Jamie Dimon Tells Investors to Prepare for a 'Drag' on JPMorgan's Returns
In his much anticipated and widely read annual letter, JPMorgan Chase's (NYSE: JPM) Chief Executive Officer Jamie Dimon touched on a wide variety of issues facing the country right now, including higher inflation, rising interest rates, and Russia's invasion of Ukraine. Pertaining specifically to the bank itself, Dimon warned investors of a "drag" on the bank's return on equity because of regulatory capital rules that he has long criticized. Let's look at what Dimon is referring to and how it may impact the stock.
All banks must hold a certain amount of capital to prepare for unexpected loan losses so that they can continue to lend money and serve consumers, families, and businesses during a severe downturn. One, if not the most important, of the regulatory capital ratios is the common equity tier 1 (CET1) capital ratio, which takes a bank's core capital expressed as a percentage of its risk-weighted assets such as loans.
The CET1 ratio is composed of three components: the bare minimum 4.5% base requirement, the stress capital buffer, and for the largest, global systemically important banks another buffer level known as the G-SIB surcharge.
Source Fool.com
