If anyone is expecting a winning lap on Wall Street, it's Daniel Pinto.
The head of JPMorgan Chase's massive corporate and investment bank has a year to go for the record books: Pinto's business posted $ 49.3 billion in sales and $ 17.1 billion in profit in 2020, more profit than the three other JPMorgan businesses.
But Pinto, one of two main MPs for CEO Jamie Dimon as co-president of the largest U.S. bank by assets, gave no sign of complacency during a recent Zoom interview.
Instead, he was unusually open about the risks JPMorgan faces from competitors everywhere, from traditional banking rivals to tech giants and fast-paced fintech players like PayPal and Square. The two companies have appreciated in value during the coronavirus pandemic as users increasingly rely on their payment systems and digital wallets.
Pinto's approach corresponds to a turbulent, unpredictable time. Last March, Pinto and his co-president Gordon Smith took on more responsibility for JPMorgan while Dimon was recovering from emergency heart surgery.
Soon after, the pandemic forced Pinto's traders and bankers to work from home for the first time, an untested model for Wall Street. Even so, they used the massive measures the Federal Reserve and lawmakers had taken over the past year to stabilize the US economy. Now members of Congress are working on President Joe Biden's plans for an additional $ 1.9 trillion in pandemic relief.
Here are excerpts from our conversation.
CNBC: Let's start with the markets. Several US stock indices are at record levels. What do you think is driving stocks right now and what could threaten the rally?
Pinto: When you have such an extreme infusion of liquidity and fiscal stimulus in any market around the world, you will create a situation where capital seeks investment at zero interest rates and certain assets become overvalued. It's not just about the growth stocks that have performed very well thanks to Covid, but also about the value that has erupted. Now, with very few exceptions, there are no sectors that are cheap.
I think the market will gradually pick up as the year progresses. I don't see a correction soon unless the situation changes dramatically.
For me, the two risk factors are related to Covid. For example, a variant that is not covered by the vaccine. Markets are pricing in a weak economy in the first quarter, and from the second quarter the economy will do very well thanks to the incentives and you will likely see around 5% growth in the US for 2021. If something derails that, like a complication of disease development, there will be a bad outcome in the short term.
In the medium term, the risk is inflation. Right now inflation is very controlled, but you never know how this experiment will turn out. So you may run into inflation at some point.
That being said, we could make mini-fixes, but I don't think the trend is going to change.
CNBC: Over the past year we have seen the rise of SPACs or special purpose vehicles as a legitimate alternative to the traditional IPO route. SPACs helped raise $ 64 billion in capital, almost as much as initial public offerings. What does that explain?
Pinto: It's a reflection of the market: there is a large amount of liquidity and not enough assets to buy it. SPACs are not new. They have been around for over 10 years.
So why the increase in the number of SPACs? It takes a lot of capital to find a place to invest. The SPAC is just another way of doing this.
What are the risks? One risk is customer selection and ensuring that the SPACs are properly structured and have credible sponsors. A second risk is simply that a SPAC could buy the wrong company at the wrong price. At the end of the day, if the transaction doesn't go through, everyone gets their money back and that's it. Last time I checked, there was almost a hundred billion dollars waiting to be invested in finding a destination. You have two years to do it.
CNBC: Last month, Jamie said JPMorgan executives should be "less afraid" of the threat posed by fintech players. PayPal and Square in particular have gained ground and are now worth around $ 330 billion and $ 117 billion, respectively. What did the traditional banking industry miss there? Wasn't the threat taken seriously enough?
Pinto: [Fintech players] are very good at creating a great customer experience. They are very good at delivering products quickly. They are very good at creating a cool picture.
Is there a reason we can't compete? Of course not. Will we compete? Yes. Do we have a chance to catch up? Yes.
I think the worst thing you can do for a company is to turn down competition. Then if you realize you were wrong, it will be far too late.
What I am telling my team is that we assume that competitors will be extremely successful, not that they will fail. Now tell me what are we going to do to compete?
CNBC: The last time we spoke in August, you told me a permanent impact of the pandemic would be JPMorgan adopting a hybrid model where your employees switch between working in offices and working from home. Is that still the plan?
Pinto: Obviously [the return to the offices] has been postponed a bit because of the massive second wave. But when you think about it, I think there is only one possible outcome. If I return to the office with 100% of the people 100% of the time, I don't think there is any chance of it. As with anyone who works from home all the time, there is no chance of it.
The rotary model is the only thing that really makes sense … and it can't be top-down because when you think of a company the size of JPMorgan there are so many functions our 260,000 employees perform, they are all relatively different . We have to cater to the needs of certain functions, but it's not that everyone just does what they want. It has to be structured and well thought out.
CNBC: What impact do you think will affect commercial real estate?
Pinto: If you want to switch to a revolved model, you need to change the structure of the buildings and add more flexible seating. Just switching to flexible seating will likely reduce space requirements by 20%. If you then also switch to a rotational model, you can reduce it even further.
Buildings would run much more efficiently and with fewer empty spaces. And we're going to need fewer recovery locations because if everyone at home is constantly testing their technology and you know it works, why would you want an empty building with a bunch of computers?
CNBC: Succession planning must be a priority for your board. I don't think it was initially known how close your boss was to fatal heart disease when he had this emergency surgery in March. What did you learn from that experience when you and your Co-President did this?
Pinto: The unfortunate situation we went through in March and April showed everyone that the company has plans. We knew exactly what to do, and we did it in a really complicated couple of months. We also expanded the Operations Committee to provide more executives with transparency and visibility of strategic decisions.
I see [Jamie] every day, he doesn't look like someone who is about to retire.