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Dimon talks regulatory burden, tech initiatives in letter to shareholders

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Street Talk Episode 65 - Deferral practices trap US bank portfolios in purgatory


Dimon talks regulatory burden, tech initiatives in letter to shareholders

JPMorgan Chase& Co. Chairman, President and CEO Jamie Dimon, in his annualletter to shareholders, addressed regulatory burdens banks face, includingsometimes "severe and disproportionate" consequences for mistakes.

Dimon's letter listed the bank's derisking andsimplification initiatives, such as the exit from private equity and physicalcommodities businesses and most broker/dealer services. In high-riskgeographies, JPMorgan discontinued relationships with approximately 158,200clients. It deployed a monitoring system for global payment transactions that,in 2015, contributed to the filing of 180,000 suspicious activity reports. Thecompany's legal department has also been tasked to look for risks based onpossible future interpretations of laws.

While Dimon admits that the thorough application ofanti-money laundering and "Know Your Customer" guidelines makescertain relationships unprofitable, he said the real reason behind most exitsis the sometimes "severe and disproportionate" regulatoryconsequences for mistakes. When it comes to regulations, the bank is "notlooking to rewrite or to start over," but to amend the procyclical natureof current rules. He reiterated: "I do not want any American to look backin 20 years and try to figure out how and why America's banks lost theleadership position in financial services. If not us, it will be someone elseand likely a Chinese bank."

JPMorgan has publicly disclosed it has approximately $19 billionof country exposure to China and $11 billion to Brazil. Internally run stresstests predict respective losses of $4 billion and $2 billion in severescenarios. However, capital strength does not seem to be an issue. Despitepolitical upheaval, JPMorgan has seen annual profits in Brazil since 2013 anddoes not expect to retreat from the market. Furthermore, "JPMorgan Chasealone has enough loss absorbing resources to bear all the losses, assumed byCCAR, of the 31 largest banks in the United States," Dimon said. "Andeven if any one bank might fail, in my opinion, there is virtually no chance ofa domino effect."

The letter also touched on some of the bank's techinitiatives. The company will invest approximately $300 million in digitalasset management initiatives over the next three years and extend electronictrading capabilities across commodities markets, including agriculturalproducts.

Dimon enumerated other plans, such as the launch of apeer-to-peer solution with funds made available in real-time. That project isin coordination with six other banks, open to others and free to customers. Inaddition, its partnership with OnDeck Capital Inc. will result in Chase Business QuickCapital, with loans that carry the Chase brand and will be kept on JPMorgan'sbalance sheet and subjected to the bank's pricing and risk parameters. Businessbanking customers will also get an online digital application in 2016 or 2017,allowing them to simultaneously sign up for Chase merchant processing, adeposit account and a business credit card.