More
on JP Morgan and Jamie Dimon from the financial press
Wall
Street Leaderless In Rules Fight As Dimon Diminished
Wall
Street, the global financial community reeling from public outrage
and increased regulation, is proving incapable of finding a champion
to replace sidelined JPMorgan Chase & Co. (JPM) Chief Executive
Officer Jamie Dimon.
21
August 2012
Dimon,
56, one of the industry’s most forceful advocates, has lost stature
as his bank, the largest in the U.S. by assets, juggles multiple
investigations and a $5.8 billion trading loss on wrong-way bets on
credit derivatives. His peers at other big lenders are hobbled by
poor performance, tarnished reputations or a reluctance to step into
the breach.
Bankers
across the Atlantic, including former Barclays Plc (BCS) CEO Robert
Diamond and Peter Sands of Standard Chartered Plc (STAN), have been
muted by allegations that their firms rigged interest rates or were
involved in money laundering.
“What
you’re seeing in the financial-services industry is a lack of any
kind of credible statesmen,” said Rakesh Khurana, a management
professor at Harvard Business School in Boston. Dimon’s diminished
ability to defend the industry publicly “basically leaves a
vacuum,” he said.
That
means the industry is without an advocate to resist the most vigorous
onslaught of regulations since Congress separated investment and
commercial banking with the Glass- Steagall Act in 1933. It coincides
with the lowest level of consumer confidence in U.S. banks since
Gallup Inc. began polling on the question in 1979. The percentage of
Americans saying they had a “great deal” or “quite a lot” of
confidence dropped to 21 percent in June from 41 percent in 2007 and
more than 60 percent in 1980.
‘Ordinary
Mortal’
Dimon,
whose bank sailed through the financial crisis without a quarterly
loss, offered advice and assistance to U.S. presidents, Treasury
secretaries and regulators.
He
was unapologetic in his criticism of Washington policies and policy
makers. He said former Federal Reserve Chairman Paul Volcker, for
whom a new rule curtailing proprietary trading is named, doesn’t
understand capital markets. Bankers will need psychiatrists to
evaluate whether trades qualify as hedges, he said. Last year he took
on Fed Chairman Ben S. Bernanke in a public forum, asking whether
anyone has “bothered to study the cumulative effect” of
regulation on the U.S. economy.
Now
Dimon is “stumbling like an ordinary mortal,” said Thomas
Stanton, a former senior staff member for the Financial Crisis
Inquiry Commission and author of “Why Some Firms Thrive While
Others Fail,” published last month. “He’s no longer seen as a
purely brilliant manager.”
Powerful
Presence
At
least 11 agencies, including the U.S. Justice Department and the
Securities and Exchange Commission, are investigating New York-based
JPMorgan for its trading losses. Last year, the company was one of
five mortgage servicers that agreed to spend $25 billion to settle
charges they improperly foreclosed on borrowers. The bank also is
being probed for possible manipulation of power prices in California
and the Midwest.
The
JPMorgan loss “strengthens our case,” U.S. Representative Barney
Frank, the Massachusetts Democrat who co- authored the 2010
Dodd-Frank financial-regulatory overhaul, said in a May interview.
“Jamie has become the leading voice calling this unnecessary,
saying you don’t know what you’re doing.”
The
industry has a powerful presence in Washington even without a visible
leader. Commercial banks spent $61.4 million lobbying Congress and
regulators last year, almost double the $36.1 million in 2006,
according to the Center for Responsive Politics, a non-partisan,
nonprofit campaign watchdog.
“They’re
spending all this money because they know they are in the eye of the
storm,” said Bob Biersack, a senior fellow at the Washington-based
group.
Romney
Contributions
Wall
Street banks have shifted their allegiance this campaign cycle to
Republicans who fought the regulations passed by Congress and signed
into law by President Barack Obama. Four years ago, Goldman Sachs
Group Inc. (GS) employees gave three-fourths of their campaign
donations to Democrats, including Obama. This time, they’re
showering 70 percent of their contributions on Republicans, according
to Center for Responsive Politics data through June 30 compiled by
Bloomberg.
Of
the 10 companies whose employees gave the most to Romney Victory, a
fundraising committee supporting presumptive Republican presidential
nominee Mitt Romney, nine were Wall Street firms, according to
Federal Election Commission data. Romney, co-founder of
private-equity firm Bain Capital LLC, has pledged to repeal new
banking rules.
‘Moral
Authority’
While
Dimon played a key role, “there isn’t one singular voice
representing the financial sector,” said Rob Nichols, CEO of the
Financial Services Forum, a Washington-based lobbying group with 20
members, including the six largest U.S. banks.
Still,
the lack of a statesman leaves the industry vulnerable, said Greg
Donaldson, chairman of Evansville, Indiana-based Donaldson Capital
Management LLC, which oversees $580 million.
“The
banks have no moral authority at the moment,” Donaldson said.
“Jamie Dimon had it, but that’s done. The government is piling on
the banks. They’re just being hammered, and it doesn’t help our
economy. Somebody has to fight the damn thing.”
That
somebody probably won’t be the head of one of the other big U.S.
banks, most of whom are focused on fixing their own firms or
repairing their reputations.
Moynihan,
Pandit
Bank
of America Corp. CEO Brian T. Moynihan, 52, has struggled to contain
losses from soured mortgages that have cost the lender, the
second-largest in the U.S., more than $40 billion. The Charlotte,
North Carolina-based bank, which took a $45 billion bailout during
the crisis, failed to win Fed approval in 2011 to increase the
capital it can return to shareholders after telling investors
dividends would climb.
Citigroup
Inc. (C) CEO Vikram Pandit, 55, had his firm’s capital plan
rejected by the Fed March 13. Shares of the New York-based lender,
the third-biggest in the U.S., have tumbled 18 percent since.
Shareholders in May rejected Pandit’s compensation plan, which
included about $15 million for 2011 and a retention agreement that
could be worth $40 million.
At
Goldman Sachs, CEO Lloyd C. Blankfein retreated from making public
comments in 2010 and 2011 as his company was sued by the SEC for its
role selling subprime mortgage bonds, a case later settled for $550
million, and he testified before a Senate subcommittee. Blankfein,
57, recently began an effort to reshape his image with television
interviews, an opinion piece in Politico and speaking engagements.
This month, the SEC and the Justice Department ended probes of the
New York-based firm.
Rumpled
Tuxedo
Morgan
Stanley (MS) CEO James Gorman, 54, whose firm announced job cuts July
19 after missing analysts’ estimates amid a 48 percent drop in
trading revenue, doesn’t fit the Wall Street titan stereotype. The
Australian prefers a rumpled tuxedo he bought as a business school
student in 1980 to Armani for black- tie events, and he stocks
Vegemite in the executive kitchen.
John
Stumpf, 58, CEO of Wells Fargo & Co. (WFC), has the respect of
his peers, and his San Francisco-based bank, the largest in the U.S.
by market value, has posted annual profits for more than a decade.
Still, he works far from Wall Street and is “allergic” to the
role of industry statesman, said Nancy Bush, an analyst and
contributing editor at SNL Financial LC, a research firm based in
Charlottesville, Virginia.
“Part
of Jamie’s fitting into that role was his natural brashness as a
Wall Streeter and New Yorker, and that is not John,” Bush said.
“He’s self-effacing, he’s quiet as a manager, and his company
is naturally quiet. It’s not a role that will naturally fall to
him, though I think it should.”
European
Vacuum
Stumpf,
who will become chairman of the Financial Services Roundtable next
year, said in a February interview at Bloomberg’s New York office
that his primary responsibilities are to “my teammates, our
customers and our shareholders.”
Spokesmen
for Wells Fargo, JPMorgan, Bank of America, Citigroup, Goldman Sachs
and Morgan Stanley declined to comment.
A
similar leadership vacuum exists in Europe, where prominent industry
defender Josef Ackermann retired in May as CEO of Deutsche Bank AG
and chairman of the Institute of International Finance, a global
lobbying group. Barclays CEO Diamond, who was as outspoken on behalf
of banks in London as Dimon was in Washington, resigned in July after
U.K. authorities fined his firm a record 290 million pounds ($456
million) for rigging the benchmark London interbank offered rate, or
Libor.
Gulliver’s
Travails
Stuart
Gulliver, 53, CEO of HSBC Holdings Plc (HSBA), is hamstrung by
allegations in a U.S. Senate report last month accusing Europe’s
largest bank of laundering funds for the Taliban, Mexican drug
cartels and international criminals. The London- based bank said July
31 that it set aside $700 million to cover potential fines.
Standard
Chartered CEO Sands, whose London-based bank has posted eight years
of annual record earnings, reached a $340 million settlement last
week in a New York probe related to charges that the lender helped
sanctioned nations, including Iran, funnel money through the U.S.
It’s
no wonder that public confidence has sunk to an all- time low with so
many financial scandals and so many of them self-inflicted, said Ann
Buchholtz, a professor of leadership and ethics at Rutgers University
in New Jersey.
“This
is a case of heroes doing more harm than good,” Buchholtz said.
Investors tend to romanticize corporate leaders and attribute success
within an organization to them when the drivers of that performance
are far more complex, she said. “We tend to make them bulletproof,
looking the other way when we see signs of problems. We don’t
believe ill of a leader until the evidence is overwhelming.”
Losing
Legitimacy
Wall
Street has had no shortage of leaders, beginning with John Pierpont
Morgan, who founded the company that bears his name and played a
prominent role in halting the banking panic of 1907. Walter Wriston,
who ran Citigroup predecessor Citibank NA from 1970 to 1984 and is
credited with introducing automated teller machines, helped New York
City avoid bankruptcy in the 1970s with a financing plan he devised
with another industry leader at the time, Felix Rohatyn at Lazard
Freres & Co.
The
dearth of leadership on Wall Street now is “really problematic,”
said Harvard’s Khurana.
“Businesses
and their leaders are no longer seen as trustworthy,” he said.
“When an institution or industry loses its legitimacy, it loses the
benefit of the doubt.”
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