I would not have expected Alex Pareene of Salon to be the best CNBC guest since Carl Icahn, but here we are. I hope you caught his performance on Friday, telling an incredulous CNBC crew that JPMorgan Chase & Co. should fire Jamie Dimon and replace him with any guy plucked off the street, but if not do check it out. Also check out this very good Felix Salmon post from yesterday on the topic.
The story, as you probably know, is that Jamie Dimon runs JPMorgan, and JPMorgan is negotiating to pay $11 billion or so in fines to settle some regulatory investigations. These fines are on top of the billions of dollars of other fines that JPMorgan has already paid to settle other investigations, and the other billions of dollars of fines that JPMorgan will presumably pay to settle the investigations not settled in this $11 billion-ish settlement. Lotta fines is the point. Some people, like Pareene, think that Dimon should fall on some swords for all the fines, while some people, like most of CNBC, don't. Their disagreement is edifying.
Also edifying is thinking about who else does and doesn't want Jamie Dimon to be fired. JPMorgan shareholders seem not to, or at least they did the last time anyone asked them, which to be fair was in May, before the $11 billion thing. Since Dimon works for the shareholders you might think that would be dispositive, but as Salmon says:
JP Morgan's balance sheet shows assets of $2.4 trillion and liabilities of $2.2 trillion, leaving $200 billion in total stockholder equity. Sure, the shareholders matter -- but even in terms of the balance sheet they only matter about 8.6%. And in terms of the systemic importance of JP Morgan to the nation as a whole, its shareholders matter even less.
If, as I do, you agree that maximizing shareholder value is only a small part of Jamie Dimon's job, a thing that might worry you is the fact that the shareholders are the ones who get the most say on whether he stays or goes. Who represents the other 91.4 percent of JPMorgan's balance sheet, or the nation's systemic interest in JPMorgan's behavior?
As a first cut, the obvious answer is JPMorgan's regulators, at the Department of Justice and the Federal Resesrve and the Office of the Comptroller of the Currency and so forth, who are negotiating these billions of dollars in fines. And presumably, if they thought that Dimon was bad for those constituencies, they could be asking for Dimon's head as part of the settlement deal.*
Are they? Beats me. But I guess they either are or they aren't.
Let's imagine for a minute that they are. If the regulators are demanding that JPMorgan fire Dimon, then why would he still be there?
One possible answer would be: he's worth it. That is, the board, after taking advice and considering the matter carefully, believes that Jamie Dimon's skills provide enough value to outweigh the current climate of regulatory hatred and the extra billions of dollars of fines that he incurs.
This sounds sort of unlikely: Why should one guy be worth billions of dollars? But it's weirdly plausible; CEO changes can move stock valuations by billions of dollars, and Dimon does seem to be good at making money for shareholders. If nothing else, though, this theory would speak ill of JPMorgan's succession plans: If Dimon's value-over-replacement-banker is really billions of dollars, then they should be training better replacement bankers -- what if he's hit by a bus, etc.
The alternative answer is that the directors just really like and/or fear Dimon and are willing to keep him employed even at a cost of billions of dollars of shareholder value. Which, sure, possible, everyone complains about the board being dominated by Jamie Dimon. Being chairman and CEO ought to have some perks, and I suppose being extra-sure of keeping your job is an obvious one.
I don't think either of these things is all that likely just because, if regulators were actually demanding, or even suggesting, that Dimon be fired as part of the peace pact, they'd have leaked it by now. So the fact that it's not in the news stories suggests it's not part of the demands.
So: If regulators are not asking for Dimon to be fired in order for JPMorgan to put the charges behind it, what does that mean?
One possibility is that regulators don't think that demanding Dimon's head is their job. U.S. regulators tend to settle for big fines and stepped-up compliance hiring, but they tend not to demand senior personnel changes. But if your job is to regulate the safety and soundness of a bank, surely the most important thing you can do is make sure it has safe and sound people in charge. It'd be weird if regulators thought Dimon was a danger but didn't try to do anything about it. But it also doesn't sound wildly implausible to me.
Another possibility is that regulators don't blame Dimon for the bad stuff JPMorgan did. Oh, sure, JPMorgan has lots and lots of problems but it's hard to hold Dimon to account for all of them. I mean, look at him, he is charming, case closed. And it's true: Dimon seems pretty honest, he's unusually blunt in public statements, he holds people to account when they mess up, and he's generally got a long track record of being a pretty good banker. You could see why regulators would say, well, okay, he's better than the alternative, you can't blame him for all the badness.**
You could also see why that would be sort of a disturbing conclusion. A lot of people, including Pareene, think that JPMorgan is "too big to manage" and should be broken up. If regulators think that (1) Dimon is pretty good at running JPMorgan, better than the alternatives anyway, but also (2) JPMorgan is a web of frauds and misbehavior and should be fined billions of dollars, criminally sanctioned, and investigated perpetually, then that would seem like support for the too-big-to-manage theory.
Or maybe the regulators don't think that the stuff JPMorgan did is that bad. I know, I know, biggest fines ever, blah blah blah, but it has a certain plausibility. JPMorgan has done just tons of bad things, but they're all within the bounds of ordinarily bad things, for a bank anyway. Oh sure they misrepresented the quality of mortgage-backed securities that they sold, but literally every big bank has gotten done for that. Perhaps they manipulated Libor, but not as brazenly as UBS did. The London Whale? Everyone has trading losses, and the cover-up of this one was relatively brief and isolated. The electricity thing? They were just following the rules that the electric markets set up, you can't blame them if those rules let them hose customers. Chinese nepotism? We're all shocked shocked to find nepotism in banking. Etc. etc.
On this theory the only reason JPMorgan is paying gazillions of dollars in fines is scale: Its misdeeds weren't that bad, but every bad thing it does is a multibillion-dollar bad thing just due to its size.***
I dunno, I feel like that conclusion wouldn't fill you with glee either? Like, if you think that JPMorgan is really really bad, the regulatory conclusion that it's just par-for-the-course badness would trouble you, possibly because you disagree, possibly because, y'know, if really really bad behavior is also par for the course among big banks then that's not great either. And if, on the other hand, you think that JPMorgan is the victim of -- Maria Bartiromo's words were "a witch hunt" -- then you could take this as confirmation that regulators don't really think that the company is that bad an actor but enjoy punching it repeatedly anyway for their own reasons.
So take your pick. The right answer is probably a mix of all of the above: Firing Dimon might make a settlement easier, but the board wants to keep him around for both noble and less-noble reasons. And regulators probably aren't really pushing for his head, because it's not really their thing, and because they don't think he's all that bad an actor or all that responsible for what's gone wrong.
I like to imagine the Fed or SEC or OCC or FERC or DOJ or etc. etc. investigator coming into her office the day after JPMorgan reaches a global total peace settlement with everyone for everything. She throws her mountains of JPMorgan documents into the shredder and stares at her empty desk. She gets scared, lonely. She goes to her boss:
"What if we sue JPMorgan for -- "
"No, we signed a global peace pact, remember?"
"Well okay but what if we came after them for -- "
"Shh. No. Just no. It is over. Let it go"
Why risk that? If you sue JPMorgan, and they settle by handing over money and hiring more compliance officers, well, there's always more money there. Scale, remember. But there's only one Jamie Dimon. He's a precious resource for everyone. The London Whale multi-agency settlement didn't settle all the Whale charges. The global peace settlement currently being negotiated may not even settle all of JPMorgan's mortgage inquiries, never mind the China nepotism etc. etc. etc. etc. As long as Dimon is around, talking bluntly, managing for shareholder value, and attracting criticism, there will always be work -- fun and popular work -- for regulators to do. They might need him as much as the shareholders do.
* Or, alternatively, they could tell JPMorgan that the price of settling is $11 billion with Dimon or $9 billion without him, or whatever.
** On the other hand here is a research paper suggesting that corporate corruption comes from the top, for whatever that's worth.
*** So the London Whale losses were simultaneously gargantuan -- $6 billion! -- and relatively trivial compared to JPMorgan's assets and income. Just a question of whether you measure with human scale or JPMorgan scale.
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To contact the author on this story:
Matthew S Levine at firstname.lastname@example.org