The Regulatory Attack on J.P. Morgan Feels Familiar. By Maurice Greenberg
State and federal agencies are hurting shareholders and undermining confidence in the banking system.http://online.wsj.com/article/SB10001424052702303464504579109563311240116.
The Wall Street Journal, October 3, 2013, on page A13
A thriving financial-services sector requires a delicate balance of regulation and risk management. Realizing how vital this industry's health is to the economy, regulators and private businesses have spent the past century trying to create a system that ensures stability while encouraging investment. Responsible regulators understand just how difficult this is to accomplish. Others who ignore that reality often keep markets from functioning properly.
Regulators can help minimize risk to the investing public by learning from past regulatory mistakes. But it doesn't appear that they have. Now they're after J.P. Morgan Chase Co., a great American company led by arguably the best chief executive on Wall Street.
I experienced regulatory overreach first-hand at AIG. For nearly four decades, I led a team that included some of the most honorable and competent professionals in the insurance industry. We built the world's largest and most respected insurer, employing more than 90,000 people and opening markets across the world. That made AIG an attractive target for Eliot Spitzer, then New York's attorney general, in 2005.
Displaying an astonishing lack of knowledge of the insurance industry, Mr. Spitzer, by threatening to criminally indict the company, succeeded in separating the industry's most accomplished group of executives from a company that insured virtually every business sector across 130 countries. The replacement management took steps that made AIG vulnerable to the world-wide financial collapse of 2008. That provided a set of federal regulators with the opportunity to seize tens of billions of dollars from AIG's shareholders.
Nearly all of Mr. Spitzer's original allegations of accounting irregularities have been discarded or quietly dismissed by him and his successors. The remaining claims—on which no damages are sought—involve the accounting for reinsurance transactions that were not material to AIG. The real scandal, of course, is the fact that the attorney general brought this lawsuit and continues to prosecute it even today.
History seems to be repeating itself with the case of J.P. Morgan. The global bank is now under siege by federal and state regulators. The most ironic claim against J.P. Morgan is an allegation from current New York Attorney General Eric Schneiderman of mortgage fraud at Bear Stearns that allegedly took place prior to J.P. Morgan's acquisition of that firm. J.P. Morgan acquired Bear Stearns at the urging of federal officials who feared that fallout from Bear's collapse would damage the entire economy.
Like AIG, J.P. Morgan plays a central role in both the U.S. and world economies. There are no more than a handful of executives with the requisite experience, talent and intelligence to lead that bank. Its chief executive, James Dimon, is one of those rare individuals. By diverting his attention from his responsibilities, government officials are hurting shareholders, pension funds, countless employees, the City of New York, and the national and global economy—not to mention undermining confidence in our banking system.
Those regulators have pushed their dubious claims to the point of requiring the bank to pay over $11 billion in fines. I hope the board of directors at J.P. Morgan will have the wisdom and courage to support their CEO and not cave to demands from regulators that can only harm the company and its stakeholders. That would send a strong message to the nation's business community and allow J.P. Morgan to continue to benefit from Mr. Dimon's leadership.
I have spent my entire career opening markets in China, Eastern Europe and across the world. When we took AIG public in 1969, we chose New York as the company's place of business because the state offered a predictable regulatory environment. And yet what I see in New York and Washington is a regulatory culture that seems manifestly determined to make this state and nation the last places where any responsible CEO would want to do business. Incredible as it seems, federal and state regulators are now negotiating for their share of the "credit"—their cut of the cash—for the damage they are currently inflicting on J.P. Morgan, competing with one another to inherit Spitzer's "Sheriff of Wall Street" title. Some people never learn.
Mr. Greenberg is chairman and CEO of C.V. Starr & Co.
Wednesday, October 9, 2013
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Robbery at J.P. Morgan. WSJ Editorial
ReplyDeleteTeam Obama tries to destroy Jamie Dimon for not toeing their line.
The Wall Street Journal, September 27, 2013, on page A18
http://online.wsj.com/article/SB10001424127887324619504579026860113942236.html
Government lawyers are backing up the truck again at J.P. Morgan Chase to extract another haul from the country's largest bank. State and federal attorneys have burrowed close enough to J.P. Morgan's vault that the bank is considering a staggering $11 billion settlement related to mortgage-backed securities, including one of the largest fines ever against a single company.
Trying to keep an accurate tally of the government investigations of J.P. Morgan has become a full-time job. This week the New York Times counted investigations in at least seven federal agencies, while the Journal counted seven investigations in the Justice Department alone, plus inquiries at other agencies.
Keep in mind that this is one bank that did not need taxpayer assistance in 2008 or since. And this partly explains why Morgan CEO Jamie Dimon is the Obama Administration's favorite Wall Street target. Washington in this era prefers dependent banks that quietly accept their role as money pots to be raided when politics demands. Mr. Dimon keeps deviating from the Obama script.
***
First the CEO explained how the rhetoric about the Dodd-Frank financial reform wasn't matched by its costly and confusing regulations. Though a lifelong Democrat, he said publicly in 2012 that Washington's antibusiness rhetoric was a drag on confidence that hurt the recovery. He even hinted that he preferred a change in the White House.
All of that gave the regulators motive to dislike Mr. Dimon, but their opportunity to punish him came when J.P. Morgan made serious errors in failing to oversee the "London Whale" trades. The trades cost shareholders $6 billion and were even costlier to the bank's reputation as a risk manager. Senior managers and traders were fired, Morgan directors did their own probe, and shareholders have stuck by Mr. Dimon.
But that wasn't enough for Democrats, who decided the trading blunders were the greatest financial scandal since Enron. Senator Carl Levin unleashed his investigators on the bank, though the trade losses had no public costs. But the politicians were furious because the problems came to light almost two years after the enactment of Dodd-Frank. This punctured the Beltway myth that the same regulators who had failed to foresee the last crisis now had the power to spot the next one.
And now the feds are making Morgan's shareholders pay for this embarrassment. Morgan investors recently had to pay another $920 million to settle U.S. and U.K. charges related to the Whale. The charges are that the bank failed to supervise its traders and had compliance deficiencies. Yet how did the government not know of the deficiencies when regulators all but live at the bank and J.P. Morgan may be the most regulated institution in the world? They never acted to stop those deficiencies until Morgan itself reported them.
Now each day seems to bring details of another government investigation—about mortgage underwriting, mortgage-backed securities, energy markets, credit cards, other Whale-related cases and more. Since 2008 J.P. Morgan has spent more than $18 billion on legal expenses.
The Journal recently reported that the bank planned to add 5,000 employees to its risk and compliance teams this year—bringing the total to 15,000 from 8,000 last year—and spend an additional $5 billion. This year J.P. Morgan has been holding 50 meetings per month between its senior executives and regulators.
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[continuing...]
DeleteThe irony is that Mr. Dimon was the rare bank CEO who avoided the credit excesses that ruined so many competitors. Despite regulations that encouraged banks to gorge on mortgage securities, he stuck to a sensible diet. Even regulators viewed J.P. Morgan as such a bulwark of sound banking that they called on it to rescue failing firms like Bear Stearns.
Yet the current charges include alleged wrongdoing by Bear Stearns before regulators begged J.P. Morgan to rescue it, as well as alleged wrongdoing by Washington Mutual WMIH -1.65% before regulators begged Morgan to buy that bank too. In the heat of the crisis in September 2008, few big banks were healthy enough to buy WaMu. Then-FDIC Chairman Sheila Bair said the situation "could have posed significant challenges without a ready buyer." Referring to J.P. Morgan's willingness to step forward, Ms. Bair said, "Some are coming to Washington for help, others are coming to Washington to help." Now Washington is suing Morgan for having helped.
Even more preposterous is that the alleged victims in the government suits are almost all large institutions, including Fannie Mae and Freddie Mac. The government portrays them as unwitting investors in mortgage securities when their own titanic mortgage bets triggered a $188 billion taxpayer bailout.
Who would have guessed that five years later the great villain of the mortgage crisis would be the guy who not only didn't create it but helped to end it? Meanwhile, in 2008 Jack Lew helped to oversee a disaster at Citigroup that would require serial taxpayer bailouts from Treasury and the Federal Reserve. Mr. Lew escaped New York for the Obama Administration and five years later he runs the Treasury.
Mr. Dimon's worst sin in Washington's eyes may be that J.P. Morgan earned record profits last year despite the Whale losses. Investors continue to express their view that—political assaults aside—the underlying enterprise is healthy. In July Morgan stock hit its highest point in more than a decade. The shares have since declined but still trade above their level prior to the Whale news in 2012.
***
All of this is a lesson about the politicized world of finance after Dodd-Frank. Mistakes such as the Whale trades ought to be a matter settled among shareholders, directors and management. But politicians and regulators now believe that the big banks all work for them. Washington is looting J.P. Morgan, and may yet string up Jamie Dimon, as a lesson in what will happen to any banker who dares to disagree with his Washington bosses.