The shock news of the day, or not, is that Bloomberg’s reporters have been spying on their customers.
Or that’s the suspicion anyway, and was kicked off by Goldman Sachs complaint that a reporter from Bloomberg had telephoned to find out why an employee of the bank had not logged on to their Bloomberg terminal yet. Had they lost their job?
Apparently, reporters at Bloomberg did the same in 2012 when trying to find out what was going on at JPMorgan over their London Whale incident. There are also concerns that they may have been tracking Tim Geithner, US Treasury Secretary, and Ben Bernanke, Head of the Federal Reserve.
Walking around Davos, we stumble across a small enclave of bank chiefs sharing breakfast. In this case, Demon, Blankfine, Jinkens and Gilliver, the CEOs of JPM, GSachs, Barcs and HBSC respectively.
After discussing the economic backdrop, with a hot South America countering a consumerising Asia, it’s time to move on to looking specifically at the banking outlook, which is grim.
Or is it?
So all of the UK media were up in arms over the selection of Mark Carney as the new Governor of the Bank of England.
Why such furor?
Because they were all duped into not seeing him as being off the radar, with most bets on Deputy Governor of the Bank, Paul Tucker, to take over.
Paul got besmirched in the LIBOR scandal during the summer, but was still viewed as #1 choice.
If not him, folks like Adair Turner, chairman of the Financial Services Authority; John Vickers, a former BOE chief economist and the chairman of the government's Independent Commission on Banking; and Terry Burns, former Treasury permanent secretary and non-executive chairman of Santander UK were seen as front runners.
This was because the other choices, including Mark Carney, had ruled themselves out.
It surprises me that banks rarely get lauded and applauded, as it is far easier to critique and blast.
A good example is the post Hurricane Sandy fallout, where banks in the USA are doing everything they can to support hard hit Americans.
I didn’t see much about this in the news generally but, whilst following a few tweets, discovered that most US banks are waiving fees and doing the right thing.
A few examples .
Interbrand published their Global Top Brands report yesterday, which makes for interesting reading.
The world’s most valuable brand is still Coca-Cola, followed closely by Apple and IBM.
Tech firms feature heavily in the list, with Google and Microsoft in fourth and fifth place, Intel in eighth and Samsung in ninth and Oracle, in eighteenth place, is one of the fastest risers.
Even Facebook, that seven-year-old upstart, gets in on the act in 69th place.
Meantime, the financial brands take a big hit with Barclays and UBS disappearing from the Top 100 (they were 79th and 94th most valuable brands last year), and many others losing traction.
American Express is the top financial brand in 24th place, 23rd last year.
JPMorgan comes in at a respectable 32nd, although that’s four down from last year’s 28th.
And most others see a big drop, particularly Credit Suisse (95th this year, down from 82nd last year).
Here’s the sector review and individual brand reviews from this year’s report, and you can download last year’s complete report if you want a comparison.
There’s a great interactive review of investment banking markets on the Financial Times today.
The chart compares the fortunes of ten investment banks: Bank of America; Barclays; Citi; Credit Suisse; Deutsche; Goldman Sachs; JPMorgan; Morgan Stanley; Royal Bank of Scotland; and UBS.
You can check out how their revenues, employee numbers and market capitalisation has changed since this crisis began in September 2008 through to the end of September 2012.
The numbers may surprise you.
The shock news this week is that JPMorgan, that mighty institution of financial stability that has steered through this crisis with ease and made Jamie Dimon, its CEO, the sage of finance … has been rocked by a trading scandal on the scale of a Nick Leeson, Jerome Kerviel and Kweku Adoboli.
This time the culprit is Bruno Michel Iksil.
Iksil struck fear into other bankers, for being the biggest better in London. Known as the London Whale – or within banking circles he was often referred to as Voldemort after the evil wizard who cannot be named in the Harry Potter series – he reportedly was earning around $100 million a year.
And yet the share price of JPMorgan was savaged over the weekend – dropping over 10 percent – as news was released of a $2 billion loss on his trading operations.
The losses were made in the last six weeks as investments made by Iksil went wrong, and may actually be significantly greater.
What had Iksil done that could go so wrong?
Well, his job was to hedge JPMorgan’s investments, which he achieved with credit default swaps (CDS). However, as his overblown position became so clear, hedge funds and other investment firms targeted Iksil’s investments and bet against them.
In other words, everything that Iksil was hedging against would go wrong as others invested in the opposite direction.
The fact that one trader could amass such losses raises big question about the role of JPMorgan’s internal investment office and the Chief Investment Officer, Ina Drew, whose department has built up a portfolio of securities worth $361 billion in the last few years.
According to the Financial Times, one banker who recently left JPMorgan’s investment unit said:
“It’s embarrassing that we had hedge funds openly complaining about the big whale – clearly this was a position that was too big. Either the CIO should have found other ways to hedge, or reduced the underlying position, or this was a directional bet, which wasn’t in the mandate.”
In an interview with American television network NBC, Jamie Dimon said: “we got very defensive and people started justifying everything we did ... we told you something that was completely wrong a mere four weeks ago.”
Four weeks ago, JPMorgan released quarterly trading figures that looked startlingly good.
Doesn’t look so good now and the real downside is that Dimon himself has been leading the march against the Volcker Rule to close down proprietary trading, claiming that there is no such thing as “casino capitalism”.
Just a few months ago, in an interview with Fox Business Network, he dismissed Volcker as possibly creating regulations that “destroy” U.S. capital markets or let it “go overseas”. The usual scaremongering, and followed it up by saying that monitoring hedging risks through trading would mean that every trader would have “a lawyer, compliance officer, doctor to see what their testosterone levels are, and a shrink”.
Maybe they should!
He also says: “we don't make huge bets” when being a market maker.
Uh-oh, feeling some Shadenfreude creep.
The interview in full for those who are interested (13th February 2012):
Meantime, the fallout from this is expected to be huge, with Ina Drew likely to lose her job and some even saying Dimon will get cut down.
I doubt the latter, but the former is inevitable.
A story we’ll all be watching closely and waiting for another big whale, Goldman Sachs – or is that a squid? – to follow suit.
More information on JPMorgan's issue below:
Fancy a tongue twister?
Howsabout bankers big bonuses bashed by broadcasters but better being bashed by bank bosses.
Nah. Doesn't quite work as well as six swans swimming, swim swans swim, six swans swam, well swum swans, but it almost works.
What's all this about?
Well, Bloomberg released the latest news on bankers' bonuses this morning, and here's the league table:
Company Compensation Employees Compensation per Employee
Bank of America $26.3bn 284,169 $92,723
Citigroup $18.64bn 258,000 $72,264
Credit Suisse CHF11.23bn 50,500 CHF222,337
Deutsche Bank EU9.59bn 82,504 EU116,285
Goldman Sachs $13.72bn 35,400 $387,655
JPMorgan Chase $21.55bn 236,810 $91,014
Morgan Stanley $11.99bn 62,864 $190,682
UBS CHF13.14bn 64,583 CHF203,506
Note: 1CHF:1.02US$ and 1EU:1.41US$
You may be going "wow", but take note: "While average pay per employee has dropped 0.8 percent this year at the eight banks, it has fallen 11 percent at six that focus most on trading, such as Goldman Sachs and the investment bank unit of Credit Suisse Group AG."
Gawd, I hate acronymns and look at that! Three in one blog entry title!!!
Anyways, for the nerdy-nerd equities guys, this will grab their attention.
It's all to do with trading in European and American stocks and shares using High Frequency Trading (HFT) systems, and the regulations therein with EU MiFID rules applying over here and USA RegNMS rules applying over there.
These rules are going to be overhauled soon thanks to the Flash Crash, that dreaded thing that caused US stock markets to go haywire on May 6th. There has been lots and lots written about the Flash Crash of May 6th, but there’s not been a great deal saying it was a good thing ... until you meet JPMorgan.
In this week’s Eye on the Market, they identify five things they like about the Flash Crash, namely: Stock-specific circuit breakers. The U.S. has been slow to install circuit breakers on major exchanges, relying instead on “clearly erroneous trade rules” that cancel trades after the fact. In Asia and Europe, circuit-breakers have been around for a while. In Asia, trading is restricted outside of pre-specified daily bands of 5%, 10% and 15% (different by market). In Europe (e.g., Deutsche Bourse), trading is halted for 5 minutes after a 3%-10% move, and then reopened. In the wake of the Flash Crash, 10% circuit breakers are now applied to a few stocks as part of a pilot program (they have already been triggered on Citigroup, Anadarko and the Washington Post Company). If we are going to exist in a world with automated robots doing the lion’s share of daily trading, circuit breakers may be needed to prevent unintended and unmanageable meltdowns.Another topic under discussion by the SEC: prevent HFTs from having “unfiltered, naked access” to the exchanges by requiring them to live by the same pre-trade risk management controls that clearing members do. Why? As noted by the Chicago Fed, “high-frequency trading has the potential to generate errors and losses at a speed and magnitude far greater than that in a floor or screen-based trading environment”. More balance to the HFT discussion. HFT supporters claim they are providers of liquidity to the market, and that HFT makes U.S. markets more efficient than ever. Suggestions to the contrary have been deemed “utterly laughable” by firms defending them. However, the Flash Crash highlights the uncertainties around these assertions.While volumes have tripled in the last few years, there’s a big difference between volume and liquidity (the ability to transact without moving the price). In an industry barometer survey1 conducted by the Tabb Group in May of this year, barely half the participants had a high degree of confidence in the US equity market structure; 73% did not believe the market structure is “orderly”. One of the survey recommendations: HFTs should be required to register as broker-dealers.To be sure, there were weaknesses in the old specialist system as well2. But specialists were required to maintain a fair and orderly market, and post quotes that were part of the National Best Bid and Offer system; their reputations mattered. HFTs have no such requirements (no minimum shares or minimum quote times); one proposal would require quotes to be valid for at least one second. The SEC has broadened the trader reporting system in order to analyze HFT activity more closely. Proposals requiring HFTs to act more like the floor specialists they’re replacing. With the advent of HFTs, cancelled orders have soared. Today’s ratio of 30 cancelled orders for each one executed means that 97% are cancelled.To curb abusive practices, some market participants recommend applying a fee to HFTs for an excessive number of cancelled orders. The increase in cancelled orders is one reason we do not agree that increased order depth on S&P 500 stocks at the NBBO is a clear indication of greater liquidity, as some market research alleges. Quotes pulled within a nano-second of being posted, and which are part of an algorithmic order detection exercise, don’t seem like liquidity in the traditional sense. Ameritrade’s representative on the recent SEC Roundtable referred to this as “opportunistic liquidity”. More discussion around HFT “co-location”. Some HFTs co-locate computer servers inside stock exchanges3 to minimize the milliseconds (or nanoseconds) required to scan existing orders, and have algorithms act on this information. As trading execution and IPO listing fees declined, exchanges have tried to make up the difference by selling access to market data. Some exchanges have products which give clients a faster look at quotes, in exchange for a fee. As a result, some HFTs end up with access to information sooner than institutional or retail investors who rely on more standard venues (such as SIP Quotes).The search for co-location benefits has existed forever (in polite company, “order anticipation strategies”). Broker-dealers in past decades argued that being closer to floor traders on the CBOT was an advantage to their clients. But historical parallels can lose their meaning when the instruments of battle change: one HFT computer can reportedly decode more than 5 million messages per second. The Flash Crash has increased the debate around whether co-location confers advantages to HFTs, and whether there should be obligations and responsibilities that accompany them. Asset managers learn that “cheapest <> best”. After the NYSE moved to decimalization in 2001, bid-offer spreads fell almost in half on S&P 500 stocks (less so for the Russell 2000 stocks, where HFTs are less active). Schwab retail commissions fell from $35 in 2003 to less than $10 in 2009. This trend is confirmed by broader research from the American Association of Individual Investors. So if the prism of success is bid-offer costs and commissions on individual trades, the battle has been won.But is that the right prism to define what makes an optimal marketplace? Part of the HFT industry tracks the order flow of larger investors who leave electronic footprints4. Using algorithms which include spraying the tape with thousands of quotes, the intentions of large investors is ferreted out. This can result in higher trading costs for such investors, and by extension, their clients, who include 401k investors, and pensioners participating in state and corporate plans. Quantitative Services Group computes analyses of HFT impacts on execution costs. They estimate that HFT tracking algorithms can drive execution costs up 1.5 to 3 times, even when institutional investors parcel trades into smaller orders to avoid detection.
There’s lots more of interest in their report, which you can read in full and download if you want:Meanwhile, you may note that a lot of it is about High Frequency Trading (HFT), which I’ve written quite a bit about recently:
This means that this area is going to get regulated, and it will mean significant restructuring. For example, back in January, the SEC started a consultation through the Concept Release - on HFT and more.
Key areas under review include:Market Quality MetricsWhat are the best metrics for assessing market quality for long-term investors and have these metrics improved or worsened in recent years?Fairness of Market StructureIs the current highly automated, high-speed market structure fundamentally fair for investors?High Frequency Trading
What types of strategies are used by the proprietary trading firms loosely referred to as high frequency traders, and are these strategies beneficial or harmful for other investors?
Is the overall use of any harmful strategies by proprietary firms sufficiently widespread that the Commission should consider a regulatory initiative in this area?Co-Location
Do co-location services (which enable exchange customers to potentially route trades faster by placing their computer servers in close proximity to an exchange's computer system) give proprietary trading firms an unfair advantage?
If so, should the proprietary firms that use these services be subject to any specific trading obligations?Dark Liquidity
Has the trading volume of undisplayed trading centres (such as dark pools) reached a sufficiently significant level that it has detracted from the quality of public price discovery?
If more individual investor orders were routed to public markets, would it promote quote competition in the public markets, lead to narrower spreads, and ultimately improve order execution quality for individual investors beyond current levels?
Are a significant number of individual investor orders executed in dark pools and, if so, what is the execution quality for these orders?
Lots of comments have been received on the Concept Release, and its conclusion cannot be far away.
Now we have a European response to this area with Kay Swinburne, rapporteur to the Economic and Monetary Affairs committee of the Parliament, producing a draft report last week. This report provides indication of much of what might be in the revised MiFID and very little is left untouched.Jeremy Grant over at the Financial Times, has picked out some of the more interesting nuggets from Kay’s report:
This is pretty dramatic stuff and Jeremy finishes his column by referencing David Doyle, a regular speaker at the FSClub, returning to the London meeting on 12th January 2011 for our annual EU regulatory update.
David presented on the key changes in MiFID at a conference at the London Stock Exchange last week, stressing that “the whole review of MiFID will have as its driving principle investor protection – that is, the interest of the retail investor, not the operators of exchanges, dark pools and HFTs.”Too true David, too true.If you’re interested in more of what David had to say, here are his slides:
I’ve just received this month’s Banker magazine which the editor, Brian Caplen, describes as their most important issue of the year as it covers the latest Bank 1000 listings.
This year’s listings show a surprisingly stable crew of American and British banks.World Bank Tier One Pre-tax
Considering the crisis was meant to have killed these banks, you may find it surprising to see that Citigroup and RBS have maintained their leading positions.
This is down to the fact that the Banker measures a bank’s strength by its Tier 1 Capital, and so their positioning is more of a reflection of the sheer size of these firms than by their brand or market capitalisation, which is used in some other studies of size.
The Banker’s data is fascinating though, as the database also contains profitability, revenue, cost-income ratio and more, so it’s a useful tool in all senses. And the online data goes back to 1996, so you can do some useful comparisons.
Mind you, my data - old Banker magazines - goes back even further so I quickly took a snapshot of a few useful year’s – 1994, 1999, 2004, 2008 and 2010 – to see how things have changed. Mapping out the Top 20 banks of the world for each year makes for an interesting picture (doubleclick the picture to see a larger version):
Back in 1994, Japan ruled the world.Then their economy went South and Origami Bank folded, Sumo Bank went belly up, Bonsai Bank cut back their branches and something fishy went on at Sushi Bank where staff got a raw deal. Post-Japan’s slump, the Anglo-American financial system ruled. So you would think that, as that system failed, it also would have gone South. Not the case. Maybe that’s a reflection of the sheer scale of investment American and European firms have put into these economies to avoid such a crash. Well worth spending time looking at the data and looking forward to playing around with it further.
Jamie Dimon’s letter to JPMorgan Chase’s shareholders was released over the weekend.
It’s a great 36-page read and, although I don’t normally do this, I thought it worth reprinting some of the key aspects here as it provides a fascinating insight into a global bank’s operations.
This takes the form of four posts.
This first one provides an insight into JPM's operations.
The second is a few comments related to banker's bonuses and TARP.
The third is a key section of the letter that outlines Jamie Dimon's views on regulatory reform.
The fourth is a few summary notes from key industry observers’ views about his comments.First, here’s a review of JPM’s business ...“For JPMorgan Chase, these past two years have been part of a challenging, yet defining, decade. We began it as three separate companies: Bank One, Chase and J.P. Morgan, with each facing serious strategic and competitive challenges ... on March 16, 2008, we announced our acquisition of Bear Stearns at the request of the U.S. government; on September 25, 2008, 10 days after the collapse of Lehman Brothers, we bought Washington Mutual ...
“Our revenue this year was a record $100 billion, up from $67 billion in 2008. The large increase was due primarily to the inclusion for the full year of Washington Mutual (WaMu) and the dramatic turnaround in revenue in our Investment Bank. Profits were $12 billion, up from $6 billion in the prior year but down from $15 billion in the year before that. While these results represent a large improvement over 2008, they still are an inadequate return on capital – a return on tangible equity of only 10%. Relative to our competition, our company fared extremely well. We did not suffer a loss in any single quarter over the two-year crisis (we may have been one of the few major global financial firms to achieve this). In absolute financial terms, however, our results were mediocre ...
“As we entered the most tumultuous financial markets since the Great Depression, we experienced the opposite of a run on the bank as deposits flowed in (in a two-month period, $150 billion flowed in – we barely knew what to do with it). At JPMorgan Chase, our deposits always exceeded our loans; deposits always have been considered one of the safest sources of funding for a bank. The average bank has loans that are generally greater than 110% of its deposits. For JPMorgan Chase, loans were approximately 75% of deposits. In fact, our excess deposits greatly reduced the need to finance ourselves in riskier wholesale markets. In the long-term wholesale unsecured markets, we borrowed on average $270 billion. Only $40 billion was borrowed unsecured in the shortterm credit markets – an extraordinarily low amount for a company of our size ...
“We maintained an extremely strong Tier 1 Common ratio, which stood at 8.8% at year-end. We also increased our loan loss reserves over the course of the year from $23.2 billion to $31.6 billion, an extremely strong 5.5% of total loans outstanding ... our total technology and operations and corporate overhead costs would be more than $9 billion higher today if they were running at the same cost per dollar of revenue as in 2005 ...
“We have 220,000 employees around the world ... 19,000 programmers, application developers and information technology employees who tirelessly keep our 80 data centers, 55,000 servers, 225,000 desktops and global network up and running – and who were a major part of completing the Bear Stearns and WaMu conversions in record time. 80,000 employees fulfilling operations functions globally and thousands of customer service colleagues. In 2009, they responded to more than 245 million phone calls ... 13,000 people in Legal & Compliance, Risk, Audit, Human Resources and Finance ...
“The Investment Bank (IB) delivered record performance across the board: net income of $6.9 billion on revenue of $28.1 billion. These results were led by best-ever Global Markets revenue of $22 billion and record investment banking fees of $7.2 billion. The IB generated a return on equity of 21% on $33 billion of allocated capital, our best result in five years ... trading is perhaps the least understood area of our investment banking activities. We have 6,500 professionals on approximately 120 trading desks in 25 trading centers around the world; these professionals include more than 800 research analysts who educate investors on nearly 4,000 companies and provide insight on 40 developed and emerging markets ... we execute approximately 2 million trades and buy and sell close to $2.5 trillion of cash and securities each day. On an average day, we own, for our account, approximately $440 billion in securities ... at the end of 2009, we announced that our U.K. joint venture with Cazenove Group Limited would become a wholly owned part of J.P. Morgan. Our initial investment in Cazenove in 2005 was extremely successful – among other things, it increased our U.K. investment banking market share (as measured by total fees) from 5% to 13% ...“Retail Banking, which includes Consumer and Business Banking, earned $3.9 billion, primarily by serving customers through bank branches in 23 states. Consumer Lending lost $3.8 billion because of continued high charge-offs in the home lending business ... our 61,000 people in 5,154 Chase branches in 23 states served more than 30 million U.S. consumers and small businesses ... retail operations teams processed 700 million teller transactions, 3.5 billion debit card purchases, 100 million ATM deposits, close to 6 billion checks and more than 1.3 billion statements ... we added 4.2 million mobile banking customers and another 5.2 million new online banking customers ... loan origination in 2009 was down 58%, as customer demand decreased significantly and our underwriting standards became more disciplined.“Card Services lost $2.2 billion (compared with last year’s profit of $780 million) ... our 23,000 Card Services employees around the world provide financial flexibility and convenience to customers who, in 2009, used Chase credit cards to meet more than $328 billion of their spending needs. With more than 145 million cards in circulation held by approximately 50 million customers with $163.4 billion in loan outstandings ... in 2009, in addition to the terrible environment, the U.S. credit card business faced fairly dramatic changes because of a new law enacted by Congress in May. The new law restricts issuers’ ability to change rates and prohibits certain practices that were not considered consumer-friendly. These changes alone are expected to reduce our after-tax income by approximately $500 million to $750 million ... we reduced limits on credit lines, and we canceled credit cards for customers who had not done business with us over an extended period. In fact, the industry as a whole reduced limits from a peak of $4.7 trillion to $3.3 trillion ...“Commercial Banking reported net income of $1.3 billion with an ROE of 16% ... highlights included a 20% boost in revenue to $5.7 billion; a 25% improvement in operating margin to $3.5 billion; double-digit increases in both average liability balances, up 10%, and average loan balances, up 30%; and a 20% jump in gross investment banking revenue to $1.2 billion – a full 25% above plan ... the average length of a Commercial Banking client relationship with us is more than 18 years ...“Treasury & Securities Services reported net income of $1.2 billion with an ROE of 25% ... vs. $1.8 billion in the prior year. The business delivered net revenue of $7.3 billion, down 10% from the previous year. We describe TSS as our “Warren Buffett-style” business because it grows with our clients and with inflation; delivers excellent margins and high returns on capital; and is hard for would-be competitors to replicate because of its global scale, long-term client relationships and complex technology ... more than 6,000 TSS bankers serve more than 40,000 clients from all of our other lines of business in 60 locations around the world. TSS provides clients with critical products and services, including global custody in more than 90 global markets, holding nearly $15 trillion in assets; corporate cash management, moving an astounding $10 trillion a day of cash transactions around the world for clients; corporate card services, providing 27 million cards to more than 5,000 corporate clients and government agencies ...
“Asset Management reported net income of $1.4 billion with an ROE of 20% ... the Corporate sector reported net income of $3.7 billion ...Part Two: Jamie's views on banker's bonuses and TARP.
Jamie Dimon’s letter to JPMorgan Chase’s shareholders included some interesting comments related to banker's bonuses and TARP:
“Many commentators, in an attempt to measure fairness and reasonableness of a company’s compensation payouts, have looked at total compensation as a percentage of revenue. On this basis, JPMorgan Chase’s total compensation (salaries, benefits and bonuses) was 27% for 2009; this number averaged 33% over the previous several years. For our Investment Bank alone – the part of the company receiving the most scrutiny – compensation was 33% of revenue, down from an average of 44% over the last five years. The chart on the next page compares these same percentages with a wide mix of businesses (double click to see large version):
“For the average U.S. business, total compensation as a percentage of revenue is approximately 16%. In general, at businesses that are people-intensive and not capital- or intellectual property-intensive, such as professional services companies, a high percentage of the company’s revenue is paid out to the employees. Law firms, for example (which are not included in the following table), pay out more than 80% of their revenue to their employees. In highly capital-intensive companies, like telecommunications or certain manufacturing companies, payout ratios are considerably lower ...
“We know there are people in this industry who have been extraordinarily well-paid – and, in some cases, overpaid. Some of these people have benefited from profits that turned out to be ephemeral or were the result of excessive leverage in the system. Some benefited from extreme competition for their specific talents, often from hedge funds and other such businesses. While no firm can claim it gets compensation right every time, we at JPMorgan Chase do think we have generally been disciplined when it comes to our decisions ...
There's a long section on the use of $25 billion in TARP funding that JPMC felt compelled to accept ...“We did not anticipate the anger or backlash the acceptance of TARP capital would evoke from the public, politicians and the media – but, even with hindsight, I think we would have had to accept TARP capital because doing so was in the best interest of the country. I do wish it would have been possible to distinguish between the healthy and unhealthy banks in a way that didn’t damage the success of the program – so as not to create a situation where the public was left with the impression that all banks were bailed out. Last, I do regret having used the FDIC guarantee because we didn’t need it, and it just added to the argument that all banks had been bailed out and fueled the anger directed toward banks ...
“Surviving banks have paid for the cost to the FDIC of the approximately 200 bank failures since the beginning of 2008. Of those failures, the largest one, WaMu (with assets exceeding $260 billion), has cost the FDIC nothing. That is because JPMorgan Chase bought WaMu. All of the other banks that have failed were far smaller (the next largest failure was IndyMac, with $32 billion). All of these failures combined have cost the FDIC an estimated $55 billion ...
Jamie Dimon’s letter to JPMorgan Chase’s shareholders included a whole section on the crisis and his solutions. Because Tim Geithner and Barack Obama listen to every word Jamie utters, I think it's worth reproducing the whole section here to see whether, in a year or so, his recommendations are implemented:“Banks are not fighting regulation
Jamie Dimon’s letter to JPMorgan Chase’s shareholders created quite a storm of commentary amongst various industry observers, not all of it complementary.
Tom Brown of Bankstocks.com says that the letter is: "outstanding. The letter isn’t just a wrap-up of how Morgan did last year (although, as is typical, Jamie’s candid on the topic)—it’s also a worthwhile meditation on how and why financial crisis happened, and what sort of changes need to be made to prevent another one. This is just the sort of letter, that is to say, that a lot of us hoped Warren Buffett might write this year, but did not. As far as that goes, it may be the best shareholder letter I’ve ever read, from any CEO, ever."
The Wall Street Journal notes that Dimon also focuses upon succession planning: "Ladies and Gentlemen, place your bets. Who will replace the chief of JP Morgan Chase & Co? In his annual letter to shareholders, CEO Jamie Dimon says his number one priority this year is to find his successor."
Meanwhile, one of the more interesting takes on the letter is Simon Johnson's over at Baseline Scenario:
There are two kinds of bankers to fear. The first is incompetent and runs a big bank. This includes such people as Chuck Prince (formerly of Citigroup) and Ken Lewis (Bank of America). These people run their banks onto the rocks – and end up costing the taxpayer a great deal of money. But, on the other hand, you can see them coming and, if we ever get the politics of bank regulation straightened out again, work hard to contain the problems they present.
The second type of banker is much more dangerous. This person understands how to control risk within a massive organization, manage political relationships across the political spectrum, and generate the right kind of public relations. When all is said and done, this banker runs a big bank and – here’s the danger – makes it even bigger.Jamie Dimon is by far the most dangerous American banker of this or any other recent generation.
That may be a bit extreme, but Jamie Dimon is by far the most powerful American banker of this generation. More so than even Lloyd Blankfiend, and Barack Obama and most of his admin linger upon his every utterance, as do the markets.
So my own view is that Jamie Dimon is a man to take seriously. Very seriously.
And that's why I've posted most of his letter here, as I'm taking note of his comments very seriously.