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"Slimin' Jamie Dimon" Tells Howlers About Persecution of Banks, "Fortress Balance Sheet"

Tuesday, January 20, 2015 By Yves Smith, Naked Capitalism | Op-Ed
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2015.1.20.Dimon.mainJamie Dimon, the chief executive of JP Morgan Chase, arrives to testify before the House Financial Services Committee in Washington, June 13, 2012. (Photo: Daniel Rosenbaum / The New York Times)

Jamie Dimon seems to think if he can tell his Big Lies long enough, he’ll be believed. In reality, the only ones who will buy his blather are his fellow members of the elite banker looting classes and their hired help.

Dimon’s latest opportunity to play Ministry of Truth came in an analysts’ call last week, when he tried presenting JP Morgan and banks generally as “under assault”. This was so patently ridiculous that it quickly elicited the scorn it deserved. For instance, from DS Wright at Firedoglake:

Remember that time the US government broke up all the Too Big To Fail banks and prosecuted bankster executives for the crimes that brought down the financial markets in 2008? Me neither. Yet JPMorgan CEO Jamie Dimon is caterwauling to the media about Wall Street being “under assault” by US regulators.

Dimon’s complaining appeared to be instigated by JPMorgan posting a drop in quarterly profits. JPMorgan recently had to pay legal costs and fines related to a slew of criminal activity that ranged from fraud in the mortgage market, rigging currencies, and participating in the Bernie Madoff Ponzi scheme. The fines which the bank paid were relatively small and no JPMorgan executives were prosecuted. Quite an assault.

Or how about Tim Mullaney at MarketWatch:

J.P. Morgan & Chase’s chief executive officer is taking a well-deserved roasting for complaining Wednesday that “banks are under assault” from regulators, who nastily want them to make good on old misfeasance, while meanly insisting they raise ever-more capital so the 2008 credit crash and near-depression won’t recur. Asked for details, Dimon responded: “Are you kidding?”

Poor baby. He’d be way more convincing if J.P. Morgan’s press office hadn’t been unable to produce a list I requested of all the legal settlements the nation’s biggest bank has been forced to enter in recent years. Neither could Better Markets, a Washington-based consumer watchdog that bedevils the too-big-to-fail set. From enabling Bernie Madoff to manipulating energy markets to defrauding credit-card customers, there are just too darn many scandals for either side to count. Better Markets once tried to make an intern compile a list but gave up — there were so many, at J.P. Morgan and elsewhere, they decided it would take a full-timer, President Dennis Kelleher said.

So, let’s try this as a first principle for post-crash banks: If all lib’rul horses and all P.R. men can’t figure out how many problems you’ve caused, take my sainted late mother’s advice and “shaddap.” That’s “shut up” in Jersey City.

Mind you, it isn’t just that JP Morgan has been cited by regulators for an impressively large list of abuses; it’s also that the Morgan bank is far and away the biggest miscreant of all US banks. As Dave Dayen wrote in March 2013:

As an excellent preview for the Friday fireworks, I urge you to read an astonishing new report, which I’ve embedded below, from analyst Josh Rosner of Graham-Fisher and Co. The best way to describe the report, “JPM – Out of Control,” is that it reads like a rap sheet. Notably, Rosner takes mortgage abuses almost entirely out of the equation, and yet still manages to fill a 45-page report with documented case after documented case of serious fraud and abuse, most of which JPM has already admitted to (at least in the sense of reaching a settlement; given out captured regulatory structure the end result is invariably a settlement with the “neither admit nor deny wrongdoing” boilerplate appended). Rosner writes, “we could not find another ‘systemically important’ domestic bank that has recently been subject to as many public, non-mortgage related, regulatory actions or consent orders.”

In other words, JP Morgan is a hopeless, recidivist lawbreaker. So it should be no surprise that Dimon chooses to demonize regulators who stand between him and more profit rather than clean up his bank’s act.

Dimon’s second beef is the notion that JP Morgan should be broken up, an idea presented by Goldman in a recent analyst’s report. Dimon pushes the “bigger banks are better” fallacy and basically argues that the US needs JP Morgan as some sort of national champion as a defense against the domination of the Chinese. I’m not making that up. Chinese banks are pretty much nowhere as in international banking business, and that’s the best bugaboo he can come up with?

In fact, “universal banking,” the old European banking model, has long been recognized as a bad idea among banking industry experts. Every study of US banks has shown that the basic premise, that large banks are more efficient on a cost basis, isn’t true in practice. Banks exhibit slightly rising cost curves at a not hugely high total asset size (the break point depends on study methodology, but it’s pretty much never higher than $25 billion in assets). So even if there might be actual economies of scale, they appear to be more than offset by diseconomies of scope.

Moreover, it was the smaller, nimble investment banks that put the US in its dominant position in finance in the 1980s, eating the lunches of domestic champions in national markets. And corporate customers don’t want to consume all their services from one bank. They understand that a German bank is going to have better intelligence about and relationships in Germany than any US bank will ever have, so they take a “horses for courses” approach both in geographic markets that are important to them as well as by product line. The idea that being bigger is going to give you an advantage with those selection criteria is barmy.

Having said that, there are areas of banking where being big in that product line pays off, but that does not mean being a honking big bank overall is a plus. To be a capital markets player, you have a high minimum level of required infrastructure: trading operations in the three major time zones (Asia, UK/Europe, US) and offices in many major cities and a large technology platform (ongoing investments in risk analytics, trading and sales software, back office). This means high fixed costs. The more revenue you can pump though these businesses, the better the bottom line. Similarly, in asset management, profits are much more a function of the size of individual funds, not of the size of the asset management business overall.

As the Financial Times explained:

Together with regulatory and investor pressure for higher returns, universal banks have lost their lustre around the world. That is why Mr Dimon had to be creative in imagining a future Chinese threat rather than pointing to a current one in Europe or Japan.

Antony Jenkins, Barclays chief executive, told the FT last month that “the universal banking model is dead” and the bank he took over in 2012 has to be more selective.

Deutsche Bank seems set to be the latest to throw in the towel. Germany’s biggest lender, which until recently was telling analysts it aimed to remain Europe’s last universal bank, is considering spinning off its consumer banking operation as part of a new strategic plan to be announced in the second quarter.

“It is much more incumbent on the few remaining players who are still universal banks to explain and justify why they are sticking at it,” said Marco Mazzucchelli, a senior executive at Switzerland’s Julius Baer who served on a European Union commission that drew up plans for banking structural reform.

“Europe had many universal banks until recently and yet this was inconsequential for economic performance: why should one be concerned if they are no more?” asked Mr Mazzucchelli. “Even if the Americans are not forced to do this by the regulators, they will face pressure to do so from the market.”

Jamie Dimon’s final howler was the repetition of his “fortress balance sheet” canard: “This is a fortress balance sheet company. It is impenetrable. We are stronger than ever.”

Bollocks. If Morgan Stanley had failed, Goldman by its own admission would be next. JP Morgan would have been engulfed by virtue of being the largest clearer of tri-party repo.

In fact, JP Morgan has far and away the biggest regulatory balance sheet hole of any major US bank. From Bloomberg in December:

JPMorgan Chase & Co. (JPM), already facing the highest capital surcharge under international rules, may need more than $20 billion in additional capital by 2019 to meet a new Federal Reserve requirement.

The Fed laid out a plan yesterday for boosting surcharges for eight large U.S. firms beyond those already levied on the world’s biggest banks by global regulators. While the Fed stopped short of specifying the buffers for each company, it said they probably will range from 1 percent to 4.5 percent based on last year’s data — exceeding the maximum of 2.5 percent set internationally. The eight banks would need a total of $21 billion to comply, Fed officials said in a briefing.

JPMorgan “was the firm that is actually going to have to come up with more capital,” Fed Vice Chairman Stanley Fischer said in a subsequent meeting. He said one bank was $22 billion shy and “that seemed a pretty impressive shortfall.”

In other words, Jamie Dimon is his bank writ large: bullying, dishonest, and an unrepentant lawbreaker.

This piece was reprinted by Truthout with permission or license. It may not be reproduced in any form without permission or license from the source.

Yves Smith

Yves Smith has been in and around finance for more than 30 years as an investment banker, management consultant to financial institutions across a large range of wholesale banking and trading markets businesses, and a corporate finance adviser. She has also written for The New York Times, Al Jazeera, the New Republic, Salon, the Conference Board Review, the Australian Financial Review and other financial publications. Her TV appearances include NBC News, CNBC, Fox Business, PBS, Bill Moyers, The Real News Network, Democracy Now!, Russia TV, ABC (Australia), Al Jazeera and BNN (Canada). Follow her on Twitter: @yvessmith.

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"Slimin' Jamie Dimon" Tells Howlers About Persecution of Banks, "Fortress Balance Sheet"

Tuesday, January 20, 2015 By Yves Smith, Naked Capitalism | Op-Ed
  • font size decrease font size decrease font size increase font size increase font size
  • Print

2015.1.20.Dimon.mainJamie Dimon, the chief executive of JP Morgan Chase, arrives to testify before the House Financial Services Committee in Washington, June 13, 2012. (Photo: Daniel Rosenbaum / The New York Times)

Jamie Dimon seems to think if he can tell his Big Lies long enough, he’ll be believed. In reality, the only ones who will buy his blather are his fellow members of the elite banker looting classes and their hired help.

Dimon’s latest opportunity to play Ministry of Truth came in an analysts’ call last week, when he tried presenting JP Morgan and banks generally as “under assault”. This was so patently ridiculous that it quickly elicited the scorn it deserved. For instance, from DS Wright at Firedoglake:

Remember that time the US government broke up all the Too Big To Fail banks and prosecuted bankster executives for the crimes that brought down the financial markets in 2008? Me neither. Yet JPMorgan CEO Jamie Dimon is caterwauling to the media about Wall Street being “under assault” by US regulators.

Dimon’s complaining appeared to be instigated by JPMorgan posting a drop in quarterly profits. JPMorgan recently had to pay legal costs and fines related to a slew of criminal activity that ranged from fraud in the mortgage market, rigging currencies, and participating in the Bernie Madoff Ponzi scheme. The fines which the bank paid were relatively small and no JPMorgan executives were prosecuted. Quite an assault.

Or how about Tim Mullaney at MarketWatch:

J.P. Morgan & Chase’s chief executive officer is taking a well-deserved roasting for complaining Wednesday that “banks are under assault” from regulators, who nastily want them to make good on old misfeasance, while meanly insisting they raise ever-more capital so the 2008 credit crash and near-depression won’t recur. Asked for details, Dimon responded: “Are you kidding?”

Poor baby. He’d be way more convincing if J.P. Morgan’s press office hadn’t been unable to produce a list I requested of all the legal settlements the nation’s biggest bank has been forced to enter in recent years. Neither could Better Markets, a Washington-based consumer watchdog that bedevils the too-big-to-fail set. From enabling Bernie Madoff to manipulating energy markets to defrauding credit-card customers, there are just too darn many scandals for either side to count. Better Markets once tried to make an intern compile a list but gave up — there were so many, at J.P. Morgan and elsewhere, they decided it would take a full-timer, President Dennis Kelleher said.

So, let’s try this as a first principle for post-crash banks: If all lib’rul horses and all P.R. men can’t figure out how many problems you’ve caused, take my sainted late mother’s advice and “shaddap.” That’s “shut up” in Jersey City.

Mind you, it isn’t just that JP Morgan has been cited by regulators for an impressively large list of abuses; it’s also that the Morgan bank is far and away the biggest miscreant of all US banks. As Dave Dayen wrote in March 2013:

As an excellent preview for the Friday fireworks, I urge you to read an astonishing new report, which I’ve embedded below, from analyst Josh Rosner of Graham-Fisher and Co. The best way to describe the report, “JPM – Out of Control,” is that it reads like a rap sheet. Notably, Rosner takes mortgage abuses almost entirely out of the equation, and yet still manages to fill a 45-page report with documented case after documented case of serious fraud and abuse, most of which JPM has already admitted to (at least in the sense of reaching a settlement; given out captured regulatory structure the end result is invariably a settlement with the “neither admit nor deny wrongdoing” boilerplate appended). Rosner writes, “we could not find another ‘systemically important’ domestic bank that has recently been subject to as many public, non-mortgage related, regulatory actions or consent orders.”

In other words, JP Morgan is a hopeless, recidivist lawbreaker. So it should be no surprise that Dimon chooses to demonize regulators who stand between him and more profit rather than clean up his bank’s act.

Dimon’s second beef is the notion that JP Morgan should be broken up, an idea presented by Goldman in a recent analyst’s report. Dimon pushes the “bigger banks are better” fallacy and basically argues that the US needs JP Morgan as some sort of national champion as a defense against the domination of the Chinese. I’m not making that up. Chinese banks are pretty much nowhere as in international banking business, and that’s the best bugaboo he can come up with?

In fact, “universal banking,” the old European banking model, has long been recognized as a bad idea among banking industry experts. Every study of US banks has shown that the basic premise, that large banks are more efficient on a cost basis, isn’t true in practice. Banks exhibit slightly rising cost curves at a not hugely high total asset size (the break point depends on study methodology, but it’s pretty much never higher than $25 billion in assets). So even if there might be actual economies of scale, they appear to be more than offset by diseconomies of scope.

Moreover, it was the smaller, nimble investment banks that put the US in its dominant position in finance in the 1980s, eating the lunches of domestic champions in national markets. And corporate customers don’t want to consume all their services from one bank. They understand that a German bank is going to have better intelligence about and relationships in Germany than any US bank will ever have, so they take a “horses for courses” approach both in geographic markets that are important to them as well as by product line. The idea that being bigger is going to give you an advantage with those selection criteria is barmy.

Having said that, there are areas of banking where being big in that product line pays off, but that does not mean being a honking big bank overall is a plus. To be a capital markets player, you have a high minimum level of required infrastructure: trading operations in the three major time zones (Asia, UK/Europe, US) and offices in many major cities and a large technology platform (ongoing investments in risk analytics, trading and sales software, back office). This means high fixed costs. The more revenue you can pump though these businesses, the better the bottom line. Similarly, in asset management, profits are much more a function of the size of individual funds, not of the size of the asset management business overall.

As the Financial Times explained:

Together with regulatory and investor pressure for higher returns, universal banks have lost their lustre around the world. That is why Mr Dimon had to be creative in imagining a future Chinese threat rather than pointing to a current one in Europe or Japan.

Antony Jenkins, Barclays chief executive, told the FT last month that “the universal banking model is dead” and the bank he took over in 2012 has to be more selective.

Deutsche Bank seems set to be the latest to throw in the towel. Germany’s biggest lender, which until recently was telling analysts it aimed to remain Europe’s last universal bank, is considering spinning off its consumer banking operation as part of a new strategic plan to be announced in the second quarter.

“It is much more incumbent on the few remaining players who are still universal banks to explain and justify why they are sticking at it,” said Marco Mazzucchelli, a senior executive at Switzerland’s Julius Baer who served on a European Union commission that drew up plans for banking structural reform.

“Europe had many universal banks until recently and yet this was inconsequential for economic performance: why should one be concerned if they are no more?” asked Mr Mazzucchelli. “Even if the Americans are not forced to do this by the regulators, they will face pressure to do so from the market.”

Jamie Dimon’s final howler was the repetition of his “fortress balance sheet” canard: “This is a fortress balance sheet company. It is impenetrable. We are stronger than ever.”

Bollocks. If Morgan Stanley had failed, Goldman by its own admission would be next. JP Morgan would have been engulfed by virtue of being the largest clearer of tri-party repo.

In fact, JP Morgan has far and away the biggest regulatory balance sheet hole of any major US bank. From Bloomberg in December:

JPMorgan Chase & Co. (JPM), already facing the highest capital surcharge under international rules, may need more than $20 billion in additional capital by 2019 to meet a new Federal Reserve requirement.

The Fed laid out a plan yesterday for boosting surcharges for eight large U.S. firms beyond those already levied on the world’s biggest banks by global regulators. While the Fed stopped short of specifying the buffers for each company, it said they probably will range from 1 percent to 4.5 percent based on last year’s data — exceeding the maximum of 2.5 percent set internationally. The eight banks would need a total of $21 billion to comply, Fed officials said in a briefing.

JPMorgan “was the firm that is actually going to have to come up with more capital,” Fed Vice Chairman Stanley Fischer said in a subsequent meeting. He said one bank was $22 billion shy and “that seemed a pretty impressive shortfall.”

In other words, Jamie Dimon is his bank writ large: bullying, dishonest, and an unrepentant lawbreaker.

This piece was reprinted by Truthout with permission or license. It may not be reproduced in any form without permission or license from the source.

Yves Smith

Yves Smith has been in and around finance for more than 30 years as an investment banker, management consultant to financial institutions across a large range of wholesale banking and trading markets businesses, and a corporate finance adviser. She has also written for The New York Times, Al Jazeera, the New Republic, Salon, the Conference Board Review, the Australian Financial Review and other financial publications. Her TV appearances include NBC News, CNBC, Fox Business, PBS, Bill Moyers, The Real News Network, Democracy Now!, Russia TV, ABC (Australia), Al Jazeera and BNN (Canada). Follow her on Twitter: @yvessmith.