JPMorgan Needs a Culture Change
Brad Hoppmann | February 25, 2015 at 4:45 pm
We know the big Wall Street banks are “Too Big to Fail.” Now we’re learning that JPMorgan Chase (JPM) may also be “Too Big to Manage.”
This week, JPM finally admitted it has a problem. The bank has broken so many laws and regulations that it can no longer ignore the costs — which routinely add up to billions per year.
Can CEO Jamie Dimon change the culture he created? He’d better, if he doesn’t want his empire chopped up into little pieces.
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JPM released its annual report this week and held an “Investor Day” event for its institutional shareholders and analysts.
Business Insider covered the event and noticed an interesting trend. Here is how their story begins.
JPMorgan has acknowledged that it simply can’t afford to screw up anymore.
The banking behemoth has come to accept the new world order of Wall Street — a world order in which capital requirements are high (and maybe climbing higher), markets can be painfully calm for long stretches at a time, and legal expenses can tip the scales of profitability.
In other words — the cynical "cost of doing business" on Wall Street has actually become too expensive.
Let’s stop here for a second. I wrote an article titled JPMorgan’s $17.3B ‘Cost of Doing Business’ back in September 2013. Dimon had just agreed to pay an enormous legal settlement.
Many more would follow.
I wrapped up that story with a question:
How much money does a bank has to lose before it loses the public’s trust? As far as I can tell, the number for JPMorgan Chase is nearing "infinity."
Apparently, I was wrong on that point. JPM now claims it is tired of the penalties and wants to change its ways.
Business Insider says JPM faces three big financial challenges: capital requirements, legal costs, and low revenue due to market conditions.
So the only one out of those three drags on return on equity that JPMorgan can actually control are its legal expenses. Controlling that is tough, however, because it has to do with culture, and that’s intangible.
At least, it’s intangible until it isn’t. [JPM executive Daniel] Pinto admitted that some employees have cost the company millions.
To combat that, "we’re rolling out a best in class culture and conduct program," said Pinto.
CFO Marianne Lake said that the bank is starting these culture programs all over the world and that the bank published an internal report on how it does business.
Some employees have cost the company millions and JPM’s solution is to roll out “a best in class culture and conduct program.”
I suppose such a program might help, but changing culture is hard. Culture starts at the top. People follow their leaders’ example, for better or worse.
Jamie Dimon took credit for creating the culture that made JPM so profitable for so many years. If changing it is necessary, shouldn’t the change begin with him?
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In a separate article, Business Insider also pointed out a small note on page 295 of JPMorgan’s annual report.
The Firm is engaged in discussions with the U.S. Department of Justice (“DOJ”) about potential statistical disparities in markups charged to different races and ethnicities by automobile dealers on loans originated by those dealers and purchased by the Firm.
That is only one of the many alleged infractions JPM faces. I could not find any more details online. Obviously, the bank will be in much deeper trouble if it turns out to be engaged in racial discrimination.
I’m sure some people will still defend Jamie Dimon. “We can’t expect him to oversee every aspect of such a huge organization,” they will say.
I would reply, “Exactly — and you just proved my point.”
A bank that is too big to manage effectively will eventually collapse of its own weight. Shareholders should force it to get smaller.
Will they? I don’t know, but this talk of “changing culture” suggests Dimon recognizes the problem. Now we will see what he does about it.
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Do you think JPMorgan is too big? Can Jamie Dimon change the culture he built? Is the government picking on banks? Tell me what you think. You can leave a comment on our website or send me an e-mail.
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Follow-Up: The SIM-stealing caper took another twist today. Gemalto held a news conference in Paris to present the findings of its initial investigation. You can read their news release for the full story.
Briefly, Gemalto says it has reason to believe an NSA/GCHQ hacking operation “probably happened,” but denies any massive theft of SIM encryption keys.
According to this Wall Street Journal account, Chief Executive Olivier Piou said Gemalto would not take any legal action.
“The operation very probably happened,” Mr. Piou told a news conference, but “it’s difficult to prove our conclusions legally, so we’re not going to take legal action.”
I’m sure Mr. Piou is under tremendous pressure, but I think that is the wrong decision. He’s emboldening the spy agencies to keep pushing the boundaries. That won’t be good for Gemalto or anyone else.
The Intercept, which originally broke the story, responded to Mr. Piou within hours, saying Gemalto Doesn’t Know What it Doesn’t Know.
If you don’t know what I’m talking about, go back and read Obama Lies So This Company May Die and Presidential Lies & Consequences.
My friend Patrick Watson has an interesting take over at Newsmax: Obama NSA Assassinates a Private Company. His conclusion is chilling.
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The Dow and S&P 500 hovered near Tuesday’s record highs today. Here are some mid-week highlights.
• Fed Chair Janet Yellen was back on Capitol Hill today, this time on the House side. She didn’t say anything new, so it was another non-event for the markets.
• Hewlett-Packard (HPQ) shares took a beating after the company missed Wall Street’s revenue estimates and cut its 2015 outlook, citing dollar strength. The stock closed off 9.9%.
• Chesapeake Energy (CHK) had a rough day, too, plunging 9.6% after a profit miss.
• Solar energy is still profitable, apparently. First Solar (FSLR) shares leaped 7% after its quarterly profits tripled since last year.
• Crude oil inventories are still climbing, according to the weekly report, but WTI still jumped back over $50 today.
• Traders might be listening to the Saudi oil minister, who said “demand is growing” without specifying where it is growing or by how much.
Good Luck and Happy Investing,
Brad Hoppmann
Publisher
Uncommon Wisdom Daily
Poster Comment:
Big banks have been under investigation for money laundering and precious metals manipulation, among other things. ;)