Jamie Dimon shareholder letter: Big banks are shrinking


JPMorgan Chase chief executive and Wall Street guru Jamie Dimon released his annual letter to shareholders Monday, which is mined each year by the top minds in finance.

Among the insights were two foreboding trends for the Street. “The growing competition to banks from each other, shadow banks, fintechs and large technology companies is intensifying and clearly contributing to the diminishing role of banks and public companies in the United States and the global financial system,” Dimon wrote.

The idea that big banks might be declining isn’t new: A cabal of legacy institutions have been eyeing the threat of fintechs for nearly a decade. But as Dimon notes, the competition has been thrown into turbo drive in recent times. For example, Apple, with already widely used services Apple Pay and the Apple Card, is now extending its reach in the industry with more banking-type products including payment processing, credit risk assessment, and buy-now-pay-later offers.

That’s as most of Big Tech holds “an extraordinary competitive advantage” over banks, being “already 100% digital, [and having] hundreds of millions of customers and enormous resources in data and proprietary systems,” says Dimon.

Meanwhile, Walmart, which has a customer base of over 200 million shoppers in stores per week, is moving into the space with the potential to blow up banking as we know it, as analysts foretell. And neobanks have the edge in regulatory exemptions—such as bypassing laws that prevent banks from charging debit card fees, thus letting them collect higher revenues per swipe.

However, even as the space expands, consolidation will come, says Dimon: “I would expect to see many mergers among America’s 4,000+ banks . . . [as well as] bank-fintech mergers or mergers just between fintechs. You should expect to see some winners and lots of casualties—it’s just not possible for everyone to perform well.”

Publicly traded companies in decline

But what Dimon sees as possibly more important: the faltering of public companies. The number of U.S. public companies peaked in 1996 at 7,300 but has since fallen to 4,800—despite that you might’ve expected IPOs to explode in the last decade, given the tech boom. Where are all these companies getting their money? Not from selling public stocks, but from making deals with private equity firms, it seems. The number of U.S. private companies backed by private equity has grown over sixfold, from 1,600 to 10,100.

Factors driving the trend are complex and could include “heightened public scrutiny and the relentless pressure of quarterly earnings” that accompany market debuts. But regardless of why, it has the ill effect of lowering transparency into these businesses and keeping them out of regulatory purview. Of course, it also blocks outside investors from sharing in companies’ success.

Is this in the country’s best interests?

That may still be unclear, but the rise in power for private equity firms is unsettling given the track record. Take media, for example: With the evolution of the internet and social media, once-profitable and storied newspapers have lost revenues and been gobbled up by private equity or hedge funds, which have in many cases, promptly gutted the publications (the Chicago Tribune and the Denver Post, to name a couple). The latest major leveraged buyout was just last week, when media data-tracker Nielsen was acquired by equity giants Elliott Management and Brookfield Management.


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