- Daniel Pinto, the head of JPMorgan Chase's dominant investment bank, told research analysts from Keefe, Bruyette, and Woods that the markets are too complacent right now, and we could be in store for a painful correction.
- One significant risk is that inflation exceeds projections by investors and central bankers.
- The bank is taking pains to be more conservative given the risks it is seeing, and it is rejecting leveraged lending deals, even though they pass muster with regulators.
JPMorgan Chase's giant corporate and investment bank — the undisputed leader on Wall Street — is beefing up risk management and hewing conservative ahead of what it anticipates will be a painful market correction in the near future.
The amount of complacency in the markets is triggering red flags for Daniel Pinto, the head of JPMorgan Chase's investment bank, who recently met with research analysts from Keefe, Bruyette, and Woods.
Volatility has been hovering near record lows, with markets remaining abnormally calm even in the face of turbulent geopolitical events, such as the US's escalated tensions with North Korea.
One significant risk that could turn all that upside down, according to Pinto, is inflation.
He told KBW that if inflation exceeds projections by investors and central bankers, that could disrupt the long bull market we've enjoyed and put a halt to the economic cycle, sending shocks through emerging markets as well.
"Management is concerned about the amount of complacency in the markets and because of that the next market correction will be painful," KBW analysts wrote in a research note.
KBW analysts don't think a correction is coming soon, but JPMorgan is nonetheless taking proactive measures to pare back risk, such as rejecting leveraged lending deals, even though they pass muster with guidelines from the OCC.
If an ugly market correction does rear its head, KBW says JPMorgan is poised to benefit, as it will have more capacity to deploy capital than its peers and could capture more market share.
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