JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon said artificial intelligence may be the biggest issue his bank is grappling with, comparing its potential impact to that of the steam engine and saying the technology could “improve virtually every workplace.”
The CEO dedicated a portion of his annual letter to shareholders to the company Importance of AI for the Wall Street giant’s business and for society as a whole. The bank has identified more than 400 use cases for the technology in marketing, fraud and risk, brought together thousands of AI experts and data scientists and begun researching the use of generative AI, Dimon said.
“We are fully convinced that the consequences will be extraordinary and perhaps as transformative as some of the great technological inventions of the last hundred years,” Dimon said in the letter. “Think of the printing press, the steam engine, electricity, computers and the Internet, among other things.”
Dimon expressed his judgment on the importance of AI in a lengthy message in which he also criticized a number of regulatory proposals, issued a stark warning on geopolitics, took aim at shareholder advisory firms and vigorously defended the role of market making in the financial system. And as expected, the 68-year-old spoke on the economy, reiterating his concerns that the risks of persistent inflation, quantitative tightening and ongoing wars in Ukraine and the Middle East remain significant, even as the US economy remains robust.
“These markets appear to be pricing in a 70 to 80 percent chance of a soft landing — modest growth with falling inflation and falling interest rates,” Dimon wrote. “I think the likelihood is much lower.”
Winning record
Dimon published his letter after JPMorgan posted the highest annual profit in American banking history last year. The lender, which reports first-quarter results on Friday, benefited from turmoil among regional lenders that began just over a year ago, prompting depositors to seek the safety of larger financial institutions. JPMorgan played an important role in these events and ultimately organized the rescue of the First Republic after it failed.
The deal “was not something we did just for ourselves,” Dimon wrote. At the time, JPMorgan said the acquisition would boost profits by more than $500 million annually, but acknowledged that was likely conservative. In his letter, Dimon said the figure would likely be “more like $2 billion.”
Regional banking unrest grew as regulators put the finishing touches to proposals to impose tougher capital requirements on U.S. banks, known as the “Basel III Endgame.” Dimon, an outspoken critic of the proposals, devoted an entire section of his letter to shareholders to the need for a serious review of the banks’ regulatory and supervisory process. He also repeated previous criticism about the possibility that the proposals could cause economic harm.
Market design
The proposed rules could also affect market making, in which banks help investors buy and sell securities, according to the CEO. Dimon devoted several pages to defending the role of banks in this business, which some regulators appear to view as speculative, hedge fund-like activity.
“This thinking could lead them to continually increase capital requirements,” he wrote.
Dimon said JPMorgan generates about $100 million a day in revenue from the business, which has only suffered losses on 30 trading days over the last decade. The proposed rules, which Federal Reserve Chairman Jerome Powell signaled last month he would scale back, could harm market stability, Dimon wrote.
Proxy
Dimon also used his letter to target proxy advisors – companies that pay investors such as government pension funds and other large asset managers for recommendations on how they should vote their stocks on contentious issues such as executive compensation.
Dimon has long chided shareholders for casting their votes based solely on recommendations from those companies lazy and irresponsible. But on Monday he went a step further and accused the two main US advisers, Institutional Shareholder Services and Glass Lewis & Co., of having too much influence on the outcome of the shareholder elections.
“While asset managers and institutional investors have the fiduciary responsibility to make their own decisions, it is becoming increasingly clear that proxy advisors have undue influence,” Dimon wrote.
Dimon has had to fight off a number of resolutions supporting the two companies over the years. He discovered this on Monday EAT is owed by German firm Deutsche Börse AG, while Canadian private equity firm Peloton Capital owns Glass Lewis, questioned whether American corporate governance should be dictated by for-profit institutions that “have their own strong ideas about what what constitutes good corporate governance.”
Dimon also said the bank is taking steps to reduce the role of proxy advisor recommendations. By the end of this year, JPMorgan Asset Management will have largely eliminated third-party voting recommendations from proxy advisors from its voting systems, he said. The Company will also work with third-party proxy advisors to remove their voting recommendations from research reports they submit to the Department through the 2025 proxy season.
Other highlights from the letter:
- On the growing personal loan industry: “Often the weaknesses of new products, in this case personal loan loans, are only visible and exposed in poor markets that personal loan loans have not yet faced,” Dimon wrote. “As credit spreads fall apart, interest rates rise and some leveraged companies suffer in the recession, we will find out how these loans survive the stress test.”
- Dimon spoke at JPMorgan current decision Exit from Climate Action 100+, an investor group founded in 2017 to combat climate change. His company “invested in our own internal experts and evolved our own risk management processes over the years,” he wrote. “This will allow us to go our own way and make our own independent decisions.”