This year kicked off with some improving economic data on jobs, on retail spending and even a rally in the stock market. So, does the good news suggest the economic recovery is finally taking hold and 2012 will be a positive new day for job seekers? For some answers, I caught up with Jamie Dimon, who heads the USA's largest bank with $2.2 trillion in assets and operations in more than 60 countries. In a series of interviews during his firm's health care conference last week, the CEO of JPMorgan Chase was optimistic and said the troubled housing market has bottomed. He pointed to innovation in health care as a testament to America's strength and heft. Our interview follows, edited for clarity and length.
Q: You have a great vantage point in deciphering where we are in this recovery, with a huge consumer banking and capital markets business. How does the economy look in 2012?
A: Barring a disaster out of Europe, I do see a fairly broad, growing economy. The economy is in a mild recovery, which is strengthening. Corporations are in outstanding financial shape. They're earning money. They've got plenty of capital, plenty of wherewithal. Middle-market companies, of which most are private companies with sales of between $20 million and $2 billion, they are in fabulous financial shape and have good margins. They have a lot of capital and liquidity. We see small businesses in better shape. But we are not seeing a huge formation of small businesses yet.
Q: Where is the loan growth?
A: In two months, as of September, we've seen small-business loans up 70%, middle-market loans up 18%. And, hopefully, confidence, which is the secret sauce, will come back, too.
Q: What are you most worried about?
A: Europe. It's the biggest fly in the ointment.
Q: Do you think the European Central Bank and the leaders there have responded to the crisis in the right way?
A: The ECB changed what could be collateral for the European banks, which is important. They made what a bank can use as collateral much wider, and they put unlimited use of three-year lending. It was a huge move, much bigger than the market reaction we saw. It's possible that this one thing has removed all funding issues for the big European banks. It gives them breathing room and can help support asset prices in the meantime. The European banks are still being forced to raise capital and by that, they still have to sell assets. They're being forced to sell assets to raise even more capital at precisely the wrong time. It's not a massive amount, but you're starting to see assets for sale, loans for sale. It's tough. You can't do a good job for shareholders raising capital with huge discounts for some assets.
Q: Are there opportunities for JPMorgan in all of this? Do you look at that situation and say you want to be a buyer of certain assets? How do you buy in that environment?
A: We want to be good citizens there. We've cut back exposures there, but we've kept all the client business going, a great risk to ourselves. But we think it's very important that we'd be doing business in Italy 50 years from now, but we're trying to be very careful on that. In the meantime, there are certain assets we're looking at. There are certain businesses we're looking at.
Q: What about housing in the U.S.?
A: We have seen the worst. We are at the bottom. We may hug along the bottom for a while, but we are at the bottom. People think housing is terrible, but the early indicators tell you a lot about where it will be in 18 months or so. Supply and demand are rapidly coming in balance. Renting is now more expensive than buying in half of America. We're adding 3 million Americans a year. In the next 10 years, we have 30 million more Americans. Those 30 million Americans are going to need 15 million homes, or something like that. Household formation has gone so low. You had kids move back home -- and, yes, by the way, it doesn't work for them, either. And household formation we think will have to go close to a million and a half. Once it goes to (that), housing construction will probably have to go up to a million and a half. Two million jobs, and all this shadow inventory stuff will be getting better, not worse. And it's the rate of change which is important, not the absolute level.
