JPMorgan's Dimon Warns Europe Is on a Slow Decline, a Direct Risk for U.S. Investors With International Exposure

Few in the world of finance are more respected than JPMorgan Chase CEO Jamie Dimon. He has led the company for roughly two decades now, first steering it through the Great Recession largely unscathed, and then turning it into the largest bank in the U.S. by assets. JPMorgan Chase now generates some of the highest returns among its peers, which has earned it a premium valuation. For all these reasons, the market tends to listen when Dimon speaks. In his annual letter to shareholders this year, Dimon issued a warning to Wall Street. The famed banker laid out three big risks, and they couldn't be any clearer. Geopolitics: Near-term market disruptions can have long-term consequences Not surprisingly, given the current climate, Dimon cited geopolitics as one of the biggest risks. The big issues are the Iran War and broader conflict in the Middle East, the ongoing war between Russia and Ukraine, and growing tensions, particularly with China. Notably, the Iran War has led to a surge in oil prices. While Dimon hopes that all existing conflicts can be resolved, he points out that "the enemy gets a vote too." Dimon added that it's more than just energy. Iran's closure of the Strait of Hormuz is also affecting fertilizer and helium prices, leading to significant disruptions in food, shipbuilding, and farming in many countries. Dimon also pointed out ongoing issues with tariffs and trade negotiations, especially given already inflated asset prices. President Donald Trump's announcement of significant tariffs in April 2025, known as "Liberation Day," triggered a major stock sell-off. The Iran War triggered the sell-off this year. Without these two issues, it's interesting to think about where the market could be. Investors should understand that all these current issues will have long-term effects. How trade negotiations ultimately settle could have major ramifications for economic growth, while developments in the Strait of Hormuz will also affect global supply chains in the long term. Private credit: Perhaps not systemic, but losses could be "higher than expected" While issues regarding private credit, which involves various types of non-bank lending, are now discussed widely in the media, Dimon has been warning about this trend for years. Private credit, which operates outside the banking system, has been able to steal market share from banks, which have been burdened by heightened regulation since the Great Recession. In his letter, Dimon points out several statistics, one being that global private credit assets under management (AUM) have risen from $300 billion in 2010 to $1.8 trillion in 2025. To put that in context, Dimon notes that private credit is now larger than the U.S. high-yield bond market and the bank syndicated leveraged loan market. Now, given that the investment-grade bond market and residential mortgage market are both $13 trillion each, Dimon doesn't view private credit as a systemic risk, an assessment he is not alone in making. However, he does say that whenever there is a credit cycle, which hasn't occurred since the Great Recession, losses on all types of leveraged lending "will be higher than expected, relative to the environment." Dimon believes that underwriting has been weakening due to aggressive assumptions, weaker covenants, and more borrowers paying principal rather than interest, among other concerns. He's also concerned about loan marks, a lack of transparency, and the possibility that more borrowers will eventually be forced to refinance their loans at higher rates. Artificial intelligence: A significant potential disruption to the labor market Dimon discussed AI a lot in his letter, and it wasn't all bad. He discussed how AI will affect nearly every function at the bank and that management plans to deploy AI across every application and process at the company. JPMorgan Chase is planning to spend nearly $20 billion on tech this year. Dimon also expects AI to significantly improve productivity and help the world solve some of its most challenging problems. However, the overall effects of such a major technological shift are still largely unknown. The risks are significant as well, including deepfakes, misinformation, cybersecurity concerns, and much more. Dimon also did not sugarcoat AI's potential effect on the job market: "There is a possibility that AI deployment will move faster than workforce adaptation to new job creation. In prior technological transformations, labor had time to adjust and retrain." The good news is that Dimon does not see AI as an existential threat. It can be avoided if leaders and governments prepare prudently. Some suggestions include incentivizing retraining, providing income assistance, reskilling, early retirement, and relocation for people negatively affected by AI. While Dimon raises many good points, investors shouldn't expect this transition to be smooth. While stressful at times, thinking about what can go wrong can help someone become a better investor over the long haul. This doesn't mean that people have to significantly change their portfolios, especially if they are long-term investors, but it's always a good idea to challenge one's theses.