JP Morgan Chase 2015 Annual Report Download - page 20

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happen, but if it did, we could easily handle
it. We manage our growth in China to try to
capture the long-term value (and, remember,
this will help a lot of our businesses outside of
China, too) and in a way that would enable us
to handle bad, unexpected outcomes. We don’t
mind having a bad quarter or two, but we will
not risk our company on any country. This is
how we manage in all countries in which we
have material activity.
Brazil. Brazil has had a deteriorating
economy, shrinking by 3%–4% over the last
year. In addition, as I write this letter, Brazil
faces political upheaval as its president is
being threatened with impeachment and its
former president is being indicted. Yet the
country has a strong judicial system, many
well-run companies, impressive universities,
peaceful neighbors and an enormous quan-
tity of natural resources. In Brazil, we have
banking relationships with more than 2,000
clients, approximately 450 multinational
corporations going into Brazil to do business
and approximately 50 Brazilian companies
going outbound. Our publicly disclosed expo-
sure to Brazil is approximately $11 billion,
but we think that in extreme stress, we might
lose $2 billion. In each of the last three years,
we actually have made money in Brazil. We
are not retreating – because the long-term
prospects are probably fine – and for decades
to come, Brazilians will appreciate our stead-
fastness when they most needed it.
Argentina. Argentina is now a country
with incredible opportunity. In the 1920s,
its GDP per person was larger than that
of France, whereas today, it is barely one-
third compared with France. Argentina is
an example of terrible public policy, often
adopted under the auspices of being good
for the people, that has resulted in extraordi-
nary damage to the economy. However, the
country has a highly educated population, a
new president who is making bold and intel-
ligent moves, peaceful neighbors and, like
Brazil, an abundance of natural resources.
You might be surprised to know that for
the past 10 years, in spite of the country’s
diculties, JPMorgan Chase has made a
modest profit there by consistently serving
our clients and the country. This year, we
took a little additional risk in Argentina
with a special financing to help bring the
country some stability and help get it back
into the global markets. We are hoping that
Argentina can be an example to the world of
what can happen when a country has a good
leader who adopts good policy.
To give you more comfort, I want to remind
you that throughout all the international
crises over the last decade, we maintained
our businesses in many places that were
under stress – such as Spain, Italy, Greece,
Egypt, Portugal and Ireland. In almost every
case, we did not have any material prob-
lems, and we are able to navigate every
issue and continue to serve all our clients.
Again, we hope this will put us in good
stead in these countries for decades. Later in
this letter, I will talk about another poten-
tially serious issue – Britain possibly leaving
the European Union.
How do you manage your interest rate exposure? Are you worried about negative interest rates
and the growing dierences across countries?
No, we are not worried about negative
interest rates in the United States. For years,
this country has had fairly consistent job
growth and increasingly strong consumers
(home prices are up, and the consumer
balance sheet is in the best shape it’s ever
been in). Housing is in short supply, and
household formation is going up, car sales are
at record levels, and we see that consumers
are spending the gas dividend. Companies
are financially sound – while some segments’
profits are down, companies have plenty of
cash. Nor are we worried about the diverging
interest rate policies around the world. While
they are a reasonable cause for concern, it