© Reuters. File photo: JPMorgan Chase CEO Jamie Dimon at the inauguration of the new French headquarters of JPMorgan Chase Bank in Paris, France on June 29, 2021. Michel Euler/Pool via REUTERS/File Photo
New York (Reuters)-JPMorgan Chase’s latest financial report shows that Jamie Dimon’s economic optimism has cost JPMorgan Chase (NYSE:).
The chief executive said this week that the country’s largest banks continue to hoard cash instead of investing it in securities, such as U.S. Treasuries and mortgage-backed bonds, which yield higher returns than cash deposits.
Analysts said that with increasing uncertainty about the outlook for inflation and interest rates, how the country’s largest bank manages an unprecedented cash surplus, dragging down its balance sheet, is important for distinguishing winners from losers in the coming quarters.
“As we enter 2022, the balance sheet portfolio will become the main driver of stocks,” Keefe, Bruyette & Woods analyst David Conrad wrote in a recent report to clients.
“In our view, risk/reward is conducive to holding cash and low income in this environment.”
Dimon and Chief Financial Officer Jeremy Barnum told analysts on Tuesday that once unusually strong economic growth begins and push up inflation and interest rates, JPMorgan Chase is waiting for an opportunity to buy securities with higher yields.
Dimon said on a conference call with analysts on Tuesday: “The growth in the second half of this year may be stronger than ever before in the United States.”
Dimon added that the yield in March was about 1.35%, compared to 1.75% in March, which could climb to 3%.
Dimon’s comments came after JPMorgan Chase released its quarterly financial report on Tuesday, showing that its average cash balance of deposits at the central bank and other banks increased by 89.6 billion U.S. dollars, while only adding 2.6 billion U.S. dollars in investment securities.
The report shows that JPMorgan Chase’s cash income was 0.06%, while its securities income was 1.31%.
In contrast, Bank of America (NYSE:) reported on Wednesday that its cash decreased by 31 billion U.S. dollars while increasing its securities holdings by 107.3 billion U.S. dollars.
“The reality is that we created $80 billion in deposit growth, and we have to put it into practice,” CEO Brian Moynihan told analysts. “We are not seizing market opportunities or betting.”
JPMorgan Chase’s deposits increased by nearly $100 billion during the quarter.
Cash from the government’s stimulus plan and the Fed’s plan continues to flow into the financial system, suppressing demand for bank loans.
US financial markets are also struggling to cope with soaring inflation, which they believe may prompt the Fed to raise interest rates.
During the quarter, analysts put pressure on bank executives due to the importance of cash and securities to profits. Banks often hedge their positions with derivatives, which makes analysis more difficult.
Executives warn that there is a trade-off between how much cash to accumulate before interest rates rise and how much securities to invest now.
Considerations include ensuring the liquidity of customers who withdraw deposits and preventing the impact on regulatory capital due to the decline in the value of purchased securities.
Federal Reserve Chairman Jerome Powell (Jerome Powell) said in a speech to Congress on Wednesday that the recent price spike is related to the reopening after the pandemic and will gradually subside.
He said that the central bank will stick to the end, set the inflation target at 2%, and tighten monetary policy after a period of time. Last month, Fed policymakers generally expected that the inflation rate would climb to 3.4% this year, and then fall back to 2.1% next year.
Dimon said at a meeting last month that JPMorgan Chase’s decision to hoard cash was “completely self-deciding”. “One day you will know whether we made the right decision.”