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Laying it bare

24 December 2014 By Antony Currie

JPMorgan is following Goldman Sachs’ lead by baring some of its soul. The bank run by Jamie Dimon last week unveiled a 96-page publication entitled “How we do business: The report.” Like its rival’s business standards review almost four years ago, the volume is laden with PR-speak, along with some worrying admissions and much-needed improvements.

The idea for the report came from on high, in a manner of speaking – not from Dimon’s office, but from shareholders led by the Sisters of Charity of Saint Elizabeth. In recent years this group has pushed banks like JPMorgan and Bank of America to improve practices in corporate governance and disclose more.

There aren’t too many similarities with Goldman’s 2011 effort. In part that’s because JPMorgan did some things better already – it has a deserved reputation for clearer financial reporting than most, for example. One thing that seems to be lacking, though, is any explicit input from clients, whereas Goldman commissioned an independent survey as part of its review.

In addition, Goldman used its eight-month process to come up with recommendations. JPMorgan, on the other hand, is mostly laying out what it has already done.

This includes beefing up risk-management procedures and ensuring that a group responsible for valuing some assets and liabilities now covers the bank’s entire holdings. In addition, the report lays out how much extra the bank spent this year – $1.7 billion – and how many extra employees it has added since 2012 – 16,000 – to improve its compliance and control efforts.

Earlier this year the firm also set up what it is calling the SDX (shareholder-director exchange) Protocol. That’s because directors seemed too cozy with Dimon and inattentive to investors in the wake of the so-called London Whale trading fiasco that cost the bank around $6 billion.

JPMorgan reveals some worrying bloopers, too, such as discovering it needed to overhaul control processes for its dealings with foreign banks.

There’s always more to do. For instance, the recent hack of the bank’s systems may have been made easier by a neglected server for which security hadn’t been upgraded, according to the New York Times’ DealBook. The report is now promising to build a “fortress technology foundation” to bolster its cybersecurity. That, the rest of the report and JPMorgan’s actions should settle investors’ nerves somewhat. Of course, that also means that future failures will be harder to explain away.

 

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