Jamie Dimon warns next crisis could see 'more volatile' markets

Jamie Dimon, chief executive of JPMorgan Chase, said the next financial crisis should see "more volatile" markets and a "rapid decline in valuations" because regulators have hamstrung the banks.

In his annual letter to shareholders, Mr Dimon said recent schisms in Treasury and currency markets were a "warning shot across the bow".

He devoted three pages to a "thought exercise" on what might happen in the next crisis, warning that the ability of JPMorgan and other banks to act as shock absorbers had been dramatically hindered by new capital and liquidity rules.

Mr Dimon has been known as one of the few bank chief executives willing to challenge the regulatory architecture put in place since the 2008 crisis. Some of the individual warnings have been aired before but never woven into a Dimon crisis scenario.

He said that, unlike in 2008 when JPMorgan attracted $100bn of deposits from weaker competitors, it was "unlikely that we would want to accept new deposits the next time around".

He wrote that while investors would traditionally flock to safe-haven securities in a storm, there would be "a greatly reduced supply of Treasuries to go around - in effect, there may be a shortage of all forms of good collateral" because of new liquidity requirements tying up safe assets at banks.

Noting that banks underwrote stock offerings to help shore up other banks during the last crisis, he said they "might be reluctant to do this again".

Mr Dimon added that non-bank lenders, which have taken over parts of the market previously occupied by banks, would "not continue rolling over loans or extending new credit except at exorbitant prices that take advantage of the crisis situation".

He did, however, note that "at some point", hedge funds would "step in and buy assets", as could the government. Funds including BlueMountain Capital Management have established long-term funds for precisely this sort of event.

He repeated his complaint that different agencies were ganging up on banks, who were "now frequently paying penalties to five or six different regulators (both domestic and international) on exactly the same issue".

JPMorgan's numerous run-ins with regulators in recent years have included mis-selling mortgage-backed securities, the "London whale" trading fiasco, and allegations of manipulating foreign exchange markets.

Mr Dimon wrote that the underlying business was performing well but acknowledged: "Our stock performance has not been particularly good in the last five years." He blamed uncertainty over legal and regulatory costs.

He said enduring uncertainty over the final capital levels to be demanded by the Federal Reserve meant it was "understandable that people would pay less for our earnings than they otherwise might pay".

But elsewhere, borrowing a metaphor sometimes used by investor Warren Buffett, on whom Mr Dimon models his letters, the JPMorgan chief said: "In fact, when Mr Market gets very moody and depressed, we think it might be a good time to buy back stock."

It was not all grappling with the past. Mr Dimon offered some thoughts on expansion, noting that he would continue to enter new markets in the US, with "surprise" retail bank openings in 2016.

JPMorgan was "going to do a better job covering family and private offices", he said, tapping into the investment dollars of the super wealthy, and was going to be "very aggressive" in expanding its payments business.

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