“This company has been a fortress company. It has delivered to clients and its diversification is the reason why it’s had less volatility of earnings and was able to go through the crisis and never lost money ever, not one quarter.”, Jamie Dimon, JPMorgan Chairman and CEO, January 2015
Excerpt From Mike Perry’s 2011 Personal Statement on this blog: www.nottoobigtofail.org
“In hindsight, any mistakes we made were minor compared to the systemic and macroeconomic events that unfolded in this crisis. If Fannie Mae and Freddie Mac, two government-sponsored, AAA-rated, mortgage firms could not survive (among many others who did not survive or needed unprecedented assistance), how could Indymac? We made it longer than any other major independent home lender, because we were well-managed. We just unfortunately were “Not Too Big To Fail”.
The “ships” that the “Too Big To Fail” CEOs inherited, were bigger, and far more diversified financial institutions, that were built by generations of management over many decades. Some were more than a century old. These institutions and their CEOs also benefited from “Too Big To Fail” credit ratings and cost of funds (as a result their size, age and prior government bailouts/assistance), and despite this advantage, the fact is all of them needed government help to survive this crisis. I have come to terms with that and the fact that Indymac Bank received no government assistance. I have not come to terms with the inconsistency between those facts and the fact that the SEC, FDIC, and others are now seeking to (unfairly and inappropriately) blame me and other honest and capable individuals.”
JPMorgan Chase Chief Says ‘Banks Are Under Assault’
Jamie Dimon, chairman and chief executive of JPMorgan Chase, at a business roundtable in Washington last month.Credit Larry Downing/Reuters
As JPMorgan Chase reported sluggish earnings and potential new legal costs on Wednesday, its chief executive, Jamie Dimon, lashed out at regulators and analysts, including some who are calling for the breakup of what is the nation’s largest bank.
The bank announced that both its revenue and profit were down during the fourth quarter of 2014, with few bright spots across its many business lines.
The bank’s profits were also dragged down by $1 billion it put aside to deal with a government investigation of wrongdoing on its foreign currency trading desks. The bank has also begun preparing for new rules that are expected to be tougher on JPMorgan than any other financial firm.
During conference calls with reporters and analysts, Mr. Dimon sounded like a chief executive under siege.
“Banks are under assault,” Mr. Dimon said in the call with reporters. “In the old days, you dealt with one regulator when you had an issue. Now it’s five or six. You should all ask the question about how American that is, how fair that is.”
This is not the first time that Mr. Dimon has publicly criticized the new scrutiny and rules that banks have dealt with since the financial crisis. But in the past, Mr. Dimon was often confronting skeptics from outside the banking world. On Wednesday, he faced off against several industry analysts who questioned whether the costs associated with JPMorgan’s heft are outweighing the benefits.
“This is not Elizabeth Warren asking the questions,” said Mike Mayo, a bank analyst at CLSA, referring to the Massachusetts senator and outspoken critic of big banks. “Investors are talking about this.”
Mr. Dimon and Marianne Lake, JPMorgan’s chief financial officer, rebutted any suggestion that JPMorgan would need to be broken into smaller parts to be more valuable, and argued that the bank’s size gave it many advantages against competitors — “the model works from a business standpoint,” Mr. Dimon said.
But some of the analysts questioning Mr. Dimon and Ms. Lake did not seem to be satisfied by the answers and suggested that they expected to hear more about the bank’s efforts to change itself.
The company’s share price ended the day down 3.5 percent, at $56.81.
Mr. Mayo, who was one of the first analysts to call for the big banks to be broken up, pointed out on Wednesday that as JPMorgan had continued to grow it had actually become somewhat less efficient, as measured by the ratio between its expenses and revenue.
When the questions about the bank’s future kept coming on Wednesday morning, Mr. Dimon sounded increasingly frustrated with the analysts.
“This company has been a fortress company,” he said. “It has delivered to clients and its diversification is the reason why it’s had less volatility of earnings and was able to go through the crisis and never lost money ever, not one quarter.”
The bank’s fourth-quarter results, while disappointing, were not terrible for shareholders. The bank said its earnings fell 7 percent, to $4.9 billion, or $1.19 a share, from $5.6 billion, or $1.30 a share, in the period a year earlier. The results fell short of the $1.31 a share expected by analysts surveyed by Thomson Reuters.
Net revenue at the bank dropped 3 percent, to $22.5 billion, from the fourth quarter of 2013. On a so-called managed basis, revenue was $23.55 billion, slightly below the $23.6 billion anticipated by analysts.
For 2014 as a whole, JPMorgan reported profit of $21.8 billion, a 21 percent increase over 2013, and the highest ever annual profit for the company.
In the third quarter of 2014, JPMorgan’s Wall Street operations bolstered the results of the bank. But in the fourth quarter, the difficult trading conditions that have hurt profits at Wall Street firms over the last few years returned.
Revenue from JPMorgan’s once-lucrative fixed-income trading business fell 32 percent from the previous quarter and was down 23 percent from the period a year earlier. Much of the decline was because of businesses that JPMorgan had sold. But core trading was also down 14 percent.
JPMorgan’s enormous consumer bank also had a drop in revenue in several areas, including credit cards and mortgages, which has slowed down as the national housing market has cooled off.
The bank has been able to attribute some of its disappointing results in recent years to the enormous fines that it has had to pay for wrongdoing before and during the financial crisis.
But while those legal expenses were expected to eventually recede, they have kept coming. This quarter, JPMorgan set aside $1.1 billion — $990 million after taxes — to deal primarily with an industrywide investigation of manipulation in the foreign currency markets. It set aside a similar amount in the previous quarter, but the potential severity of the wrongdoing appears to have increased since then.
Mr. Dimon said that the bank was still bracing for more fines. “It’s going to cost us several billion dollars more somehow plus or minus another couple billion before we get to normal.”
Mr. Dimon said the bank took responsibility for some of the problems that have led to penalties, but he complained that it had been unfair when multiple regulators had come after the bank for the same issue.
The more enduring challenge for the bank, though, may be the new requirements that the bank maintain higher levels of capital than other banks because of its size.
A Federal Reserve official said in December that JPMorgan would most likely to have to raise over $20 billion of new capital, either by holding on to profits or selling more shares to investors. The bank is the only one that is expected to have to raise significant amounts of new capital.
A bank analyst at Goldman Sachs said this month that because of the price that JPMorgan was paying for its size, it may be worth less in its current form than it would be if it was broken apart. On Wednesday, multiple analysts said that regulators seemed to want JPMorgan to be smaller.
Mr. Dimon acknowledged that there could be a point when the additional costs could force it to spin off some businesses. “If the regulators at the end of the day want JPMorgan to be split up, then that’s what will have to happen,” he said. “We can’t fight the federal government if that’s their intent.”
But Mr. Dimon said that his team was confident that the bank would manage to comply with the rules as they have currently been outlined without any major changes. Invoking patriotism, he warned that if his company was forced to shrink, it could open the door for foreign competitors, especially those from China.
“America has been the leader in global capital markets for the last 50, 100 years,” he said. “I look at it as a matter of public policy. I wouldn’t want to see the next JPMorgan Chase be a Chinese company.”