Big banks define the past

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At that time, a year ago, things looked bleak. We were told the COVID-19 pandemic was going to hit us and stocks were busy crumbling into the most violent downdraft in many years. A 38% drop in just three weeks was puzzling. Jay Powell and the Federal Reserve Bank have intervened aggressively to support each asset class. Many on TV and in Market Letters were busy insisting that people should wait to act for the “next step”. He never came.

I was of the opinion and still am that energy and banking were not going to drive the markets higher and the economy forward in a time of major technological disruption for every industry, new or old. Push back on Tesla’s madness and focus on Zoom, ROKU, Teladoc, Tesla, Trade Desk, Netflix, Amazon and many more who have helped us deal with the lockdown. No bank did that.

Jamie Dimon, CEO of JPMorgan Chase, published a lengthy letter to shareholders this week. A year ago, there was a presumption that credit defaults would increase and the financial situation of individuals would worsen during this enforced disruption. Neither has happened. Instead, locked away at home for work and meals, most of us spent less than normal and used the savings to pay off our credit card balances. We collectively reduced our debt to its lowest level in 40 years by using our stimulus checks if we didn’t need them to pay the rent and keep the lights on.

There was no roadmap for how to invest this year because there was absolutely no model in past history to simply shut down a national economy. I just wanted to get out of my house and isolation as quickly as possible. Warren Buffett created a delicious buying opportunity for all of us when he drained all his airline stocks and said it was foolish to think there was a reason to own them. I disagreed because I knew everyone wanted to move as soon as possible. As soon as I was vaccinated, I happily left for New York for the holidays with my family. The plane was packed with many other grandparents doing the same. Airlines have now doubled down and some are just deciding to buy them now. Cruise ships have not yet been cleared to carry passengers, but will likely be in three or four months. They are already negotiating on reservations long before negotiating on profits.

I just don’t see the banking industry as a great place to put money and by the end of the year Buffett was also busy reducing his bank holdings. Dimon told you why in his letter. A year ago the JPM was 90. Now it’s 154. Yes, it’s better than a glimpse in the eye, but a gain of 65% compares very poorly to the many stocks out there. increase of 200% or more.

In his letter, Dimon described competitive threats and technical disruption: “Fintech and big tech are here & mldr; highlight. ”He made it clear that Chase needed to make acquisitions not to stay in the dust. That means companies using artificial intelligence, blockchain technology for record keeping and simplifying what he has called “pain points” in your banking relationships are likely targets.

In fairness to the banks, they are much more regulated than the new entrants who offer money lending; easy and convenient money transfer; effortless, secure and scalable banking operations without requiring an on-site visit to a branch. Then there is the bitcoin issue. Mobile payment systems that cost less at the retail store are also playing their part. And what exactly do the big banks need with all this real estate that has mostly been closed for a year? It is a cost center that does not make the big banks more competitive in the future.

In addition, the investment bank sees the encroachment of companies that go public by using special purpose acquisition companies. This will put downward pressure on this vital source of very high fees. I don’t see anything in this photo that puts the banks in the catbird seat.

Joan Lappin CFA has been called an “investment guru” by Business Week and a “top manager” by the Wall Street Journal. The Sarasota resident founded Gramercy Capital Management, a registered investment advisor, in 1986. Email her at [email protected] Follow her on twitter: @joanlappin. Its past columns appear at heraldtribune.com/business/columns.

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