Inside Financial Services

Jamie Dimon’s Big Regret

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Speaking to Bloomberg, Jamie Dimon laments JPMorgan Chase’s acquisition of Bear Stearns:

[S]ome of the best people in this company came from Bear. But, boy, we’ve paid a price that’s way beyond anything I could have imagined. I would say up to $20 billion in total. The additional costs have been so high at this point, and the damage to our reputation—in hindsight, we made a mistake agreeing to do it. This company would have had a lot less reputational damage if we weren’t involved in those two deals, even though we value our people and did them at the urging of our government. [Emph. added.]

Jamie’s right. J.P. Morgan bought Bear Stearns, which was failing at the time, at the request of the government. It bought Washington Mutual five months later under the same circumstances.  And a good thing too: both transactions served to forestall the chain reaction of panic that actually happened the next year when Lehman Brothers went under and, soon after, caused the world to turn upside down.  But despite their pledges otherwise, the feds came after J. P. Morgan later on for lending abuses committed by WaMu and Bear before the company owned them. As Jamie notes, the settlements Morgan eventually agreed to were tremendously costly. End result: JPMorgan Chase can be counted on to never, ever enter into a government-assisted transaction to take over a failing financial institution. “I couldn’t do it. My board wouldn’t allow me,” he said on the topic in 2012.

You are thinking to yourself that Morgan should be responsible for any misdeeds on the part of companies it acquired. When you make an acquisition, you buy the bad with the good. Besides, the government made sure company paid an attractive price.

Maybe. Still, what an insanely shortsighted regulatory decision by the government. Put aside the sheer unfairness of it all. Why should Morgan’s management be held to account for a predecessor management’s poor decision—especially when it was assured by the government it wouldn’t be? More to the point, the next time there’s a financial crisis (and there will be, believe me) a key tool the government uses to tamp out fires early—assisted transactions of failing institution by healthy ones–won’t be available. CEOs will look at Morgan’s experience with WaMu and Bear Stearns and will know that, if they do a deal, they’ll be placing a huge potential liability on the institutions they run. The decisions won’t even be close. The alternative for the government will either to bail out the institution directly (that will be popular) or let it go and hope for the best.

What a disaster. Dodd-Frank supposedly made the financial system safer and more stable. Perhaps. But dumb decisions by regulators after the last crisis surely made it less so.

What do you think? Let me know!

10 Responses to “Jamie Dimon’s Big Regret”

  1. Anonymous

    Both here and at Bof A where was an experienced emerging market dealer to work out the buy-side hold-harmless which the feds would have to ratify for compliance purposes?
    Real nine-to-five response to huge crises with myriad contingencies!

  2. BC in IL

    Hasn’t BofA’s acquisition of Countrywide for $2 Billion (at USG’s request) cost them at least an additional $55 B so far? Heckuva deal!

  3. etoleary

    It does seem unfair to JPMorgan although there’s a long string of precedents supporting the government’s actions. To me, this illustrates that we have not solved the TBTF problems and concerns. If JPM and others will deliberately avoid transactions without a cap on their liability, then the government loses an important resource in dealing with events with catastrophic consequences. The next set of problems with the potential to seriously destabilize our financial infrastructure may not appear in any orderly way. Dramatic action that’s not possible to anticipate clearly in advance may be needed. Then what?

  4. Fsops

    I am glad to see Dimon mention that most of JPM problems were due to the institutions that they let the government foist on them. Of course, if you buy a sick milking cow cheaply and it does not produce who can you blame………let the buyer beware!

  5. Taymour ezzat

    The regulators on both sides of the Atlantic are causing enrmous damage to markets and banking institutions. I used to think it was less than the damage the banks caused pre 2008 but increasingly I fear it is more damaging to the wellbeing of our economies. I can only hope that the pendulum swings back but it may take a financial crisis where the regulatory damage becomes clearer before that happens.

  6. Mr. Bill

    Jamie should have gotten Donald Trump to negotiate the deal for him.

  7. Bill c

    Think of the dollars TODAY it would take to seriously prevent the TBTF issue years from now. That money would have to sit IDLE where no one would have attachment to same.
    Such a system dumping dollars into a rainy day fund that should by definition really be in cash!! would leave the US uncompetitive, period.
    The people of our country paid for the bailout 7-ish years ago. When I weigh the “10-20 -30 year waste” in creating a TBTF Fund today versus allowing that same money to multiply through economy today…it is a No Brainer!

  8. Lenny the Lumberjack

    I guess the government would rather experience “gales of non-creative destruction” and have a major cleansing of the financial system next time? Of course, what survives will be anything but robust and the resulting depression will be global in scope. Cheers.

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