprecedented” for the global economy.
The Fed hiked interest rates for the first time in three years in March in a bid to curb inflation that hit a four-decade high of 7.9%.
“I do not envy the Fed for what it must do next: The stronger the recovery, the higher the rates that follow (I believe that this could be significantly higher than the markets expect) and the stronger the quantitative tightening (QT),” Dimon said.
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