WHEN: Today, Monday, February 26, 2024
WHERE: CNBC's "Fast Money Halftime Report"
Following is the unofficial transcript of a CNBC exclusive interview with JPMorgan Chase Chairman & CEO Jamie Dimon on CNBC's "Fast Money Halftime Report" (M-F, 12PM-1PM ET) today, Monday, February 26. Following is a link to video on CNBC.com: https://www.cnbc.com/video/2024/02/26/jpmorgan-ceo-jamie-dimon-on-state-of-the-us-economy-commercial-real-estate-risks-and-ai-hype.html.
All references must be sourced to CNBC.
LESLIE PICKER: Hey, Scott, thank you. And thank you so much to Jamie for being here. So, we are at your High Yield & Leveraged Finance Conference in Miami. You have got executives, dealmakers, investors all kind of coming together to talk about the financing environment.
JAMIE DIMON: Yes.
PICKER: How would you characterize C-suite confidence levels now?
DIMON: First of all, it's good to be here. Thank you for doing this. This is our 29th conference. I have probably been to 20 of them since I became CEO of JPMorgan Chase. Now, look, you always got to look at markets that they change their mind pretty quickly. But, right now, confidence is up. There's more M&A chatter. Easy -- or equity marks are open a little bit. Spreads are getting close to historical lows, which is -- means there's a lot of money chasing high-yield deals. So things are kind of open. Markets are high. People feel it. So, so far, so good.
PICKER: That sounds to run somewhat counter to your more bearish views. I know you said in fourth-quarter earnings that -- last month that inflation may be stickier, rates may be higher than the markets expect. Is that still your base case? And what's kind of fueling that more cautious tone right now?
DIMON: Yes, so the way I look at -- remember, in 1972, you felt great too. And before any crash, you felt great, and then still things change. So you got to look ahead. I do think there are things out there which are kind of concerning, we have got an eye on. And so -- and why are we doing so well? A lot of it is fiscal spending. And fiscal spending has a multiplier too. So I just think it may not come down that quick and people may be surprised. So, when people talk about the market is kind of pricing a soft landing, that may very well happen. But the odds are 70 or 80 percent. I would give them half of that. That's all.
PICKER: Seven or eight rate cuts?
DIMON: No, 70 or 80 percent chance we will have a soft landing, I give it half that. We may very well have one, but I think it's just -- there's also a higher chance than the market thinks of rates being a little bit higher. Another thing I think it's always a mistake to do is look at just the year. All these factors we talk about, Q.T., fiscal spending, deficits, the geopolitics, those things may play out over multiple years, but they will play out and they will have an effect, and we just don't know what they are. So I'm just -- in my mind, I'm kind of cautious about everything.
PICKER: You're hedging.
DIMON: Yes.
PICKER: I want to ask you about commercial real estate.
DIMON: Yes.
PICKER: We have got nearly a trillion dollars of commercial multifamily real estate debt that will mature this year. About half of that, about a trillion, $929 billion worth, half of that is owned by banks, mostly regional banks there. The rest is either securitized or due to nonbank lenders. We have seen higher levels of defaults in certain pockets of the market and a slump in property prices recently. Do you think that stress in commercial real estate will ultimately be the source of the next credit event?
DIMON: You know, first of all, put commercial in perspective with consumer. The consumer markets are far bigger. So what happened in '07 or '08, this isn't that kind of thing. And a lot of these owners of this can handle what you call stress. So, in the banking system, I'm just going to focus this on office for a second, because there's warehouses, there's data centers, there's hospitals, there's -- and some of that stuff is actually well done. But if you take just offices, first of all, they're worth less because of interest rates. When interest rates go up 300 basis points, whatever you own with the cash flow is worth 30 percent less. And so people -- that's not a crisis. That's kind of a known thing. And then there's the -- if you have a recession, yes, it'll get worse. If we don't have a recession, I think most people will be able to muddle through this, refinance, put more equity in. And, of course, when you talk about defaults being higher, part of that's just a normalization process. They were so low for so long, so, in all of credit, you're watching this, things go up, but they're not at a crisis level. They're just kind of going to normal. So, yes, if rates go up and we have a recession, there will be real estate problems, and some banks will have a much bigger real estate problem than others.
PICKER: So, you think, as you kind of assess the landscape and regional banks, there will be more of a Whac-A-Mole than a kind of domino effect?
DIMON: As long as the economy stays like this, there will be more of a Whac-A-Mole. There's no -- There should be no domino effect. The problems you've seen were kind of idiosyncratic problems with Silicon Valley, First Republic, New York Community Bank. And a lot of these -- and it's also -- it's very local. I mean, you talk about real estate, I think when you say blanketed, if I call it an office, and I'm -- I have great leases in it, it's fully leased out, 20-year leases, that's completely different than a spec building. So, you have really got to dig deeper. And we try to do that when we look at credit about where it is. There will be pockets.
PICKER: Are you concerned at all about just the migration of lending taking place in the nonbank financial sector? I mean, we're here at the Global High Yield & Leveraged Finance Conference. I know there are a lot of private credit managers here, but that's something that's caught the regulators' attention as well.
DIMON: Well, finally. We can maybe wake them up a little bit. First of all, I don't mind competition. Some of these people who you call private credit are excellent. They know what they're doing. That doesn't mean they all do. And if you -- when you look at policy issues about private credit, first of all, we have been doing it a long time. Just keep in mind, like, we make loans, middle market loans. They came through with a bunch of stuff that made it simpler, unitranche, actually more expensive, unitranche, different covenants. You could sign it quickly, no pricing. But there are other things, less transparency, less liquidity, no secondary markets, no research. So you got to look at the whole thing, what works and what doesn't work. We will sort through it. We will be a competitor. I have no problem knowing that we're going to be a competitor. And a lot of smart people out there, they have been on TV saying -- they're dancing -- I said they're dancing the street, but they agree with me this time. They say, absolutely, the bank -- banks are being pushed out of a whole bunch of different businesses. And I always say, if that's what the regulators want, then do it. I'm completely fine with it. JPMorgan will be fine, but it should be done with the forethought, not accidentally. Like I said, there are some negatives. So I think, if you have a major recession, you will probably see some issues in private credit. Whether it systemic or not, I don't really think so, but it might be in ways we don't understand today.
PICKER: Speaking of competition and regulation, last week, we saw a major deal with Capital One and it a deal to acquire Discover. The potential there is to reshape the credit card industry. The combination would create the largest card issuer in the U.S., surpassing JPMorgan Chase, as measured --
DIMON: For now.
PICKER: For now.
PICKER: So, if this deal is approved, does it create more competition for you?
DIMON: Look, I think companies should be allowed to do and innovate and grow and merge and try to challenge things. I think that's good. So I think it's a mistake to act like it's bad. It's good for competition. In fact, something we -- I think they should allow some of these smaller banks to merge. If that's how they think they can best compete with JPMorgan, you should let them. It may not work in every case, but they -- you shouldn't predetermine that. You should let the market predetermine that. In this particular thing, there's the credit card business, which is, they will be bigger, more scale. They're very good at it. I mean, I have enormous respect for Richard Fairbank and Cap One. And then there's the networks, the debit network and the credit network. The debit network, it may have an unfair advantage versus us. Of course I have a problem with that. Like, why should they be allowed to price debit different than we price debit just because of a law that was passed? I don't know what the plans are, really. You know, I -- like I said, I have a lot of -- whatever Richard does, I pay a lot of attention to. Can they actually create another credit card network? I don't know. But my view is, let them compete. Let them try. And if we think it's unfair, we will complain about that. But I'm not worried about it really, like I -- but we do track everything he does.
PICKER: And on that regulatory bucket --
DIMON: I always make a joke with Richard that the reason I have my job is because of him, because Cap One is the one that kind of dissected the credit card business. Cap One started beating the hell out of First USA. First USA, which had been bought by Banc One, collapsed, and it called into credibility of the management, and they hired me.
DIMON: So, Richard is why I'm here.
PICKER: It all goes full circle.
DIMON: Right.
PICKER: So speaking of regulation that also affects you, BASEL III, I know you have been very vocal about this. And there's a lot of talk that these higher capital requirements could be watered down, they could be thrown out entirely. Have regulators really come around to the industry view that this will be more expensive without much benefit for the economy?
DIMON: When you say that, there are a lot of regulators, and some are over here and some are over here. I don't know. I don't think the work was done to answer that question. So, I don't think I should be guessing. I think that's why you have this process. I don't think that process was open, transparent, asking a question. What will that do to small business owners? What will it do to mortgage loans? But what will it do to market making? Why do we have a thing called operational risk capital and how that -- I mean, you sit there, and it's a one-in-1,000-year loss. Really? Like, who invents these kind of things? And so I question -- I think, at one point -- and the worst thing is, we don't have conversations with regulators anymore where we can actually talk about the world. The biggest risks are cyber, OK? They're a major recession. There are certainly these accounting issues that seesaw that combine to create an issue. But we should be worrying about real risk. And in some ways, all of this stuff detracts from having a real conversation about that risk. Had that taken place in Silicon Valley Bank and First Republic, maybe they never would have failed. But, no, they're doing models for the Fed. And I think people have to take a little deep thought. And, one day, I think the whole thing should be revamped. I think we can make the system safer, simpler. We could probably eliminate bank runs, create much more liquidity in the system. But that's what we should be talking about. And, I mean, I -- it's not that I didn't support Dodd-Frank. I do. But this has gone way beyond that.
PICKER: That's really --
DIMON: And I think there are legitimate issues about the process itself. Right.
PICKER: It's interesting you say that, especially as we come up to the one-year anniversary of the mini-turmoil we had last year in the regional banking system. As you reflect back, you think that there are regulations that could have been in place that would have prevented something like that from happening --
DIMON: Absolutely.
PICKER: -- and that higher capital requirements are not it?
DIMON: Absolutely. Well, that was HTM accounting, concentrated deposits, and interest rate exposure. Those -- we all know that. And, yes, so people -- I don't know who to blame, the regulator. First of all, I blame the banks. Let's not blame the regulators. But the fact is, those things can be fixed, how you look at uninsured deposits, how you create liquidity, how you back up the FDIC, and how the FDIC backs up banks. That can all be put in a much better -- in my view. So the way to run a railroad is to say, how can we make it better, work for everybody, and then with the forethought decide, do you want these things out of banks? Do you want mortgages out of banks? Does that create additional risk or less risk? Do you want private credit out of banks? Does it create more risk or less risk? How important is market making? So, market making is a critical function. And, somehow, the way the regulators treat it sometimes is like a hedge fund. It's not. We buy and sell $2 trillion a day. We almost never lose money. It creates very narrow bid-ask spreads, but transparency, risk, controls, it creates the primary market, so that people can go like raise equity and debt. And you can't have one without the other. So it's a wonderful thing that -- and America is the best in the world. So if you're going to add 60 percent capital to that, you better think through what that does literally to farmers who need to hedge, to oil, to companies, to airlines who need to hedge, to most of derivatives or -- or industry exposure protecting companies from those risks. Do you want it to be more expensive or less expensive? So these conversations never took place. And --
PICKER: It's an election year. Does a change in leadership at the White House change anything for the banking system?
DIMON: Look, we -- my job is to run JPMorgan Chase. So, I will -- whoever's president, we're going to run JPMorgan Chase, we will be fine, and we're going to try to help our country. That's my view about that. So --
PICKER: I want to ask you about your plan to open more branches.
DIMON: Yes.
PICKER: Because you announced a pretty ambitious plan to open 500 more branches over the course of the next three years. That's kind of different than conventional wisdom lately, which has been two shutter branches, in lieu of digital banking. Is brick-and-mortar really a competitive edge in the banking system right now?
DIMON: I -- when I got to Bank One, they were closing branches because you, quote, "might not need them in the future." When I got to JPMorgan Chase, they were closing branches because, quote, "You might not need them in the future." Every day, 900,000 people go to those branches. They are much more advice centers than processing, operational centers. So they're having six tellers. You have mortgage loan officers, small business consultants, wealth managers, et cetera. I mean, obviously, we have thought this through. And, obviously, it enhances our business in many different ways. But we also offer digital. So you can be digital-only. And that's fine too. You can do both with us. And some people want to have the backup for the branch. Some small businesses need it. And at the end of the day, they got to drop off coin and currency. And even wealthy people like to visit their money. So I think people should be careful about it. And if we had to change direction somehow, we could. But a million people a day, and that's been taking place for 20 years. So, when people tell me, close the branch, I'm saying, really? So you're going to tell a million people who obviously walk with their feet that they can't do that anymore? So -- but it doesn't mean you can't be a great digital-only bank. So we're going to compete with both. And there's a lot of competition out there. You talk about banking, people tend to think about just bank versus bank. No, there's Chime, and Dave, and Revolut, and PayPal, and Venmo, and Cash, and Apple. moves money, lends money, holds money. You can pay with Apple Wallets, et cetera. So that's what we have to deal with. But, to me, it's always what works for the customer, not what works for us. And like I said, we can always revamp the branch system literally within five year if we had to.
PICKER: Wow. Speaking of the digital side of things, what innovations are you focused on from the AI Standpoint? I know you have been investing heavily in AI. What is -- how is that filtering through into the customer experience?
DIMON: Yes. So, the most important thing to me is -- you know, we have been doing it for 10 years. So, I -- there's this notion that it's new. Now, LLM is kind of new. And -- but we just made a woman on the management team who's going to be responsible for chief data analytics, because that's how important it is. We're pointing to Daniel Pinto and me, so that every business is doing data and analytics. The analytics is not just AI. There's all different types of analytics in AIs. There's all different types of AI. It's a permanent part of our DNA. And we use it for risk, fraud, marketing, suggestions, idea generation, error -- fixing errors. And I would think of it more as it's just starting. It'll be used in almost every job to make it easier to do things. You're going to wake up in the morning, and you're going to know you're interviewing Jamie Dimon. And your co-pilot on your shoulder is going to say, here's what they did last week and the week before. Here's some questions you might want to ask, and here's some people you might want to talk to before you do it. And, by the way, it'll take you 35 minutes to get there because the traffic's bad. Right? That's what's going to happen, and that's good. And --
PICKER: Luckily, I wouldn't have forgotten that even if my AI bot hadn't reminded me.
DIMON: Right.
PICKER: What do you make of just the overall hype surrounding AI? Obviously, you have practical applications within JPMorgan --
DIMON: This is --
PICKER: -- but just kind of overall in the market right now.
DIMON: Yes, this is not hype. This is real. So when we had the internet bubble the first time around, the eyeballs, that was hype. This is not hype. It's real. And so people are deploying at different speeds, but it will handle a tremendous amount of stuff. But we're all going to get better, faster, smarter. Bad guys are going to use it, so we have to build the systems to counter the bad guys. It's being used to combat cyber right now. It's being used -- obviously, it's being used everywhere, so it's not hype. It's a -- this will be for the rest of your life, and it'll be modern. You're going to find there are different ways to use it. And so we're asking the management teams, imagine what you can do with -- some are way advanced already. We have 200 people in the research department just doing research on synthetic data on these large language models. The stuff you had, the facial stuff that just came out, we were doing that for a while ago, and how can we use it? So it's -- this is real.
PICKER: For safety and --
DIMON: And it's real, it's very deep, and it'll figure out -- it will be used in health care. It'll save lives. It will invent -- it may invent cancer cures, because it can do things that the human mind simply cannot do. So, even your blood has your DNA, your RNA, prior diseases. They're going to know where you grew up. Was there radon where you grew up? Was there this where you grew up? And putting it all together, and they may be able to predict with much more accuracy what you might have, and then it can actually invent the drug that can stop it from happening. So I'm a big optimist about AI.
PICKER: I love that.
DIMON: And, yes, it'll be used for some bad stuff too. So --
PICKER: Yes, I think that's a great place to end, on that note of optimism.
DIMON: Yes.
PICKER: Jamie Dimon, really appreciate your time today here from the Global High Yield & Leveraged Finance Conference that JPMorgan hosts here in Miami. Thank you, Jamie.
DIMON: Leslie, thank you. Good to see you all.
PICKER: I will send it back over to you, Scott.