Speaker 1: It's going to get worse before it gets better. That's
Speaker 1: according to JP Morgan Chase CEO Jamie Diamond, but he's
Speaker 1: not talking about the economy. Instead, Diamond is warning of
Speaker 1: overregulation in the banking industry in the wake of several
Speaker 1: regional bank failures. It's one of the topics Diamond covered
Speaker 1: when he joined Bloomberg's Francine Laqua and Paris for a
Speaker 1: wide ranging discussion. They touched on everything from regional banks
Speaker 1: to China and the debt ceiling. Let's go to that
Speaker 1: conversation right now.
Speaker 2: Debt ceiling or banking turmoil? What are you most worried about?
Speaker 3: You'd be here. Well, I think the debt sh thing
Speaker 3: is potentially catastrophe. Yeah, so that's a whole different issue.
Speaker 3: Hopefully won't happen. You know, the banking crisis, I still
Speaker 3: believe will kind of sort its way through and it's
Speaker 3: not anything like eight or nine. Only a couple of
Speaker 3: people off size with all these various things which you
Speaker 3: knew about. So hopefully you know it's getting near the
Speaker 3: tail end of that.
Speaker 2: But if you're Janet Yellen right now, what would you
Speaker 2: do differently?
Speaker 3: I don't know. I think we need to finish the bank.
Speaker 3: I think we've been we've had uncertain policy on mergers.
Speaker 3: This first Arizon deal. I think we have to assume
Speaker 3: they'll be a little bit more so, you know, whatever
Speaker 3: the FD I see, the OCC the Federal Reserve, you know,
Speaker 3: whatever they need to do to uh make it better,
Speaker 3: they should do. Be thoughtful, be very forward looking. You
Speaker 3: not be surprised constantly because some of these things have
Speaker 3: been known about for quite a while. And so we've
Speaker 3: handled three SBB signature first Republic and so Yes, but
Speaker 3: I think it's very important. The regional banks who I've
Speaker 3: been speaking to like every day for the last week,
Speaker 3: they're quite strong. You know, they're quite worried because of
Speaker 3: the run and deposits all that, but the financial results
Speaker 3: are good. The financial results are gonna be good, Okay
Speaker 3: next quarter. You know, they're earning money. They've got a
Speaker 3: very good clientele, very diversified. Uh uh, and they're they're
Speaker 3: quite strong.
Speaker 2: Jemmy for like a comprehensive solution. So if you're asking
Speaker 2: Jennet Young to get the job done, what does that
Speaker 2: look like that solution?
Speaker 3: Asking for solution? Why not just be prepared for problem.
Speaker 3: There's no we don't need a copy of solution.
Speaker 2: What do we need right now? Do we regulators to
Speaker 2: look at short sellers of banks?
Speaker 3: Yes, you know, like look, my folks would tell me
Speaker 3: that that's not the problem the short selling ban. If
Speaker 3: you actually analyze stocks and short sales, it doesn't seem
Speaker 3: to that big a deal. I think they may partially
Speaker 3: be wrong, because, as you know, some people are unscrupulous
Speaker 3: and they use other means to go short. I think
Speaker 3: that if you look at the detail, the SEC has
Speaker 3: the enforcement capability to look at what people are doing
Speaker 3: by name in options, derivatives, short sales, and they should
Speaker 3: go if someone's doing anything wrong, people are in collusion,
Speaker 3: or people going short and then making a tweet about
Speaker 3: a bank, they should go after them and vigorously, and
Speaker 3: they should be punished to the full extental law allows it.
Speaker 3: So I think it's possible is taking place. We have
Speaker 3: no evidence of it, but you know, my experience in
Speaker 3: life has been don't assume too much.
Speaker 2: Do you think that they're looking into it?
Speaker 3: I hope so. I don't know.
Speaker 2: When you look at some of the position of JP
Speaker 2: mor Agan, of course you didn't really buy any long
Speaker 2: dated bonds, and at the time, a lot of people said, look,
Speaker 2: stop boarding cash. Do you think regulators and investors had
Speaker 2: pushed some of these banks to take unwarranted risk?
Speaker 3: Yes, I do, but let's be clear the people to blame,
Speaker 3: or the bank CEOs and the bank boards and things
Speaker 3: like that. Having said that, I think there would be
Speaker 3: a humility on the part of regulators that the Federal
Speaker 3: Reserve itself never forecast insurratees going off. Not one Fed
Speaker 3: governor forecast it. And whether you forecast it or not,
Speaker 3: you should be stressed testing people for it. Their stress
Speaker 3: tests always had low rates. We always knew about uninsured deposits.
Speaker 3: And there were huge incentives that banks to put securities
Speaker 3: in health and maturity, lower capital requirements, huge incentives own treasuries,
Speaker 3: lower capital acquirements, and they counted for liquidity. And I'm
Speaker 3: hoping all that guests looked at and they should look
Speaker 3: at and say, oh, okay, we're a little bit part
Speaker 3: of the problem, as opposed to just pointing fingers.
Speaker 2: So this is what not a regulation problem, it's a
Speaker 2: supervision problem.
Speaker 3: Yeah, it's a little bit of both. They become very related.
Speaker 3: I mean, supervisors, look at are you doing the right
Speaker 3: thing by regulations? And so, and like even the stress tests.
Speaker 3: I've always thought that you know, when you have one
Speaker 3: stress test and you have a company completely focused on
Speaker 3: that for three months, you know, does it all people
Speaker 3: have a false sense of security that all these other
Speaker 3: things aren't going to happen. And all these other things
Speaker 3: in history always happen, and so, you know, I think
Speaker 3: it was a little bit of a mistake. Have one
Speaker 3: stress test. I'm not asking to do many at this
Speaker 3: level of detail, but you know, our stress test is
Speaker 3: two hundred thousand pages long. Do you think that last
Speaker 3: one hundred thousand pages added value? And my view is
Speaker 3: it did not.
Speaker 2: Do you think? But things will change because of this?
Speaker 2: Is this like a catalyst?
Speaker 3: We always gonna get worse for banks? I think that
Speaker 3: people they're just more regulations and more rules and more requirements.
Speaker 3: I hope they do it very thoughtfully, because you know,
Speaker 3: if you really love the community banks, the regional banks,
Speaker 3: we're the biggest banks of those folks. But you know,
Speaker 3: if you overdo certain rules, requirements, regulations. You know, some
Speaker 3: of these community banks tell me to have more compl
Speaker 3: cions people, the loan officers, you know, and so at
Speaker 3: one point you make it harder for them to new business.
Speaker 3: There are already hundreds of rules in place, and in
Speaker 3: a lot of ways, it's to mix the rules. If
Speaker 3: you're gonna change the liquidity and maybe not capital. If
Speaker 3: you can change capital and maybe not liquidity. If you're
Speaker 3: gonna add t LAC, then maybe you should do something
Speaker 3: with deposit insurance. They should. They should sit down and
Speaker 3: have a very thoughtful conversation about what those things are
Speaker 3: and what we want the outcome to be. If you
Speaker 3: look at the present outcome, a lot of things are
Speaker 3: leaving banks and they should you know, I'm not and
Speaker 3: if that's what they want, so be it. But that
Speaker 3: should be done with the forethought. That should not be
Speaker 3: done because you just putting rules and regulations in place
Speaker 3: and you don't know the consequences. The mortgage business, for example,
Speaker 3: is you know, largely not largely eighty percent out of
Speaker 3: banks today, and just be careful about what you what
Speaker 3: you wish for.
Speaker 2: So you bought First Republic, you've had I imagine how
Speaker 2: a good look at what's inside it? What did you
Speaker 2: find out?
Speaker 3: Yeah, no, we had to go look before we bought it.
Speaker 2: Okay, that's reassuring.
Speaker 3: But anything that you sign up eight hundred people working
Speaker 3: around the clock for a long time to look at
Speaker 3: something like that, and in reality, look, they did something
Speaker 3: really well. Like if you touch their customers, I've getten
Speaker 3: calls and emails and great great culture, great customers and
Speaker 3: things like that. Their credit is kind of pristine. You know,
Speaker 3: that's good. So of course we marked all the market
Speaker 3: and roll in very good shape, and we've had all
Speaker 3: the trade exposure together. We've got thousands of people now
Speaker 3: going out learning about what their best is. We want
Speaker 3: the best of both, about the kind of coming that
Speaker 3: comes in our highway, our way or the highway, and
Speaker 3: so there's no surprise there. You know, it's it had
Speaker 3: to make sense for shareholders. But you know this notion,
Speaker 3: this notion that it was unbelievad in it was a
Speaker 3: nice thing for shows. That's my I have to do that.
Speaker 3: But we also really did it to assimilate the bank
Speaker 3: in a way that's very safe for the system and
Speaker 3: didn't cost unassured deposits, didn't cost the ft, it costs
Speaker 3: the FDA C as little as possible. But I also
Speaker 3: want to point out I'd be fine if they want
Speaker 3: to change the rules a little bit to make it
Speaker 3: easier for a regional bank to buy a big bank.
Speaker 3: And the other thing about big banks, which again is
Speaker 3: now I know, I know. But the thing about big banks,
Speaker 3: we need healthy big banks. We have the best banking
Speaker 3: system in the world, you know, and you want that
Speaker 3: very big. But but not banks are becoming smaller or
Speaker 3: smaller as a part of the global system. So when
Speaker 3: they look at banks, they say, oh, it's big. But when
Speaker 3: you look at the banking system, to the system mortgage
Speaker 3: of the left, a lot of private credits left, certain
Speaker 3: trading functions of the left, a lot of things are
Speaker 3: going to leave. You have Apple, you have the neo banks,
Speaker 3: you have you better be a little more thoughtful about
Speaker 3: when you say what you mean banking per se and so.
Speaker 2: But the US, the Americans, should not fear too much
Speaker 2: finance consolidation in your hands.
Speaker 3: No, because you know, most of our size accrues to
Speaker 3: our clients. So if you look at you know we
Speaker 3: do most large small banks can't do. We do like
Speaker 3: banking large corporations of fifty countries around the world to
Speaker 3: move ten trillion dollars a day. They you know, it's hard.
Speaker 3: So these are these are big, complex things. We're not
Speaker 3: big and complex. We want to be. We're big and
Speaker 3: complex because the pee we serve at bigger compon. We
Speaker 3: bank countries, the World Bank. You know, we do a
Speaker 3: lot of things, and yes we also bank consumers in the
Speaker 3: United States. So, but I want the banks to thrive.
Speaker 3: I mean, like I said, we want to do everything
Speaker 3: kind of help them. We didn't want this to happen.
Speaker 3: We didn't cause to happen. The second happened, we knew
Speaker 3: it was bad for old banks.
Speaker 2: Are you too big to fail?
Speaker 3: I don't know what that word means anymore. I mean,
Speaker 3: we're not going to fail, and I don't know what
Speaker 3: that means. But we certainly didn't mean it to be
Speaker 3: an advantage. Like so, you know, we've asked all our
Speaker 3: people when this crisis happened. I don't want anyone so
Speaker 3: listing any client or any bank or from any of
Speaker 3: the any bank's regional bank or community bank, et cetera.
Speaker 2: So is there anything else that you that you'd be buying.
Speaker 2: I mean some of the smaller banks fault, you know,
Speaker 2: fun that's it.
Speaker 3: No, I mean, we're gonna have a lot of blowback
Speaker 3: and having bought this one, but it was the right thing.
Speaker 3: To do, you know, but we'll get the blowback. But again,
Speaker 3: my job is this people at this thing. They always
Speaker 3: look at like the financial deal. Forget the financial deal.
Speaker 3: Eight hundred people working around the clock. Ten thousand people
Speaker 3: deployed now to consolidate systems, risk fraud, credit payments, branches,
Speaker 3: real estate vendors, technology. It's a lot of work, you know,
Speaker 3: and it just tracks us from those other things. And
Speaker 3: so you know, like I said, we did it. It
Speaker 3: was margely benefits for shareholders, it was good for the system.
Speaker 3: But and you know, we got to now we have
Speaker 3: to be prepared for the other side of that mountain.
Speaker 2: How worried are you about the dead ceiling? So Donald Trump,
Speaker 2: yesterre in a town halicy and na did not seem
Speaker 2: too worried and too actually told Republicans to stick to
Speaker 2: their guns.
Speaker 3: It's one more thing he does know very much about.
Speaker 3: It may be put in two categories. One is actual default.
Speaker 3: That is potentially catastrophic. And you can go through a
Speaker 3: million ways, but everyone, anyone's anyone knows that's potentially catastrophic.
Speaker 3: And I don't think it's going to happen because it
Speaker 3: gets catastrophic and the closer you get to it, you
Speaker 3: will have panic. And so the closer you get you
Speaker 3: have markets get volatile. Maybe there's Doc mar go down
Speaker 3: the treasury. Markets will have for their own problems. It's amazing.
Speaker 3: You already have certain T bills it's trading three percent
Speaker 3: and right next to them five percent. This is not good.
Speaker 3: And people just remember the American financial system is the
Speaker 3: foundation to the to the global economic system. And so
Speaker 3: and the closer we get more panic, we might get downgraded.
Speaker 3: The last time were downgrade, we had like sixty five
Speaker 3: or seventy percent debt to GDP. Now it's one hundred
Speaker 3: and five. Now our defenits are two or three times
Speaker 3: that that we had back then. So you know, we
Speaker 3: better be very careful. And I wish we didn't get
Speaker 3: there at all. I'm respectful of both sides who you know,
Speaker 3: one side wants to use it the makeup for we've
Speaker 3: got jammed down their throats, you know. And I would
Speaker 3: love to get rid of the debt ceiling thing, but
Speaker 3: please negotiate a deal.
Speaker 2: Do you think that it'll be at the end of
Speaker 2: the day of the markets that will spur a deal
Speaker 2: that we have to get to the point where there's
Speaker 2: where there's panic.
Speaker 3: It's a really bad idea because panic becomes something that
Speaker 3: is not good and it could affect other markets around
Speaker 3: the world. But yes, at the end of the day,
Speaker 3: if it gets to that panic point, people have to react,
Speaker 3: and we've seen that before. Another thing about markets is
Speaker 3: always remember panic is the one thing that scares people
Speaker 3: like they take irrational decisions. I remember even in eight
Speaker 3: people are selling certain securities at twenty percent of what
Speaker 3: they would be worth if we had a great depression.
Speaker 3: But they were like, I want out, I want cash.
Speaker 3: I'm not betting my my family's money on this and
Speaker 3: my company's money. People will panic, and again we got
Speaker 3: to be very careful about getting closer situation that causes that.
Speaker 2: Do you get a call from Jennet yelling about this.
Speaker 3: I'm not going to talk about personal calls I'm getting
Speaker 3: We've all spoken about that's young, I mean everyone, that's
Speaker 3: that's everyone's no for big banks.
Speaker 2: Are you ready? Actually, how do you prepare for possible?
Speaker 3: We have a group of people who are very smart.
Speaker 3: We're looking at again, it's very unfortunate, it's time consuming.
Speaker 3: Hopefully it won't happen, but it affects contracts, collateral, clearing
Speaker 3: houses clients and affects clients differently around the world. You
Speaker 3: have to then anticipate what people are going to do,
Speaker 3: which is very different than the legality of it. And
Speaker 3: you know, and the closer we get, the more those
Speaker 3: kind of that war room will start. Now it's taking
Speaker 3: place once a week, but my guess is sometimes called
Speaker 3: May twenty. First it'll be every day, then it'll be
Speaker 3: three times a day, and then there'll be much more
Speaker 3: conversations with clients. But what they need to do to
Speaker 3: help get them through it and things like that. It's
Speaker 3: very unfortunate. It should never happen this way.
Speaker 2: Fortress Diamond is always about the balance sheet. Should there
Speaker 2: be a special commission looking at debts in the US
Speaker 2: that you should run?
Speaker 3: Oh god no, why not? I don't want to.
Speaker 2: On China, they went after tech, they're looking now at finance.
Speaker 2: What kind of message does it tell companies that want
Speaker 2: to do business there?
Speaker 3: Well, I think we say they're looking at finance. It's
Speaker 3: been very limited. They've been very much more careful about
Speaker 3: touching the financial system. Who we're outsiders. But look, this
Speaker 3: is a serious subject and anything that relates to national security.
Speaker 3: I'm a patriot first, and I'm going to salute my government,
Speaker 3: So put that, but put that aside. What the government
Speaker 3: should do and it wants to do, and is now
Speaker 3: say they are going to do, is have conversations. They're
Speaker 3: gonna be tough, but they should be thoughtful. Certain things
Speaker 3: are really national security, certain things are not, you know,
Speaker 3: And we shouldn't confuse the two American shine of a
Speaker 3: lot of common interest climate, nuclear pliferation, anti terrorism, and
Speaker 3: global stability, you know, And we have differences. You know.
Speaker 3: We're capitalists, they're not, you know, And it's okay, we
Speaker 3: could sort that out. But we need to keep the
Speaker 3: Western alliances together, not just around war and Ukraine, but
Speaker 3: around strategic economic reladerships, including trade, including trade. We can't
Speaker 3: take trade of the table every time we talk to
Speaker 3: you know, Europe or Asian stuff like that. So I
Speaker 3: would go back into TPP. I would surround the world.
Speaker 3: I'd want to keep the world safe for democracy, and
Speaker 3: i'd want to have open markets, particularly Europe. And I
Speaker 3: mean I obvious here last time is when we passed Iraq.
Speaker 3: A lot of great things that act, but there are
Speaker 3: things I don't like, like too much social engineering inside
Speaker 3: of it, but also a pistol off all of our
Speaker 3: allies putting on the China side.
Speaker 2: So they if they start doing more noise on finance,
Speaker 2: does that hurt Chinese growth?
Speaker 3: Like probably, I think you've already seen it's not trade,
Speaker 3: but you've seen investment going both ways coming down, and
Speaker 3: that's okay. In the short run and the long run.
Speaker 3: We should say what And the government's got to decide.
Speaker 3: This is not gonna be business companies decide, nor should they.
Speaker 3: So when Congress criticizes business sometimes there may be truth
Speaker 3: to that. They have to decide what is okay, what's
Speaker 3: not okay? What do they want? What's security? And that's
Speaker 3: around trade, that's around investment, and that's around sharing.
Speaker 2: IP I give you a million pounds or maybe you
Speaker 2: take it, you know, your own million pounds. Where'd you
Speaker 2: invest in?
Speaker 3: Organ I wouldn't. I wouldn't buy sovereign dead anywhere. Why
Speaker 3: I think there's too much The amount of fiscal stimus
Speaker 3: took place and still surging through the system, the amount
Speaker 3: of qi these were extraordinary numbers, and not just in
Speaker 3: the US, but in Europe and in other parts of
Speaker 3: the world. When I say extraordinary, I mean extraordinary, and
Speaker 3: therefore I think there's a chance you have more inflation
Speaker 3: than people think. So while the Fed control short ray,
Speaker 3: they don't completely control longer rates, and then you could
Speaker 3: see longer rates ticking up because of higher inflation, and
Speaker 3: even if there's a mild recession, they continue to tick up.
Speaker 3: You know a lot of us experience that in the
Speaker 3: seventies and eighties, and I would be a little worried
Speaker 3: about that. So rates are kind of low, spreads are
Speaker 3: still kind of low.
Speaker 2: Okay, so you're not putting them in suffer, and where
Speaker 2: are you putting that million?
Speaker 3: I'm central banks.
Speaker 2: For stability. If you look at fragmentation, I mean, the
Speaker 2: world seems a little bit odd like equities are doing
Speaker 2: one thing, but we keep on being told there's a recession.
Speaker 2: Why is there this massive adusyncrasy.
Speaker 3: That's the contradiction. There's still consumers in America job unemployed
Speaker 3: three point five percent. Home prizes have gone up for
Speaker 3: ten to fifteen years. Stock prize has gone in for
Speaker 3: ten to fifteen years. They have a trillion dollars more
Speaker 3: in their checking accounts. They're spending that money. You see
Speaker 3: in travel, you see in restaurants, you see it, and
Speaker 3: you've been around here and you see in hotels, you
Speaker 3: see it. That's all good, But the excess money's being
Speaker 3: spent down. So the bite of that is going to
Speaker 3: happen this year early next year. And the bite of
Speaker 3: QT hasn't happened yet. So if you have higher inflation,
Speaker 3: so I think it's a reasonable thing to say those
Speaker 3: things are coming to fruition. Maybe sometime in the end
Speaker 3: of the year. We don't know the effect of that,
Speaker 3: you know, if there's I mean I would take a
Speaker 3: mild recession happily. Right now. I am far more concerned
Speaker 3: about geopolitics Ukraine, trade, you know, Russia, our relations with China, etc.
Speaker 3: And I always have to mind all of our public
Speaker 3: America has a seventy five thousand per person GDP, China's
Speaker 3: is fifteen. We have all the food warn and energy
Speaker 3: we want. They import ten million bounds of oil a day.
Speaker 3: I mean it's not They're not a ten foot giant,
Speaker 3: and that's a four foot pigmy. We have to manage ourselves.
Speaker 3: Bat I think we can grow more and more thought forward.
Speaker 2: So you know, a lot of people say it's commercial
Speaker 2: real estate. I mean, we talk about nothing else. Everybody
Speaker 2: knows that that could break. Is there something that we're
Speaker 2: not seeing that could break?
Speaker 3: I think it's amazing when you talk about Marcus that
Speaker 3: sometimes it's and the press sometimes like a bunch of
Speaker 3: birds flocking to one thing with endless common about it. Yes,
Speaker 3: that's an issue. So you know, if you look at
Speaker 3: office real estate in B and C real estate will
Speaker 3: private problem Chicago, New York, Partland, Seattle, but probably not Nashville, Tampa, Orlando, Miami, etc.
Speaker 3: So you got to you gotta be a little more
Speaker 3: thoughtful about it. And I think if I'm the number
Speaker 3: banks have six hundred billion of office commercial real estate,
Speaker 3: you know they had a cushion or you even dropped
Speaker 3: and die. They self equity in it. Maybe something that
Speaker 3: will go bad, particularly the recession, they're gonna be Okay.
Speaker 3: It may take a few banks down. That's normal. Stuff
Speaker 3: that isn't abnormal. What is abnormal is the war trade
Speaker 3: the future of democracy. That is abnormal. I'm much more
Speaker 3: concerned about that than.
Speaker 2: The markets trade that. Right, if there's a big geopolitics,
Speaker 2: there's there's how do the markets talk them do that?
Speaker 3: Okay, Look, if I was a we're cautious I remind people,
Speaker 3: I'm not businesses aren't there to trade its. Sometimes they
Speaker 3: don't serve our clients, okay, and so we're gonna serve
Speaker 3: our clients no matter what happened.
Speaker 2: James, very quickly, final question, how are you feeling about
Speaker 2: the Epstein deposition this month?
Speaker 3: I am so sad that we had any relays with
Speaker 3: that man whatsoever. You know, we had top lawyers of
Speaker 3: value in this, from the SEC, Enforcement, the DOJ, you know,
Speaker 3: and obviously have we known them. We know today we
Speaker 3: would have done things differently. But it's very unfortunate, and
Speaker 3: I have deep respect for these women. That doesn't mean
Speaker 3: reliable for the action of an individual, but I do
Speaker 3: have deep respect for them. My heart goes out to them.
Speaker 1: And that was JP Morgan Chase CEO Jamie Diamond speaking
Speaker 1: with Bloomberg's Francine Lockcroawt from Paris. You can catch the
Speaker 1: full conversation on Bloomberg dot Com, on the Bloomberg terminal,
Speaker 1: and at the Bloomberg Business app.