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JPMorgan Chase lowers guidance, expresses caution on lending

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JPMorgan Chase lowers guidance, expresses caution on lending

JPMorgan Chase & Co. cut its forecast for net interest income in 2019 to about $57 billion from the approximately $57.5 billion it had projected in July.

Speaking at an investor conference, Chairman and CEO Jamie Dimon cited the adverse interest rate environment. "It's hard," he said. "There are businesses where it just sucks into your margin, and there's very little you can do about it."

Dimon said that while rates on "hot money" deposits are repricing lower, there is little room to cut costs on core consumer accounts, where rates did not increase substantially when benchmarks were rising.

Dimon also said JPMorgan Chase has started to think about what it would do to manage through an environment of zero or negative interest rates, a scenario he thinks is unlikely. The bank could try to cut costs or charge consumers' account fees.

"We're thinking about how to be prepared for it just in the normal course of risk management," he said. "We just started thinking about it."

In lowering its forecast for spread income amid a rapidly shifting rate environment, JPMorgan Chase joined mid-quarter moves by other large banks, including Wells Fargo & Co. and Citigroup Inc.

When evaluating what rates mean for banks, Dimon said the most important question "is the why."

If rates are presaging a recession, "you're going to be hurt far worse" than the direct impact on spread revenue, Dimon said. But if the cuts by the Federal Reserve work to stimulate the economy, "you'll have other offsets."

Dimon said when credit costs do begin to climb, he anticipates "a traditional cycle," reflecting strong underwriting during the expansion. Losses will climb sharply, but they "won't be completely outsize."

Dimon added that there are "pockets" of elevated risk in subprime and leveraged loans, but that most of those weaknesses are outside the banking system and do not pose a major threat of contagion.

Still, Dimon said JPMorgan Chase has become deliberately restrained on growth in commercial and commercial real estate loans, and in consumer auto lending.

"We have very low growth in C&I and CRE," he said. "Probably less than some of the banks of today, but we're just being cautious on that side. That's a decision we made."