Inside Financial Services

This JPMorgan Chase Critic Is Just Plain Wrong

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In his open letter to JP Morgan Chase shareholders yesterday,Simon Johnson suggests Morgan be broken up, and all but calls for Jamie Dimon to be fired:[W]e need to look at breaking up JPMorgan Chase into smaller, more manageable parts. The available independent analysis indicates that smaller financial institutions currently attract substantially higher valuations (e.g., price relative to tangible book value) than do the megabanks. My interpretation is that this is largely because the biggest banks are not run in the full interests of shareholders; the operations of these companies are so complex that no one is fully in control. I would also point out that JPMorgan Chase is operating under an effective size cap; it will not be allowed to grow bigger. And the bank was much better run when it was significantly smaller in the mid- and early 2000s. [Emph. added]Morgan better run in the early 2000s than it is now? Er, no, Simon. Johnson doesn’t mention which specific missteps at Morgan have him so addled, but I presume he’s thinking of the London Whale fiasco and the mortgage underwriting issues behind the bank’s $13 billion settlement with the government. Please. The Whale losses never would have been made public but for the fact that Jamie (to his everlasting regret, I’m sure) initially dismissed the issue as a non-event, then had to walk that back when it turned out not to be. Regardless, Morgan still earned $5 billion the same quarter it took the hit, and ended up reporting record profits in 2012. As for the mortgage underwriting lapses, they mainly occurred at two failing predecessor institutions, Bear Stearns and Washington Mutual, that Morgan acquired at the government’s urging.Meanwhile, Morgan was so poorly run following its supposed early-to-mid-2000s golden era that it sailed through the financial crisis scarcely missing a beat and proved to be an important resource for the government as it resolved failing institutions. As the financial system teetered all around it, JPMorgan Chase didn’t lose money a single quarter throughout the crisis. If this is an organization that’s “so complex that no one is fully in control,” we could use more of them.As for organizational changes Johnson proposes (and they are doozies: he has the chief risk officer and general counsel reporting directly to the audit committee and to “a senior executive who is not responsible for profit and loss”), they would only make an organization he concedes is complex and unwieldy even more so. What’s the benefit in that?Johnson’s real beef with the big banks doesn’t seem to have to do so much with their size or complexity, but rather the venality he imagines he sees in the people who run them. “The biggest banks are not run in the full interests of shareholders,” he writes, and he seems to think CEOs can’t be trusted to directly monitor and listen to their top risk managers. All top management cares about, he apparently believes, are their own paychecks.Sorry, I don’t buy that. For one thing, I know most of these guys personally, have for years, and just don’t see it. Sure, there are some big-bank CEOs whose managerial reach exceeds their grasp, and others who may be overpaid. But canny managements at big banks were a huge plus during a time of great crisis. Dick Kovacevich had the insight to realize he could make Wells Fargo’s shareholders a ton of money and keep taxpayers off the hook by buying an ailing Wachovia. Jamie Dimon did well by his shareholders and the government by acquiring WaMu and Bear Stearns. This is not the work of scoundrels, but rather bright, motivated, honorable individuals. Johnson can make plenty of valid points in his criticisms of the big banks. But his apparent underlying assumption that they’re run by bad guys is just wrong.What do you think? Let me know!

12 Responses to “This JPMorgan Chase Critic Is Just Plain Wrong”

  1. Anonymous

    I have owned JPM for many years but it concerns me that I cannot develop a feel for the soundness of the enterprise (or any bank for that matter). Any suggestions?

  2. JohnACritic

    In a nutshell, BIGGER IS NOT BETTER. The more regulation and reporting the better. The big banks especially Morgan have had their way long enough. To big to fail is nonsense and when they do have problems who do they run to? The government ( taxpayer) who they have been screwing for years. Breaking them up is the right way to go and the most safe for the investor and the general public.

  3. Ole

    What we really need to see is some of the top banksters getting some hard time. Not life sentences, but 5 to 10 years would send the message that fraud does not pay.

  4. Jimmie Johnson (Ret.)

    As I age I find it difficult to read small print. Additionally, it is very difficult for me to fax up your pieces to my friends. The font size is far too small for even a state of the art fax machine.
    Is it possible to print in a larger font?
    Jimmie the elder

  5. noddyboffin

    Dimon has gotten a big too big for his britches.He’s a good guy but maybe it’s time to pass the torch to……Kavanagh???

  6. DSB

    I had the pleasure of taking an MBA at NYU and having Roy C. Smith – a former Goldman Sachs partner – as an investment banking professor. At the end of a case study on Salomon Brothers Roy said, “Why would you ever invest in an investment bank?” He said this after looking at the share of revenues consumed by compensation. He said they are run for their employees and not shareholders. I believe the IB sides of these “banks” remain run for the employees with outsized remuneration. Repeal GLB! As for JPM, I was an advocate of Jamie Dimon in the past, but he is long past his sell by date. Tom you comment on profitability as if it is the soul measure of a corporation or a man. It is not, even for long term shareholders. You can’t look at the take down of JPM compiled by Josh Rosner and the emerging issues that can be added to it and not come to the conclusion that JPM is a serial criminal offender. As for Mr. Dimon he clearly broke the law (SARBOX) when he knowingly signed off on a Q he knew to be incorrect.

  7. Alphaman

    I have owned JPM as a result of owning Banc One. Any suggestions as to how I develop a better feel for the soundness of the enterprise?

  8. MacArthur

    So true, Thomas K. I’ll trust Jamie Dimon’s judgement anyday over the dopes who criticize him.

  9. B Tashchuk

    Those of you complaining about small fonts need to download Mozilla Firefox and use it as your browser. Set minimum font size to 18 and most sites are easy to view. This site also works fine in Safari when minimum font is 18. Oh, and both Firefox and Safari nicely increase fonts even more when using the “zoom” command, Command-+. That’s on a Mac. YMMV on a PC.


    Simon Johnson has a very narrow view and understanding of the real challenges of running a bank.He wants a plain vanilla type institution like the U.S. Post Office rather than a complex institution which we need to serve international corporations and large governments and public institutions.It is naive to believe we can eliminate risk which exists by virtue of serving customer demands.Large diversified financial institutions are much better equipted to absorb the potential risk.Lest we forget most of the risk last time around came from trying to help expand housing for folks who could not afford it.And the FDIC fund (and the banking system) benefitted greatly from Chase Morgan assuming the cost of WAMU.

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