By Pam Martens: May 24, 2013
For five solid years, the highs and lows of JPMorgan’s Chairman and CEO, Jamie Dimon, have been splashed across the headlines of the business press. First he was the Wall Street hero who came through the 2008 financial crisis unscathed. He sprinkled the phrase “fortress balance sheet” throughout his media interviews. He lectured Washington against over-regulating big banks (despite the fact they had just collapsed the largest economy in the world). He called international plans to require more bank capital reserves “anti-American.” He was the reigning King of Wall Street and he relished the limelight.
And then, in an instant, the King’s crown was tarnished. His glib tongue uttered the immortal words “tempest in a teapot” over outsized bets by his derivatives traders in London, only to have to eat back that phrase, letter by letter, billion by billion in reported losses over the next year.
When Dimon stopped reporting the losses on what became known as the London Whale episode, the loss tallied up to $6.2 billion. The scandal could not be squelched. The trades were made with deposits at the bank – not with the firms’ own capital. The regulators had been kept in the dark as the losses piled up. The trades were made in a highly risky, illiquid derivatives index and transacted in London, away from the dozens of bank examiners on site in New York.
Dimon was hauled before multiple hearings in Congress over the London Whale losses and used a feisty, sometimes arrogant tone. Lawsuits piled up showing the bank had not, in actuality, come through the financial crisis unscathed. As we reported last November, JPMorgan has shelled out over $16.1 billion in just the last three years for legal expenses, according to their SEC filings.
This week corporate media buzzed and titillated over whether JPMorgan investors would vote in favor of a shareholder proposal to effectively demote Dimon, stripping him of the Chairman title but leaving him as CEO. As insane as this sounds, the JPMorgan Board of Directors lobbied to keep Dimon firmly in control in both posts at the bank. CNBC reported yesterday that “Board members were dispatched to convince large investors to vote against the proposal. Some were strategically paired with investors over whom the board thought they might have the most influence. Executives held calls with big institutional clients.”
Somehow, someway, Teflon Jamie walked away with only 32 percent of shareholders voting to split the roles of Chairman and CEO.
CNBC called Dimon’s victory a “landslide.” That hardly captures what is happening at JPMorgan, the country’s largest bank and a too-big-to-fail colossus that could blow up the economy if it is not properly managed.
This was not a Presidential election where getting a large majority of the vote against another candidate delivers a mandate to the winner. Dimon was running against himself. A third of JPMorgan’s owners – its shareholders – gave Dimon a no-confidence vote; that included some of the largest pension funds in America.
Banks have no real currency other than confidence. The deposits of large banks are tied up in illiquid real estate and private equity, in trillions of dollars of interest rate swaps, in commercial loans, mortgage debt and credit card receivables. If even a small percent of a bank’s shareholders don’t have complete confidence in management, that’s a bank with a problem.
How could a responsible Board of Directors not see this. (Three of the directors, in fact, all on the risk committee, received less than 60 percent of the shareholders’ votes themselves. Another vote of no confidence.)
Earlier this year, in a public forum, Wall Street analyst, Mike Mayo, asked Dimon a question about whether higher capital at rival bank UBS might create a competitive advantage against JPMorgan. Dimon responded: “You would go to UBS and not JPMorgan?”
Mayo: “I didn’t say that; that’s their argument.”
Dimon: “That’s why I’m richer than you.”
When the history books are written on this era, my bet is that the culture that systemically corrupted the financial system, the political system, the economic system, and the Boards of major corporations, will be captured in that phrase: it was just about being “richer than you.”