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2 days ago - JPMorgan Chase, the largest U.S. lender, warned that the U.S. government shutdown will hurt the economy more the longer it continues while ...
JPMorgan Chase, the largest U.S. lender, warned that the U.S. government shutdown will hurt the economy more the longer it continues while rattling financial markets whose confidence took a blow at the end of last year.
Fixed-income trading revenue at the New York-based firm fell 18 percent in the last three months of 2018 as prices whipsawed, JPMorgan said Tuesday. That mirrored the 21 percent decline at rival Citigroup amid speculation about the pace of interest-rate increases and concern that a U.S. trade war with China and would hamper economic growth.
"We saw a pretty broad and sharp sell-off across products," Chief Financial Officer Marianne Lake told reporters. The decline worsened in December, as President Trump lambasted the Federal Reserve over its fourth rate hike for the year and made good on a threat to allow some government offices to close if Congress didn't set aside the $5.6 billion he wanted for a wall on the southern U.S. border.
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The 25-day partial closing, already the longest in U.S. history, is "problematic on a number of fronts," with the fallout worsening "in days, not weeks," Lake said. If the service interruption stretches over a full quarter, it might cut U.S. economic growth to zero, and "we have to deal with that," added CEO Jamie Dimon.
Other estimates of the shutdown's impact have varied, with the administration's top economist suggesting it might trim just 10 basis points every two weeks from economic growth, which is expected to slow to 2.1 percent in 2019. Bank of America, meanwhile, trimmed 10 basis points from a fourth-quarter growth estimate that included only 10 days of the closing.
In real-money terms, the cost is about $1.2 billion a week and will reach $3.6 billion by Friday, according to S&P Global Ratings. In another two weeks, the impact will be greater than the cost of Trump's barrier. The president himself has said the shutdown might last for months or years, arguing it's a necessary sacrifice to achieve border security.
For JPMorgan, the closing's effect on market sentiment is more worrisome than any direct effect on its business. A sturdy U.S. economy drove fourth-quarter gains in its sprawling consumer division, and companywide revenue climbed 4 percent to $26.8 billion while net income grew 67 percent to $7.07 billion.
[Read more: Federal employees file for unemployment as government shutdown becomes longest in history]
"There's still global growth, and the consumer is in good shape," Dimon explained. At the same time, "we need good government policy to help the economy," he added. "The shutdown is not going to help the economy. We know exactly what it's going to do, and it's not a positive."
Dimon, who also heads the Business Roundtable, an organization representing 200 of the largest U.S. companies, has previously cautioned that a U.S. trade war could undermine the economic benefits of a GOP-led tax overhaul that cut the top corporate rate to 21 percent from 35 percent and turned on a spigot of business spending for wages and factories.
Along with tariffs on $250 billion in Chinese goods so far and the threat of more unless a trade deal with Beijing is reached by March 1, the Trump administration has imposed double-digit duties on metals and threatened levies of 25 percent on automotive imports.
"As we head into 2019, we urge our country’s leaders to strike a collaborative, constructive tone, which would reinforce already-strong consumer and business sentiment," Dimon said. "Businesses, government and communities need to work together to solve problems and help strengthen the economy for the benefit of everyone.”
JPMorgan climbed 0.2 percent to $101.13 in New York trading on Tuesday. The shares have risen 3.5 percent so far this year.
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