Sunday, 19 August 2018

This IS Dimon's job

  • Print
  • Share
  • Save

Jim Saft on the inconvenient truth of leading a TBTF bank.

James Saft

James Saft, Reuters Columnist

There is no contradiction: Jamie Dimon remains at JP Morgan not despite it being in line for a record US$13bn fine, but because of what that fine demonstrates.

Jamie Dimon didn’t make this world, he is just playing by its rules, a fact which his board and shareholders are honest enough with themselves to acknowledge.

Dimon, the JP Morgan Chase & Co CEO, has negotiated a tentative US$13bn payoff to settle a number of US investigations into mortgage bonds the bank, and banks it bought during the meltdown, sold to investors.

Though much has been made of the apparent contradiction between leading a bank while it is doing such wrong and holding on to your job after such an expensive penance, the answer is simple: both the before and after are what he is paid to do.

Banks, and don’t let anyone tell you differently, are creatures of government, existing within the current system only because they are granted a license and enjoy the backing of regulators.

If you are a too-big-to-fail bank like JP Morgan you get special privileges; a borrowing rate subsidized by an implied government guarantee and the confidence of knowing that, as your downfall would sow havoc, you are immune to the ultimate sanction

Jamie Dimon didn’t make this world, he is just playing by its rules, a fact which his board and shareholders are honest enough with themselves to acknowledge.

If you run a TBTF bank your job, therefore, is to extract the maximum advantage from your bank’s special position without going so far as to undermine the whole arrangement.

That Dimon has done that is easy to see, both in the bank’s financial performance since the crisis and in the stock market reaction to news of the fine negotiations. JPM shares have rallied strongly on the news and shareholders and analysts have been quick to pledge support for Dimon’s continued leadership.

To be sure, reports have said that the fine agreement will not contain a clause for there to be no criminal charges, something the bank is said to have pushed hard to achieve. Even so, it is unlikely, in the extreme, that even criminal charges, if they come, would be enough to jeopardize JP Morgan’s franchise.

How do we know? Well, for one thing Attorney General Eric Holder told us so in 2012, testifying before Congress that:

“I am concerned that the size of some of these institutions becomes so large that it does become difficult for us to prosecute them when we are hit with indications that if you do prosecute, if you do bring a criminal charge, it will have a negative impact on the national economy, perhaps even the world economy.

“And I think that is a function of the fact that some of these institutions have become too large.”

Town halls, but whose town?

Because that positional advantage may not last forever, and because the careers of its employees certainly won’t, the imperative is to make hay while the sun shines. That, as we have seen, sometimes breeds lawlessness, and if this is exposed, it is the CEO’s job to manage the consequences.

Even Dimon’s attempts to make nice to regulators have an imperial air. He’s held what the bank calls ‘Town Halls’, events at which regulators are given the opportunity to raise questions. While I am sure calling them Town Halls is meant to imply sunny openness and transparency, the fact is that a town hall is held by the people who run a town to give the rest a chance to have their say. Regulators shouldn’t attend town halls, they should hold examinations.

Or consider Dimon’s visit to the Justice Department to meet Holder and negotiate. This evokes Holy Roman Emperor Henry IV’s barefoot trudge through the snow to beg pardon of the Pope. Yes, Dimon is entreating his adversary, and yes, he is making a show of being seen to do so, but he comes as one power acknowledging the province of another.

That is exactly what he is paid to do, and his shareholders and the rest of the investment world generally hold he does it as well as anyone.

If you want that to change, and you should, you have to change not Dimon but the system. In the 19th century, bank presidents couldn’t survive this kind of ignominy because the public would lose confidence in the bank and withdraw support via a run on deposits. Now the public which supplies bank capital need only watch the regulators. As JPM and other TBTF banks so clearly have them over a barrel, investors are happy to continue their support, betting that future takings will, like those of recent years, hugely outweigh costs of doing business like US$13bn fines.

End TBTF, and Holder, Dimon and investors will all quickly change their behavior.

(At the time of publication James Saft did not own any direct investments in securities mentioned in this article. He may be an owner indirectly as an investor in a fund. You can email him at

  • Print
  • Share
  • Save