Jamie Dimon, chair and CEO of JP Morgan Chase, has been dubbed the king of Wall Road, whereas additionally being seen as America’s “least-hated banker”.
He’s seen as a stage head in banking circles, so his views on the sudden collapse of Silicon Valley Financial institution (SVB) final month, which despatched shockwaves by way of the worldwide tech and startup group, are price noting.
Dimon’s annual shareholder letter is as eagerly anticipated as Warren Buffett’s views for Berkshire Hathaway, and this yr’s version isn’t any exception, devoting appreciable time to latest banking failures, most notably SVB and Credit score Suisse.
The CEO says in his letter that a lot of the dangers that led to final month’s financial institution failures had been “hiding in plain sight”, however there was additionally an “unknown threat” that instantly contributed to the collapse of SVB that no quantity of regulation can tackle – the truth that “a small variety of enterprise capital firms” managed lots of the account holders and created the financial institution run in urging them to withdraw funds.
The controversy over the position of traders within the collapse of SVB is ongoing, with some pointing to billionaire investor Peter Thiel who advised his Founders Fund purchasers to withdraw their funds. Just a few weeks later, Thiel advised the Monetary Instances that he left US$50 million within the financial institution when it went beneath. A number of different VC funds, together with Coatue Administration, Union Sq. Ventures and Founder Collective, additionally advised founders to drag their money from SVB.
VCs had been definitely then vocal about wanting the US authorities to intervene, since its current deposit assure scheme solely lined $250,000. In the long run, the US Treasury Division has intervened to ensure the total worth of all SVB deposits in a bid to halt broader financial institution run jitters.
Dimon takes shareholders by way of what’s already identified about why the financial institution went beneath, however for the opposite gamers concerned “this wasn’t the best hour for a lot of”.
“A lot of the dangers had been hiding in plain sight. Rate of interest publicity, the truthful worth of held-to-maturity (HTM) portfolios and the quantity of SVB’s uninsured deposits had been at all times identified – each to regulators and {the marketplace},” Dimon wrote.
“The unknown threat was that SVB’s over 35,000 company purchasers – and exercise inside them – had been managed by a small variety of enterprise capital firms and moved their deposits in lockstep.
“It’s unlikely that any latest change in regulatory necessities would have made a distinction in what adopted. As an alternative, the latest speedy rise of rates of interest positioned heightened concentrate on the potential for speedy deterioration of the truthful worth of HTM portfolios and, on this case, the dearth of stickiness of sure uninsured deposits.”
Dimon argues that “mockingly” banks devoured up authorities securities as a result of the regulators favoured them.
“This isn’t to absolve financial institution administration – it’s simply to clarify that this wasn’t the best hour for a lot of gamers,” he wrote.
“Dangers are ample, and managing these dangers requires fixed and vigilant scrutiny because the world evolves.”
Dimon counsels that “we keep away from knee-jerk, whack-a-mole or politically motivated responses that always end in attaining the other of what folks meant” in relation to the subsequent steps in regulating the monetary sector to keep away from a repeat.