Jamie Dimon, chairman and chief executive of JPMorgan Chase and acquirer of Washington Mutual, may no longer be “America’s least-hated big banker” — admittedly a low bar. Last year, he presided over the “London Whale” trading fiasco, a bet gone wrong that cost the bank $6.2 billion. Investigation of the disaster further tarnished the bank’s once glowing reputation. Both the Federal Reserve and the Office of the Comptroller of the Currency censured JPM for poor oversight of its trading (read gambling) and also for lax controls against potential money laundering. A U.S. Senate subcommittee said the bank misled investors.
Now, Dimon is facing a proposal that the chairman and chief executive officer jobs be separated, and three JPM directors not be re-elected when the firm holds its annual meeting May 21st. Institutional Shareholder Services, an investment advisory firm, has backed the initiative. ISS cited “material failures of stewardship and risk oversight.” The three directors targeted are David Cote, James Crown and Ellen Flutter, all on the board’s risk policy committee.
Not to worry. Even Warren Buffett has ridden to Dimon’s defense, telling CNBC that Dimon should keep both jobs. In his annual letter to shareholders, which came out last month, Dimon wrote that the Whale “was extremely embarrassing, opened us up to severe criticism, damaged our reputation and resulted in litigation and investigations that are still ongoing.” He promised to do what it takes to make JPM “the safest and soundest bank on the planet.” But earlier this year he threatened to leave if he loses both jobs, and that worries the Wall Street conventional wisdom, which holds that Dimon is indispensable. Also, note how a similar effort to separate the two jobs turned out at Boeing. At least JPM’s board forced Jamie to take a one-year pay whack to show some accountability.
Separating the two jobs is a cardinal rule for sound corporate governance. The chairman should be the independent leader of an independent board of directors which works for the shareholders. The chief executive officer should be the top manager, the lead hired help of shareholders, and be subordinate to the board. It’s basic checks and balances. But it rarely works that way in large American companies. So don’t look for a change at JPM. Even so, the suspense remains. So far, three big institutional investors are unsure whether Dimon should remain in both positions.
The most telling line in the letter to shareholders was picked out by Halah Touryalai at Forbes. Dimon writes, “I make this promise. We will be a port of safety in the next storm.” So, yes, it’s old news that the Too Big to Fail Banks got even bigger as the result of our bailout from the crisis they created. And that the banksters got away with it. You’re sick of seeing me write this.
What many people don’t know is how weak the Dodd-Frank “re-regulation” has proved to be, how many of its provisions have never even been made into rules because of effective pushback from the big banks and Wall Street, indeed how it is designed to fail. As Yves Smith writes, “the banks getting to have as much influence over it as they have is a feature, not a bug.” How the London Whale was not a blip of the past but an example of a return to risky business that was embraced by even the supposedly smartest and most prudent TBTF. So it’s not just another down cycle that’s inevitable. So is another financial crash, and this time to a much weaker economy.
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Today’s Econ Haiku:
So this is socialism?
Got your back, Wall Street