JP Morgan CEO warns world may be facing most dangerous time in decades – business live | Business

Jamie Dimon also points out that the unwinding of central bank bond-buying programmes is another potential risk.

He says:

Additionally, we still do not know the longer-term consequences of quantitative tightening, which reduces liquidity in the system at a time when market-making capabilities are increasingly limited by regulations.

Quantitative tightening is the process by which central banks sell some of the bond they bought, first after the financial crisis and again after the Covid-19 pandemic.

QT means there is an additional seller in the bond market, which runs the risk of pushing down prices, leading to higher bond yields (the interest rate on the debt).

The boss of JP Morgan has warned that the world may be in the most dangerous time it has seen in decades.

Jamie Dimon fears that the Ukraine war, and the Israel-Hamas conflict, may have “far-reaching” impacts on commodity markets, trade, and geopolitics.

Dimon made his comments as the Wall Street bank reported net profits of $13.15bn for the third quarter of the year, up from $9.737bn a year ago – although down on the $14.5bn in Q2.

Dimon warns there is a risk that inflation remains elevated and that interest rates rise further from here.

He says:

Furthermore, the war in Ukraine compounded by last week’s attacks on Israel may have far-reaching impacts on energy and food markets, global trade, and geopolitical relationships.

This may be the most dangerous time the world has seen in decades. While we hope for the best, we prepare the Firm for a broad range of outcomes so we can consistently deliver for clients no matter the environment.

JP Morgan’s earnings benefitted from higher interest rates, which boosted its income from loans. Loan losses remained low.

Although, the Bank says that this over-earning on both net interest income and below normal credit costs will “normalize over time”.

UK chancellor Jeremy Hunt is also in Marrakech, and he has warned that next month’s autumn budget statement will include ‘difficult decisions’.

Hunt cited the uncertain global environment, and also flagged that higher interest rates and debt service costs have eaten into the UK’s financial position.

Speaking to reporters on the sidelines of the IMF/World Banking annual meeting in Morocco, Hunt days:

“The financial picture that I face is worse than in the Spring, and that means that I will have to take difficult decisions to make sure that in the face of what’s happening in Ukraine, in Israel, in parts of Africa, we are resilient.”

Hunt has also told Sky News to expect both good news and bad news in the autumn statement, due in November.

Hunt said:

“I think it’s a bit of both. I think the British economy compared to when I became chancellor a year ago has proved to be much more resilient than nearly every international organisation predicted and people are looking at some of the underlying strengths.”

But he said:

“In the short-term, we have challenges. We have a challenge with inflation, which is still too high. And we have the challenge of the international environment where there is still a lot of shocks.

“So I need, as chancellor, to focus on reliance in the face of those shocks. I am very much hoping for the best, but I do need to prepare for the worst, because I think we can see that the world is a very dangerous place right now.”

Hung added that UK debt interest is likely to be £20bn to £30bn higher this year than we predicted in the spring (this is because some the repayments on some bonds are linked to inflation).

He says:

“That’s a huge change.

We need to respond to that in a way that doesn’t drive us into recession, but also make sure that the British economy is resilient to shocks going forward.

More in our Politics Liveblog with Andrew Sparrow:

Bank of England governor Andrew Bailey has pointed out that economic conditions in the UK look better than they did 12 months ago, when the markets had been rocked by the mini-budget.

Speaking at the International Monetary Fund (IMF)’s annual meeting in Marrakech, Morocco, Andrew Bailey said he was one of the few people there who could point to things being better now.

Bailey says:

“From an economic point of view, if we look back over the last year I would say I’m probably the one person that can come in here and say things really do look better today than they did on this day last year.

“I can say that with some confidence.”

The UK on track for the highest number of insolvencies since 2009, analysts at PwC predict.

David Kelly, head of insolvency at PwC, points out that company failures in England and Wales fell on a monthly basis in September – but were 17% higher year-on-year.

Kelly says:

“Today’s data shows there were 1,967 corporate insolvencies in September – a 17% increase on the same month last year and down from the 2,308 insolvencies in August. While this dip is welcome, we expect the respite to be short-lived, with the UK remaining on track for the highest number of insolvencies since 2009.

“The challenging economic climate continues to impact companies across a range of sectors. Construction is being particularly hard hit, suffering more insolvencies than any other sector, while retail and hospitality and leisure continue to struggle. Indeed, restaurant closures have sadly reached the highest level in a decade.

“Although the recent pause in interest rates is welcome news for businesses needing to refinance their loans, it will still be more expensive to do so and the process is likely to be more difficult, which will have an impact on both cash flow and profits. Unfortunately, it’s therefore likely that the number of companies falling into insolvency will remain high over the coming months.”

Insolvency specialists are warning that company insolvencies will continue to rise, following the increase in September (see earlier post).

Linton Bloomberg, partner at international law firm Reed Smith, says firms are operating in “a really difficult environment”, adding:

The significant challenge presented by the combination of high interest rates and reduced disposable income is likely behind the increase in the number of insolvencies compared to this time last year.

It seems pretty clear that things will get worse before they get better as there are further challenges looming large on the horizon that are yet to show themselves in the figures. The recent IMF warning of poor growth in the UK may well oblige the Bank of England to raise interest rates again.

Other ‘new clouds’ from spreading geopolitical uncertainty, meanwhile, have created the potential for further economic instability, though it should be noted it is too early to determine just how significant this will be.

Nick O’Reilly, director of restructuring and recovery at MHA, fears business insolvencies will remain high in the near term without government intervention:

“The latest insolvency statistics reveal a grim economic landscape for many businesses. Low consumer confidence, elevated interest rates and high inflation have created a very difficult operating landscape, pushing more businesses to the brink. Insolvencies will stay at an elevated level while these conditions persist.

“The unwinding of Covid-19 support schemes is prompting increased creditor recovery actions, including HMRC’s efforts to liquidate companies. Sectors such as retail, leisure, and the licensed trade are particularly hard-hit, with these industries struggling to recruit skilled individuals.

“The biggest complaints struggling businesses have are the current Business Rate Regime, export-related red tape and the level of inflation. The government could help considerably with the first two and need to do so now – businesses have been asking for help for years.

“Greater business support in the upcoming Autumn Statement will be vital to facilitate a sustainable recovery. Inflation is moving in the right direction and once it stabilises long-term interest rates should fall.”