On May 21, shareholders of JPMorgan Chase will have the opportunity to express their views of the Chairman/CEO of the mega-bank, and PR people have been filling the inboxes of every possible media outlet. They even got to the New York Post which ran an Op-Ed by Charlie Gasparino on Dimon’s bad feeling about splitting the roles of Chairman of the Board and Chief Operating Office:
Dimon hates the idea of splitting the two roles; he thinks the separation would make it more difficult to manage the world’s biggest bank, with line managers unsure who’s really calling the shots.
He’s right: Anyone thinking that having two people at the top means better corporate governance only has to look at all the corporate scandals at firms with a separate CEO and chairman, with Enron and Worldcom leading the way.
That’s pretty rich coming from a Fox Business News guy, writing for another part of Rupert Murdoch’s empire, but failing to mention the problems with phone hacking, bribery and those ugly arrests, all that under a single Chairman/CEO.
Gasparino has much in common with Andrew Ross Sorkin and Steven Davidoff of the New York Times Dealbook. Just like Gasparino, both Professor Davidoff and Sorkin are focused on how unfair this all is to the Great Man, but none of them mention of the rat’s nest of crooked business at JPMorgan.
For that, you have to look at the blogosphere. Josh Rosner of Graham-Fisher issued a major report listing the many laws JPMorgan broke under Dimon’s control. Here’s a list pulled from Rosner’s report by Dave Dayen at Naked Capitalism, where you can read the report for yourself. Apparently Sorkin, Davidoff and Gasparino just don’t see ther relevance:
Bank Secrecy Act violations;
Money laundering for drug cartels;
Violations of sanction orders against Cuba, Iran, Sudan, and former Liberian strongman Charles Taylor;
Violations related to the Vatican Bank scandal (get on this, Pope Francis!);
Violations of the Commodities Exchange Act;
Failure to segregate customer funds (including one CFTC case where the bank failed to segregate $725 million of its own money from a $9.6 billion account) in the US and UK;
Knowingly executing fictitious trades where the customer, with full knowledge of the bank, was on both sides of the deal;
Various SEC enforcement actions for misrepresentations of CDOs and mortgage-backed securities;
The AG settlement on foreclosure fraud;
The OCC settlement on foreclosure fraud;
Violations of the Servicemembers Civil Relief Act;
Illegal flood insurance commissions;
Fraudulent sale of unregistered securities;
Illegal increases of overdraft penalties;
Violations of federal ERISA laws as well as those of the state of New York;
Municipal bond market manipulations and acts of bid-rigging, including violations of the Sherman Anti-Trust Act;
Filing of unverified affidavits for credit card debt collections (“as a result of internal control failures that sound eerily similar to the industry’s mortgage servicing failures and foreclosure abuses”);
Energy market manipulation that triggered FERC lawsuits;
“Artificial market making” at Japanese affiliates;
Shifting trading losses on a currency trade to a customer account;
Fraudulent sales of derivatives to the city of Milan, Italy;
Obstruction of justice (including refusing the release of documents in the Bernie Madoff case as well as the case of Peregrine Financial).
Dayen’s list doesn’t include on-going investigations like LIBOR or the London Whale trades now revealed to be a serious problem, and it doesn’t include the most recent scandals like manipulation of Interest Rate Swap Index fraud, which may or may not involve JPM. But why would that matter to shareholders? After all, the stock is up about 10% in just the last few days, and is back to the glory days pre-Great Crash.
Rosner explains that JPM has paid out $8.5 billion in penalties, interest and so on since 2009, about 12% of income between 2009 and 2012, with much more to come. Those unknown future costs are described in many pages of its 10-K, including footnote 31 starting on page 316, without mentioning an actual amount held in reserve for possible litigation and mortgage put-back losses. Whatever it is, JPMorgan estimates that it might be up to $6 billion on the low side. 10-K at 316.
Shareholders who care about law-abiding management might wonder if Dimon is worth it. They might want to take Dimon up on his promise to leave if the vote goes against him.