Jamie Dimon, Chief Executive Officer of JPMorgan Chase & Co., during an interview with Bloomberg Television in London, Britain on Wednesday, May 4, 2022.
Chris Ratcliffe | Bloomberg | Getty Images
JPMorgan Chase CEO Jamie Dimon says investors should expect more explosions after a crash in UK government bonds last month almost caused the collapse of hundreds of that country’s pension funds.
The turmoil triggered after the value of UK gilts plummeted in response to fiscal spending announcements forced the country’s central bank to intervene in a series of ways to support its markets. This averted disaster for pension funds, which used leverage to generate returns that were said to collapse within hours.
“I was surprised to see how much leverage some of these pension plans had,” Dimon said on Friday in a conference call to analysts to discuss third-quarter results. “My experience in life has been that when you have things like what we’re going through today, there will be other surprises.”
The Federal Reserve’s campaign to curb high inflation here in the US was noticed around the world. A historic rise in the value of the dollar has pushed down foreign currencies and government debt, and made it more difficult for other countries to fight inflation.
The result: leverage hidden in unexpected places, such as B. in British pension funds, according to Dimon, will be reduced further.
“Someone will be offside,” Dimon said. “We’re not seeing anything that looks systemic, but there’s leverage in certain loan portfolios, there’s leverage in certain companies, so you’re probably going to see some of that.”
Dimon added that while the US banking system has been “extraordinarily strong” thanks largely to post-2008 financial crisis reforms, markets will remain volatile as the Fed hikes rates and shrinks its massive balance sheet.
Markets have become more vulnerable over the past decade after banks were forced to hold much more capital to trade assets, making them far less active during volatile times.
Glitches could manifest themselves in emerging markets or at high-leverage hedge funds, Dimon said.
Analysts and investors have warned the Fed risks disrupting market stability as it hikes interest rates; However, the central bank has no choice as it sees inflation as the more damaging threat.