JPMorgan Chase‘s president and chief operating officer Daniel Pinto in an interview with TOI spoke on the risks and opportunities in the financial sector. Pinto said the sentiment on India is bullish due to supply chain shifts, and strong growth despite a global slowdown. He said that structural adjustments will help drive manufacturing in India. Excerpts:
What are the opportunities you see for India?
The inclusion of India in (global) emerging market indices has been very good news because investors are rebalancing their portfolios and there will be further investment in fixed income in the country, which is important.The sentiment on India is very bullish, driven by supply chain shifts, alignment and strategic partnerships with the US, and because the economy is growing very well, despite the global slowdown. There is amazing talent here. Our corporate centres here have over 50,000 people.
How can Indian corporates gain from the shift in supply chains?
Companies will try to balance their supply chains, rely a bit less on China and move some activities to India. While at the moment it is probably more talk than action, over time it will become real and enable corporates to take advantage of the shift. India’s focus on infrastructure, economic stability, and fiscal discipline bodes well for eventual implementation. The service economy is also growing and, hopefully, structural adjustments will allow the manufacturing sector to capitalise on investments and grow alongside the services sector.
AI is the buzzword. How are you using it?
Large language models and relevant AI tools can increase productivity by 20-25%. For example, KYC is a very laborious and manual activity but AI enables us to spend less and process broadly 3 times the volume. While revenue generation remains important, the primary impact in the coming years will likely be seen in enhancing efficiency across these job families.
What is the key to making mergers work?
Planning. When First Republic Bank got into trouble, (CEO) Jamie (Dimon) came up with the idea to support them through a $30-billion consortium loan, which bought time to work on a private solution. As the probability of it solving looked limited, we started working on building an economic model. Besides being prepared, we were also liquid because we remained conservative during the years of easy liquidity, which allowed us to bid competitively. We could also retain deposits and people.
Do you think risk of hard landing has abated?
There is a relatively high probability of a soft landing with Fed actions aiming to steer inflation towards the target by the later part of the year, potentially delaying recession. Fewer imbalances exist compared to typical end-of-cycle scenarios. While some real estate issues exist in office space, they aren’t systemic. Market expectations of seven or even five rate cuts appear unlikely, given the economy’s low unemployment and declining inflation. Risk assets may face disappointment as the economy slows but avoids recession, at least for the foreseeable future.
Do you see the US fiscal deficit as a concern?
In the medium term, yes. Given a fiscal deficit of around 6% for a country with a debt of 100% of GDP and a less globalised world, there’s likely to be more fragmented demand for US Treasuries. This raises concerns over long-term adjustments. In the short term, despite potential declines in short-term interest rates as the Fed acts, the market’s view of the terminal rate between 3-3.5% suggests an elevated term premium in treasuries. Thus, it’s probable that treasuries will hover around 4-5%, rather than returning to 2% soon. Consequently, long-term rates are likely to remain elevated.
Do you think fintechs pose risks to the system?
Fintechs create a good client experience, and we compete with them, and we also provide service to some of them. Over time, as they become bigger and more systemic, they may be regulated, but at the moment, they are not a systemic risk.
What are the opportunities you see for India?
The inclusion of India in (global) emerging market indices has been very good news because investors are rebalancing their portfolios and there will be further investment in fixed income in the country, which is important.The sentiment on India is very bullish, driven by supply chain shifts, alignment and strategic partnerships with the US, and because the economy is growing very well, despite the global slowdown. There is amazing talent here. Our corporate centres here have over 50,000 people.
How can Indian corporates gain from the shift in supply chains?
Companies will try to balance their supply chains, rely a bit less on China and move some activities to India. While at the moment it is probably more talk than action, over time it will become real and enable corporates to take advantage of the shift. India’s focus on infrastructure, economic stability, and fiscal discipline bodes well for eventual implementation. The service economy is also growing and, hopefully, structural adjustments will allow the manufacturing sector to capitalise on investments and grow alongside the services sector.
AI is the buzzword. How are you using it?
Large language models and relevant AI tools can increase productivity by 20-25%. For example, KYC is a very laborious and manual activity but AI enables us to spend less and process broadly 3 times the volume. While revenue generation remains important, the primary impact in the coming years will likely be seen in enhancing efficiency across these job families.
What is the key to making mergers work?
Planning. When First Republic Bank got into trouble, (CEO) Jamie (Dimon) came up with the idea to support them through a $30-billion consortium loan, which bought time to work on a private solution. As the probability of it solving looked limited, we started working on building an economic model. Besides being prepared, we were also liquid because we remained conservative during the years of easy liquidity, which allowed us to bid competitively. We could also retain deposits and people.
Do you think risk of hard landing has abated?
There is a relatively high probability of a soft landing with Fed actions aiming to steer inflation towards the target by the later part of the year, potentially delaying recession. Fewer imbalances exist compared to typical end-of-cycle scenarios. While some real estate issues exist in office space, they aren’t systemic. Market expectations of seven or even five rate cuts appear unlikely, given the economy’s low unemployment and declining inflation. Risk assets may face disappointment as the economy slows but avoids recession, at least for the foreseeable future.
Do you see the US fiscal deficit as a concern?
In the medium term, yes. Given a fiscal deficit of around 6% for a country with a debt of 100% of GDP and a less globalised world, there’s likely to be more fragmented demand for US Treasuries. This raises concerns over long-term adjustments. In the short term, despite potential declines in short-term interest rates as the Fed acts, the market’s view of the terminal rate between 3-3.5% suggests an elevated term premium in treasuries. Thus, it’s probable that treasuries will hover around 4-5%, rather than returning to 2% soon. Consequently, long-term rates are likely to remain elevated.
Do you think fintechs pose risks to the system?
Fintechs create a good client experience, and we compete with them, and we also provide service to some of them. Over time, as they become bigger and more systemic, they may be regulated, but at the moment, they are not a systemic risk.