JPMorgan Chase CEO Jamie Dimon is out with his annual letter to shareholders, in which he discusses not only the bank’s business outlook but also various current economic and political issues.
Perhaps unsurprisingly, he addresses one of the big political shocks of 2016 — the UK voting to leave the European Union in the June Brexit vote — and what that could mean for the continent going forward.
“We hope that the advent of Brexit would lead the EU to focus on fixing its issues — immigration, bureaucracy, the ongoing loss of sovereign rights and labour inflexibility — and thereby pulling the EU and the monetary union closer together. Our fear, however, is that it could instead result in political unrest that would force the EU to split apart,” he wrote in the letter.
“The unravelling of the EU and the monetary union could have devastating economic and political effects,” he continued, with his own added emphasis. “While we are not predicting this will happen, the probabilities have certainly gone up — and we will keep a close eye on the situation in Europe over the next several years.”
As his emphasis on the world “could” suggests, Dimon is not forecasting the imminent collapse of the EU. Rather, he is addressing a potential political risk.
And he’s not alone in this thinking. Since the Brexit vote, markets across the board have focused on elections across Europe, looking for clues about other potential populist shifts.
Perhaps the most well known example is the looming French election. One of the candidates, Marine Le Pen, the leader of the far-right nationalist Front National, had previously outlined a plan to overhaul France. Should she win, she intends to hold a referendum on membership in the European Union if the EU does not agree to redesign the union as a loose coalition of nations without a common currency or a border-free area. Additionally, she has stated her intention to exit the euro.
Market participants have also monitored the recent Dutch elections in March, which saw Prime Minister Mark Rutte’s ruling People’s Party for Freedom and Democracy (VVD) win the most seats in parliament for the third time in a row, dealing a blow to far-right populist leader Geert Wilders, and will be watching the upcoming German elections in September.
Dimon also touched on some of the nitty-gritty details regarding Brexit and JPMorgan’s future in Europe.
“We are confident we will be able to develop and expand the capabilities that our EU subsidiaries and branches will need to serve our clients properly in Europe under EU law. This will require acquiring regulatory approvals, transferring certain technologies and moving some people,” he wrote.
“We must be prepared to do this assuming a hard exit by the United Kingdom — it would be irresponsible to presume otherwise. While this does not entail moving many people in the next two years, we do suspect that following Brexit, there will be constant pressure by the EU not to ‘outsource’ services to the United Kingdom but to continue to move people and capabilities into EU subsidiaries,” he added.