CryptocurrencyInvestingBanksReal Estate

‘An extremely adverse scenario’: JPMorgan’s Jamie Dimon lays out a future worse than 2008 in his annual letter

April 6, 2020, 3:29 PM UTC

JPMorgan Chase is preparing for “an extremely adverse scenario,” worse than the 2008 financial crisis and recession, CEO Jamie Dimon wrote in his annual letter published Monday.

That worst-case scenario “assumes an even deeper contraction,” with gross domestic product (GDP) shrinking 35% in the second quarter of this year and remaining down through 2020, while the unemployment rate peaks at 14% by the end of the year. “This scenario is quite severe and, we hope, unlikely,” Dimon wrote in the letter.

By comparison, since the 2008 financial crisis until now, the worst-case scenario the bank had modeled in its stress tests for the Federal Reserve assumed a peak unemployment rate of 10%, as well as a 50% drop in the stock market. (So far, in the recent coronavirus-related market crash, stocks have fallen at most 37% from their previous highs.) While the coronavirus crisis “shares attributes with what is being stress-tested,” Dimon wrote, it “is dramatically different from the expected.”

Even Dimon’s best-case scenario for the current pandemic isn’t all that rosy, as he expects it to be at least as severe as the previous recession. “At a minimum, we assume that it will include a bad recession combined with some kind of financial stress similar to the global financial crisis of 2008,” Dimon wrote.

Indeed, the CEO pointed out, companies have already tapped their revolving credit lines for more than $50 billion, drawing down an amount that “already dramatically exceeds what happened in the global financial crisis.” Meanwhile, he wrote, half of small businesses don’t have enough cash stockpiled to last them more than 15 days, according to the bank’s internal research, “reinforcing why small businesses are being heavily disrupted by the current crisis and will feel the effects for a significant period of time.”

In the event that the coronavirus crisis approaches Dimon’s worst-case projections, another problem arises: Financial regulations implemented in the wake of the 2008–09 Great Recession hamstring JPMorgan Chase’s ability to lend out its capital by requiring it to maintain a buffer in its coffers. “As we get closer to the extremely adverse scenario, current regulatory constraints will limit additional actions we can take to help clients—in spite of the extraordinary amount of capital and liquidity we could deploy,” Dimon wrote. “This can hurt customers as the crisis deepens.”

Yet he also recognizes that it’s too late to try to change the rules in time to alleviate this crisis. “There will be a time and place for that—but not now,” he wrote.

That’s only one of several reasons he thinks the U.S. “was not adequately prepared” for the coronavirus. “As a nation, we were clearly not equipped for this global pandemic, and the consequences have been devastating,” Dimon wrote. “There should have been a pandemic playbook.”

Instead, Dimon urged the country to focus on being “more prepared for what comes next,” including laying out a process to get people safely back to work. “Done right, a disciplined transition would maximize the health of Americans and minimize the time, extent, and suffering caused by the economic downturn,” Dimon wrote.

That includes rolling out blood tests to determine who has developed the proper immunities to COVID-19, he recommended. “In addition, this ‘return to work’ process could be accelerated if federal, state, and local governments make tests widely available that allow people to certify that they have contracted and recovered from the disease, have the necessary antibodies to prevent them from getting sick again, and are not infectious to anyone,” Dimon wrote.

More must-read finance coverage from Fortune:

—What small businesses applying to the SBA’s Paycheck Protection Program need to know
—The worst part of losing 10M jobs in 2 weeks? The real number may be much higher
—Everything you need to know about the new 401(k) no-penalty withdrawals
—What to do if you can’t pay your bills this month
—Listen to Leadership Next, a Fortune podcast examining the evolving role of CEOs
—VIDEO: 401(k) withdrawal penalties waived for anyone hurt by COVID-19

Subscribe to Fortune’s Bull Sheet for no-nonsense finance news and analysis daily.