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Wednesday, 23 July 2014

Lame whale

JPMorgan board goes soft on Jamie Dimon over whale

JPMorgan has gone soft on Jamie Dimon over the so-called whale trade. The bank’s 132-page report into $6.2 billion-worth of losses dishes out blame to several now departed managers. But it just echoes the chairman and chief executive’s own mea culpa. The more than $10 million docked from Dimon’s pay will sting, but the board could do more – like removing one of his hats.

To be fair, Dimon didn’t shy away from his and the bank’s failings. After initially calling news of the money-losing trades in JPMorgan’s chief investment office last year “a tempest in a teapot,” he faced up to them, defending the bank in front of the media, lawmakers and shareholders and accepting he had not paid enough attention. The lapse was a particular blow because JPMorgan had been considered the best managed bank on Wall Street through the financial crisis.

The bank’s task force report heaps a good portion of the blame on people who reported directly to Dimon, including former CIO head Ina Drew, ex-finance chief Douglas Braunstein and former Chief Risk Officer Barry Zubrow. Drew was bundled out, Zubrow is retiring, and Braunstein was replaced as finance chief. Yet when it came to Dimon, the task force said its views were “consistent with the conclusions (Dimon) himself has reached” about the firm’s and his own shortcomings.

The board has made a statement by paying Dimon only half what he pocketed for 2011 – though $11.5 million is still a pretty good living, and reflects the bank’s record profit in 2012. Yet when a big risk management failure occurs, directors need to consider options more radical than the mostly procedural and reporting changes that have already been made.

One could be to split the roles of chairman and CEO. A well-chosen chairman provides a check on a CEO’s powers. In one indication that this can work, GMI Ratings last year concluded that an executive pulling double duty can earn 50 percent more than the total pay of two people performing the top jobs separately. An independent chairman could galvanize and maybe refresh JPMorgan’s board. Perhaps most importantly at a complex bank, a chairman could also share the load as the bank’s figurehead, allowing Dimon to spend more time making sure the next whale trade doesn’t fall through the cracks.

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Context News

JPMorgan on Jan. 16 reported net income of $5.7 billion, or $1.39 per share, beating analyst expectations. The U.S. bank’s return on equity fell slightly from the previous quarter to 11 percent. The firm’s deposit-to-loan ratio rose to 163 percent from 156 percent in the same quarter in 2011.

The bank’s board also said it cut Chairman and CEO Jamie Dimon’s 2012 compensation by half to $11.5 billion from the prior year after failures in the bank’s chief investment office that led to $6.2 billion in losses. The company also published the findings of an internal investigation into the matter.

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