NEW YORK -- After seven years of subpar growth since the global financial crisis, the world economy appears poised to shake off its lethargy, according to Jamie Dimon, CEO of JPMorgan Chase. Dimon sat down recently with the Nikkei to share his insights on the outlook for the world, and to discuss what he thinks sets the U.S. bank apart.
Q: How is the global economy doing, in your opinion?
A: It's moderate growth, with some parts of the world better than people think, and better than last year. Japan, Europe, [and] America probably [are] better than last year, not China.
Q: Can you talk about the U.S. economy specifically?
A: We see very broad-based, moderate, growth. Most of the sectors are quite strong. I don't see any major potholes, and I believe [the economy] is strengthening. I think the politics have gotten better in the United States, which makes it easier to pass legislation, budgets and treaties. More people are working, lending is up and savings are up. These are all positive signs for a strengthening economy.
Q: When do you expect the U.S. Federal Reserve to raise interest rates?
A: [That is] hard to predict, [it] could be either September or December I personally think the sooner the better because that would be a good sign that the Fed believes the economy is significantly stronger. There is a lot of focus on that first rate move, and I'm not sure how important that is. I speak to lots of people around the world, and no one would tell you that 25 basis points will make a difference to them.
Q: What about the impact on emerging economies?
A: If it is a small rate raises, [there will be] no impact. I think that the world expects it. So, usually, something that is fairly expected is already factored in. I also think that you have to think that America is raising rates because the economy is getting stronger. That's probably good, all things being equal, for emerging markets, not bad, even though it may not be great for all their currencies.
Q: Does it make a difference that the Fed is starting from zero for the first time ever?
A: I think normalization is a good thing. I don't think that necessarily is going to damage the emerging economies. And I also believe that most of the emerging economies have a fairly large amount of foreign exchange reserves, relative to 10 years ago.
Q: The Chinese economy seems to be slowing. What are your thoughts about that?
A: Over the longer term, China will grow by about 6% or 7% per year. The Chinese authorities usually react pretty quickly to unfolding economic events, and you've seen them recently change a whole bunch of policies to be more conducive to growth. They have the power and capability to macromanage the economy -- to accomplish their growth objectives -- which means they're pretty much going to come close to what they say is going to happen.
Q: Do you think India will outperform China in terms of growth this year?
A: India is a huge democracy. Prime Minister [Narendra] Modi has ambitions to try to fix the infrastructure, the rules, taxes, education, and to lift up the Indian people. And we're hopeful that that's going to create positive momentum. And it has; the country is doing far better. It's hard in all countries. Democracy is hard, but it's better than the alternatives. It can take a long time to get the rules in place that are conducive to growing, sometimes. But Prime Minister Modi is strong enough, and he's accomplished much. Their growth may be 6% or 7% this year, and that's quite good.
Q: And how about Europe?
A: Europe is the most complicated place, in my opinion. But I wanted to start by saying that the eurozone -- there are two reasons they formed the European Union. One is for political peace and rationalization. And I think that's a good thing for a continent that went through hundreds of years of wars. I believe it's a good thing that people say, "Can we find a way to live together in peace?" And they did, for the most part.
The second is the economic union -- creating a big common market, like the United States, so that you can compete across borders. There are common rules, regulations, and simplification, and that is still a good reason, too. When they put their monetary union together, that created a rigidity that made it hard for currency fluctuations. They don't really have a solution to that. So, the best thing to do is muddle through and maybe, over time, create a solution of that, if someone really wanted to exit, the legal basis on which you could exit. Because right now there almost doesn't exist one. It's a guess, and people aren't prepared for it. And because of that, you're going to have slow growth and, unfortunately, while there may not be huge volatility, there will be volatility.
Q: How do you rate Abenomics?
A: I'm optimistic about it. So, Abenomics, quantitative easing, fiscal policy -- we know all the issues. But the "third arrow" (of structural reform) is critically important. Japan has some of the best companies in the world, and if you look at their technology, their capability, it's extraordinary.
And part of the reason some Japanese companies have underperformed financially was corporate governance and board structures. Now the Japanese companies are more focused on that. To have two independent directors -- I think it's good to have outside people look at you and think of what you could be doing better. Those are voluntary, but most of the companies told me they're going to do it. And I think it's good for them to say our returns on equity, for example, should be higher. Also, I think some could be more ambitious.
And part of [Japanese companies] growing and expanding around the world is ... going to help the Japanese keep their lifestyles [despite Japan's] demographics, as a declining population, and [to] make it more conducive to women to go to work, I think, is a plus. Most of the rest of the world does it, though I recognize the challenges. You have your own culture and your own ways of doing things. I hope Japan continues on this path. You never know exactly how new policies are going to work. That doesn't mean you shouldn't try them.
Q: Is depreciation of the yen a good thing? That may be one of the main reasons why Japanese stock prices are booming, right?
A: There are two types of depreciation. There is one where you're manipulating currencies. And that's not what Japan is doing. Manipulating currencies is when you're going into the marketplace and buying something in large amounts to depress the value of the currency. The goal of what Japan's central bank is doing is to create growth. If it actually creates growth, in the long run, it will lead to appreciation. The yen is trading where it's trading because people are guessing about people's future interest rates, dollar and yen and about the future growth potential of the economies. And, if this policy works, then the yen will probably strengthen.
Q: What are the strengths of JPMorgan Chase?
A: JPMorgan is a very good franchise. And the way you should look at a franchise, a business, is from the standpoint of the customers. We are among the most successful global investment banks, most successful global asset managers, and, in the United States, one of the most successful retail and commercial bankers. We do a great job for customers.
Our commercial bank is only in the U.S. We are serving what you call SMEs -- small businesses, private companies. They're not the largest companies in the world, but think of the next -- the Fortune 1,000. Again, it's been very steady. It's done nothing but grow for years. We've accommodated the new rules and regulations. We've served our clients and had quite good returns.
And we continued to build the business, even in the worst of times. We do business all over America. If you went to all those little towns in America, JPMorgan was there in good times and bad times, and, in fact, helped a lot of people through the tough times. And we know that's when they need us the most.
We're diversified, we're stable and consistent. Our businesses benefit from each other. As a matter of fact 25% of our U.S. investment banking business comes out of our commercial bank. So it's a competitive advantage for both the investment bank -- which gets a huge volume of business -- and the commercial bank because the commercial bank can walk into a company and say, "Oh, if you need X, Y and Z in Japan or China, we can do that for you."
We take smaller companies and middle-sized companies, all around the world, and we do currency exchange for them; we raise bonds and equities for them; and we do inventory finance, trade finance, and custody of assets. So, it's an advantage for both parties to have the other. It also creates good stability of earnings. Our business mix means we have a diversified earnings stream, which is one of the things why we got through the tough times so successfully. We've had fairly consistent financial results. Four of the last five years have been record years, and this year, according to analysts, might be a record year too.
And we're not fair weather friends. We've been in places for a long, long time. So all our clients know that we're there, we're steady, we do a good job, we earn a fair return for ourselves, which I think is critical. And those are the things that make you a strong, respected company. And we invested in the downturn and we never stopped serving our clients. So I want Japan to think and say that we are better off for JPMorgan having been here through thick and thin. So, we didn't leave in the 2008 crisis. And also after the tsunami in Japan, we were open for business. In fact, I flew there 10 days after the tsunami to show our support for the Japanese people.
Q: What is your strategy in Japan?
A: We can take our Japanese clients around the world. We can take them to Brazil, Europe, anywhere. And we also take companies from around the world into Japan. We represent companies from around the world who say, "I want to look at Japanese companies. I want to invest in Japan." We do all that, because we have a lot of research in Japanese companies, and that research educates investors around the world. It allows us to sell stocks and bonds in Japanese companies. I do think there will be more Japanese companies expanding out of Japan, and there will be more cross-border flow from Japan.
Q: There is some debate in the U.S. as to whether share buybacks have gone too far. What do you think?
A: Companies are returning a lot of money to shareholders through dividends and buybacks. And a lot of people say that's not a good use of capital. I think that's normal reallocation of capital. If you can't use it, it's not a bad thing to give it back to your shareholders. They'll use it somewhere else. And maybe it will be a better use than what I could have done with it. So I don't think it's completely irrational.
Q: JPMorgan did OK during the financial crisis. Why did you accept the money from the government?
A: Why? They asked me to [laughs]. When the secretary of treasury, the head of the central bank, the head of the FDIC (Federal Deposit Insurance Corp.), and the head of the New York Fed say, "We want you to do this because we think it's in the best interest of the United States of America," you know, we're like the Japanese. We're a little patriotic that way. We said, "Yes, sir!"
We did not anticipate the political fallout from it. We definitely didn't need it and we paid it back the first day we were allowed to. I would have paid it back the next day, if I could have. And they also said, "If these big nine banks take it, they could do hundreds ..." and they did, 700 other banks took [bailout money]. And therefore, they wanted to take the capital issue off the table for the American banking system. And it helped to that. It was a courageous decision.
Q: What do you think about the Dodd-Frank law?
A: Dodd-Frank is 2,000 pages long. It covers thousands of rules, regulations, interpretations and things like that. I've always been a ... believer in good regulation. And good regulation should be conducive to business and to customer protection. I completely agree with the concept that American citizens shouldn't expect that a failure of a bank would cost them money, or that it would hurt the economy. Dodd-Frank and independent actions of banks go a long way in terms of progress on capital, liquidity, transparency, "living wills" (plans for winding down a bank in the event of a collapse) and resolutions.
There are parts that I don't agree with. But, in total, it is what it is. It's not going to change at this point. I do believe that some of these regulations made the markets more volatile, and it remains to be seen how bad that can be. We've seen the volatility at dollar-yen, U.S. Treasurys, JGBs (Japanese government bonds), German bunds. You would expect to see that first in high-yield [debt], but it was in the most liquid thing in the world. So that, I think -- it's a little bit of a warning that we've got to be prepared and just be careful.
Q: The Obama presidency is in the homestretch. How has he done, so far?
A: I know the President. I like him and respect him. That does not mean I agree with all of our government's policies, whether they come from Democrats or Republicans. I think if we had another set of policies for -- not the crisis years, but after that, that we might be growing faster. But we didn't. And some of that was Republicans' [fault], by the way. We had a lot of gridlock on a lot of issues. But, the American system is pretty resilient. It did correct faster than others. I'm a really big believer -- this is not a statement about President (Barack) Obama, but whoever is president -- that good policy is really important. So I agree with people who say we want more income equality; we want more consumer protection; and we want sounder banks. I agree with all that. Then the question is how do you do it so that it actually works that way? And that takes analysis, and sometimes collaboration between government and business, to understand how that works.
Q: It's interesting that Wall Street is almost evenly split between Democrats and Republicans, isn't it?
A: Well, first of all, Wall Street gives money to both because they want to be on the good side of whoever becomes president [laughs]. But again, on Wall Street, there is no "Wall Street"; there are individuals. So we have a lot of people who are Republicans, a lot of people who are Democrats, and it's not just because of business reasons.
I am still a Democrat. The main reason is because I don't like the Republican stance on some social values. Not that I disagree with all of them. I just don't think they have a right to impose it upon other people. I've been public about that. I think the Republicans have really thoughtful financial policies, and I'm more in the middle on taxation. I don't mind paying higher taxes, because I've done quite well and I'm blessed to live in this country. But I do want the tax system to be efficient and be conducive to growth, which it is not.
Interviewed by Nikkei staff writer Yamato Sato