Every year, the management team of the major global banks would release a shareholder letter to summarise results of the part year, and their take on the year ahead. 2020 has been a black swan year on so many levels, so I thought it would be interesting to summarise the takeaways from JPMorgan's CEO annual shareholder letter, a person whom I look up to as a role model.
Check out the full report here, and Stanford's View from the top session with Jamie Dimon, the video that changed my perception of him.
Here are my 5 quick takeaways:
1. Banks are playing an increasingly smaller role in the financial system
Comparing data across the last 20 years, the exponential increase in market size is not fulfilled by banks, but by shadow banks and big tech firms. The counter argument is that risk is moved out of banks, but we still can't ignore the speed of growth of new entrants within Fintech.
2. Expect inflation rates to increase soon than we think
At the time of writing in June 2021, we have already witnessed a 3.8% increase in core inflation rate in the US, which excludes food and energy prices, it has been the sharpest increase in nearly three decades. The same is observed across other countries.
3. Either banks need less regulation, or non-banks need more
As government regulation requires banks to have more deposits than loans. the loan-to-debt ratio has also increased over last 10 years.
This means that a lot of money is left untouched, opportunity cost which could have been used to boost economy. On the contrary, such regulations have yet caught up with Fintech firms.
4. The pandemic accelerated remote working capabilities, which will likely carry forward.
The need for remote working means that we are losing efficiency in decision making, and employees miss out on mentorship and cultural learnings.
5. China > America
USA having a weaker global perception:
Domestic social problems:
15% of graduate dropout rates
Healthcare is 2x more expensive (Annual medical costs per person in the United States are now $11,000 versus $4,000 for other developed nations)
Life expectancy in poor/minority places have worsened
The need to boost labour participation and offer help to those with criminal records to integrate easier into the workforce.
