Dimon Says a Hundred Municipalities in U.S. Won’t ‘Make It’ Out of Debt
JPMorgan Chase CEO Jamie Dimon
Andrew Harrer/Bloomberg
James "Jamie" Dimon, chief executive officer of JPMorgan Chase & Co., listens to a question from the media following a speech at a conference on global capital markets competitiveness hosted by the U.S. Chamber of Commerce in Washington, D.C. on March 30, 2011.
James "Jamie" Dimon, chief executive officer of JPMorgan Chase & Co., listens to a question from the media following a speech at a conference on global capital markets competitiveness hosted by the U.S. Chamber of Commerce in Washington, D.C. on March 30, 2011. Photographer: Andrew Harrer/Bloomberg
JPMorgan Chase & Co. (JPM) Chairman and Chief Executive Officer Jamie Dimon said some municipalities will need to renegotiate debt and a hundred may not “make it.”
“I wouldn’t panic about what I’m about to say,” Dimon, 55, said today at a U.S. Chamber of Commerce event in Washington. “You’re going to see some municipalities not make it. I don’t think it’s going to shatter America, I just think it’s a part of the credit cycle.”
Speculation about widespread municipal-bond defaults intensified in December when bank analyst Meredith Whitney predicted that “hundreds of billions” of dollars of municipal bonds may default in 2011 amid pressure to balance budgets.
JPMorgan, the second-biggest U.S. bank by assets, said in February its commercial bank’s municipal-debt holdings are diversified enough to handle a likely increase in defaults. The number of issuers that can’t manage debts may be about a hundred, Dimon said today.
“It’s not going to be thousands,” he said. “It’s going to be maybe a hundred. It’s going to be a small number” out of roughly 14,000 municipalities.
The commercial bank’s $9.7 billion municipal portfolio has about 26 percent of its holdings concentrated in local government bonds, 22 percent in primary and secondary education, 14 percent in state governments and the rest among higher education, utilities, airports and other investments, Todd Maclin, chief executive officer of the unit, said in the presentation last month.
Bond Defaults
Standard & Poor’s said this month that municipal-bond defaults in the first two months of 2011 are down 50 percent from the same period last year. The research followed a report by the consulting firm of Nouriel Roubini, the New York University economist who in 2006 predicted the credit-market collapse, that said about $100 billion of U.S. municipal debt will default in the next five years.
Tom Dresslar, spokesman for California Treasurer Bill Lockyer, said comments that fuel fear in the municipal-bond markets only hurt debt holders and taxpayers.
“Despite the devastation wrought by the captains of our economy, municipalities remain fundamentally strong as credits and pose only the tiniest default risk,” he said.
Golden Goose
Dimon also said excessive U.S. regulation may “hamstring” the financial industry and push business overseas where costs are lower and regulations less stringent. Congress passed hundreds of new rules in the Dodd-Frank Act last year, and bank regulators are working on new capital requirements for U.S. banks.
“We’re starting to add up a whole bunch of things which are negative for America,” he said. New rules on derivatives may hurt U.S. competitiveness, and “if we have higher capital limits than the rest of the world, now you’re just starting to put nails in the coffin.”
He called derivatives laws in Dodd-Frank some of the most “irrational” legislation he’s ever seen. The Durbin amendment, which limits debit-card fees, is “basic price-fixing at its worst,” he said.
“It’s very important that the regulators and our government, the secretary of the U.S. Treasury, the chairman of the Federal Reserve, that they make sure that when we’re done with all of this stuff, American banks can compete with the rest of the world,” Dimon said. “You don’t want to kill one of the golden gooses of healthy capital markets.”
To contact the reporter on this story: Dawn Kopecki in Washington at dkopecki@bloomberg.net
To contact the editor responsible for this story: David Scheer at dscheer@bloomberg.net
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