JPMorgan's Dimon Sees Long-Term Consequences of US Banking Turmoil

There is no end in sight to the U.S. banking crisis, which has been ongoing for years and will continue to have an impact on the industry for years to come, according to Jamie Dimon, the CEO of JPMorgan Chase & Co. (JPM.N).

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"It is obvious that the current crisis is not yet over, and even when it is behind us, there will be repercussions from it for many years to come," Dimon wrote in his 43-page annual report, which covered everything from JPMorgan's performance to geopolitics and regulation in the financial sector.

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The storm clouds that threatened the economy a year ago are still looming over the economy today, said Dimon, the chief executive officer of the largest lender in the United States. After Silicon Valley Bank failed and Credit Suisse was rescued by UBS last month, the banking system is once again under pressure after a new round of failures.

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It has become more likely that there will be a recession in the market, Dimon wrote in a letter. "It has created lots of jitters in the market, and as financial institutions become more cautious in lending, some tightening of financial conditions will likely occur as banks become more cautious and as other lenders become increasingly cautious. Although this is nothing like 2008, it is not clear when this current crisis will end."

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However, Dimon wrote that there is still uncertainty as to whether the disruptions will have a negative impact on the consumer spending that drives the U.S. economy.

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Among the risks that led to the current crisis were those "hiding in plain sight," Dimon wrote, citing Silicon Valley Bank's interest rate exposure and the level of uninsured deposits as evidence of these risks.

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Nevertheless, he downplayed the similarities between the global financial crisis and the current situation. "This current banking crisis involves far fewer financial players and fewer issues that need to be resolved than the 2008 crash, which hit large banks, mortgage lenders, and insurers with global connections," Dimon said.

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When Dimon became CEO of JPMorgan Chase in 2006, he presided over the bank's acquisitions of Bear Stearns, the troubled investment bank which failed in 2008, and Washington Mutual, which was the largest savings and loan to ever fail in the United States.

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In the current financial crisis, Dimon once again played a crucial role, helping to arrange a $30 billion lifeline for First Republic Bank (FRC.N) from 11 large lenders during this period of crisis.

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Morgan Stanley (MS.N), Bank of America Corp (BAC.N), Citigroup (C.N), and Wells Fargo & Co (WFC.N) have each pledged $5 billion apiece. Morgan Stanley (MS.N) and Goldman Sachs (GS.N) have each pledged $2.5 billion apiece.

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Despite the recent turmoil, Dimon wrote in a letter that the new regulations that will be put into place to deal with failed banks will need to be "thoughtful." As a result of the unpredictability of future regulations as well as the uncertainty around stress test capital requirements, the banking system does not become more secure.

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According to the S&P 500 Index (.SPXBK) of broader bank stocks, JPMorgan shares are down almost 3% this year, against an index drop of 13% for the S&P 500 (.SPXBK).

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A number of lending giants, including Bank of America and Citigroup, were inundated with deposits following the collapse of Silicon Valley Bank in March, according to sources familiar with the matter at the time.

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Besides the banks, Dimon also took aim at nonbank financial firms, with which banks are increasingly competing in the provision of mortgages, credit cards, and other services such as market making.

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"Would nonbank credit-providing institutions be able to provide credit when their clients need it the most?" he asked. "In my opinion, I doubt that many of them will be able to do so."