JPMorgan can handle GDP falling at a 35% rate: Dimon

Jamie Dimon says that JPMorgan Chase  (JPM), the largest U.S. bank by assets, is serious about stress testing itself under some enormous numbers as the COVID-19 crisis continues to damage the economy. 

“[We] have run an extremely adverse scenario that assumes an even deeper contraction of gross domestic product, down as much as 35% in the second quarter and lasting through the end of the year, and with U.S. unemployment continuing to increase, peaking at 14% in the fourth quarter. Even under this scenario, the company would still end the year with strong liquidity and a CET1 ratio of approximately 9.5% (common equity Tier 1 capital would still total $170 billion),” Dimon wrote in his widely-read annual letter on Monday.

“This scenario is quite severe and, we hope, unlikely,” he added.

The 64-year-old bank CEO and chairman noted that in this scenario the board would “likely consider suspending the dividend.” 

“If the Board suspended the dividend, it would be out of extreme prudence and based upon continued uncertainty over what the next few years will bring,” he added.

[See Also: JPMorgan’s Dimon: ‘There should have been a pandemic playbook’]

Jamie Dimon, Chairman and CEO of JPMorgan Chase & Co, fields questions from Mellody Hobson, president of Ariel Investments, during a luncheon hosted by The Economic Club of Chicago on November 22, 2017 in Chicago, Illinois. (Photo by Scott Olson/Getty Images)

‘Dramatically different from the expected’

In the letter, Dimon noted that no one knows how long the COVID-19 crisis will last, the extent of the damage on the economy, or the pace of the recovery. 

“We have always been serious about stress testing and run an enormous number of tests per week so that we are prepared for most crises. But as is often the case, this ‘actual new crisis’ – while it shares attributes with what is being stress tested – is dramatically different from the expected,” he wrote. 

In the meantime, Dimon said the bank has stopped stock buybacks. 

“We have always held the position that the highest and best use of our equity is to reinvest it in our own business and, of course, to be able to withstand tough times. Halting buybacks was simply a very prudent action – we don’t know exactly what the future will hold – but at a minimum, we assume that it will include a bad recession combined with some kind of financial stress similar to the global financial crisis of 2008. Our bank cannot be immune to the effects of this kind of stress,” he wrote. 

JPMorgan will report its first-quarter results on April 14.

Coronavirus cases are still on the rise. (Graphic: David Foster/Yahoo Finance)

Julia La Roche is a Correspondent at Yahoo Finance. Follow her on Twitter.

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