JPM prepping for zero rates; N.J. to pressure banks on guns

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How low will they go?

JPMorgan Chase CEO Jamie Dimon said the bank “is starting to prepare for how to make money if interest rates in the U.S. drop to zero.” Speaking at Barclays’ financial services conference in New York City, Dimon said the bank “has begun discussing what fees and charges it could introduce if interest rates go to zero or lower.”

“While Mr. Dimon stressed he wasn’t expecting zero rates at this point, the fact that he would entertain such a conversation is a sign of how sharply the environment has changed,” the Wall Street Journal says.

Dimon “lowered the bank’s estimate for net interest income this year” but said JPM “will continue to grow deposits even if its margins fall,” according to the Financial Times.

The recent spike in Treasury bond yields has helped bank stocks rally the past two days, but the worst is far from over for banks, the Journal writes. “Even a potential floor for rates won’t solve banks’ other growth dilemmas. With corporations waiting for clearer signals on trade and a possible recession, non-consumer loan growth has stalled.”

“There isn’t extraordinary demand for borrowing these days,” Wells Fargo CFO John Shrewsberry said at the Barclays conference.

One problem is that “the Federal Reserve’s recent decision to cut interest rates by a quarter of a percentage point hasn’t stimulated loan demand in the way bankers hoped it might and could even be discouraging some businesses from borrowing,” American Banker reports.

Separately, Charles Schwab said it is cutting about 600 jobs “as it deals with the impact of lower interest rates.” The cuts, which affect about 3% of the company’s staff and could start next week, “are part of an effort to rein in expenses as falling interest rates pinch profit at Schwab’s banking arm. Schwab’s rate-sensitive bank is a huge part of its business. It made up more than half the company’s overall revenue of $10.13 billion last year, up from about a quarter in 2009,” the Journal says.

Wall Street Journal

Technical advantage

American banks, which “already dominate investment banking in Europe,” could soon be making inroads on “lending to companies, the Europeans’ traditional stronghold,” thanks to “slicker” technology. “European banks are spending vast sums on technology — but it may not be enough to defend against the incursions of bigger, richer American rivals. This year, Europe’s banks plan to make technology investments worth in aggregate $77 billion. That compares with $105 billion for their U.S. rivals.”

“Unfortunately, European lenders are more focused on patching old systems. Hampered by lower interest rates and profits, they have had less cash to spend. They have also contended with additional regulation — most recently the new European Union data privacy rules and open banking regulation.”

Running a clean ship

J.P. Morgan Asset Management is joining 11 other banks that “will take climate considerations into account when extending new shipping loans. The banks, which have a combined shipping portfolio of about $100 billion, or about one-fourth of the global ship-finance market, have signed on to an industrial framework known as the Poseidon Principles, which seeks to direct new money for shipping toward environmentally friendly vessels,” the paper says.

“Anyone looking for [shipping] capital, if you’re not employing such a strategy, it’s going to be increasingly very difficult to get capital,” said Andy Dacy, CEO of JPM’s global transportation group.

New York Times

Targeting guns

In an effort to keep guns out of the wrong hands, New Jersey Gov. Phil Murphy announced a plan that would “seek information from banks that do business with [the state] about their relationships and policies involving gun makers and sellers. The state, which says it pays more than $1 billion in bank fees every year, could use the disclosure requirements to decide whether to continue doing business with financial firms.”

“New Jersey’s move could be the first step toward pressing Wall Street banks to reassess their relationship with the gun industry. New Jersey’s requirement that financial firms disclose their ties to gun makers could provide the public with new and specific details that some firms have been reluctant to divulge.”

Giulia Marchi/Bloomberg

Washington Post

Discouraging words

The Trump administration’s plan to return Fannie Mae and Freddie Mac to the private sector “would make mortgages more expensive for minority borrowers and aspiring homeowners in the South, the Midwest and rural communities, according to fair housing and lending groups,” the paper reports.

“This plan would interject new entities that would cream the market by seeking to serve the most lucrative regions and borrowers,” said Nikitra Bailey, executive vice president of the Center for Responsible Lending. “The very communities that need greater access to mortgage credit — communities of color, specifically — would have great difficulty securing credit.”

Treasury Secretary Steven Mnuchin, HUD Secretary Ben Carson, and Federal Housing Finance Agency Director Mark Calabria defended the plan before the Senate Banking Committee on Tuesday. "But the same obstacles that have stalled congressional action for years remain," according to American Banker.

Jamie Dimon gave his support to the plan. “It was very good what they said, which was basically these things should be public, they should pay the government, the taxpayer should never pay,” he said at the Barclays conference.

The Treasury Department may appeal the court decision that sided with Fannie Mae and Freddie Mac investors, Secretary Steven Mnuchin said Tuesday.

Raising FICO

The national average credit score hit an all-time high of 706, the result of “the U.S. economic recovery, consumer credit educational efforts and an initiative by the credit bureaus that has led to certain accounts in collections being removed from people’s credit files,” FICO says. “Since reaching a bottom of 686 in October 2009 during the Great Recession, the national average FICO score has been steadily increasing.”

Quotable

“I don’t think you’ll have zero interest rates in the United States but we’re thinking about how [can] we be prepared for it.” — JPMorgan Chase CEO Jamie Dimon