JPMorgan Chase, America's biggest bank, reported its first net loss in nearly a decade last Friday. It is the bank's first quarterly loss during the tenure of CEO Jamie Dimon, a man regarded as one of the wisest and best bank executives in the world, because his bank makes a lot of money. Except for this last quarter, when his bank posted a loss of $380 million.
I recently went on TV and argued that Jamie Dimon should be fired, because his bank does a lot of horrible, law-breaking stuff, like "manipulating energy markets" and "effectively bribing Chinese officials by giving their children jobs." The other people on TV with me argued that Jamie Dimon should not be fired because his bank makes a lot of money, which proves that he is good at his job. Now that his bank lost money, will everyone agree that Dimon is bad at running a bank?
Probably not, because in one important sense, this loss doesn't really "count." The loss didn't happen because the things JPMorgan does to make money stopped making money, the loss happened because JPMorgan has spent a fortune -- a truly staggering amount of money -- defending itself against legal inquiries and paying fines for bad behavior. This quarterly loss is the result of the bank needing a couple billion dollars to spend on lawyers and fines and fees, with a few billion set aside this quarter as "part of a $23 billion pot the bank has set aside to cover mounting legal costs." Take away those costs, and you have a bank that is making almost as much money as usual. "Excluding litigation expense and reserve release," according to Reuters, "the company posted a profit of $5.82 billion, or $1.42 per share."
As Felix Salmon has said, a fantastically profitable bank is a bank that is extracting rents from the economy. A bank that would be fantastically profitable if it weren't for the expense of dealing with myriad investigations into its corrupt and criminal activities is a bank that would seem to have reached the limits of its rent-extraction strategy.
Having failed to prevent the abuses that led JPMorgan here, Jamie Dimon's now struggling to control the damage. Dimon announced last month -- that is, in late 2013 -- that the bank had added 4,000 new compliance officers and was spending $1 billion on trying harder to not break the law. Dimon met personally with Eric Holder recently in order to try to negotiate a massive settlement to make his bank's many legal problems go away, but those talks, so far, haven't gone anywhere.
Salmon now asks whether JPMorgan is being "unfairly singled out," and his conclusion is basically that they are indeed being singled out, but that it's not unfair. The bank has been fantastically profitable for years, thanks to the backing and implicit guarantee of the U.S. government, and the bank's size and health make it an attractive target for regulators looking to punish the financial industry without, you know, destroying the financial industry. Dimon's defenders point out that some of JPMorgan's troubles relate to misdeeds perpetrated by other banks -- Bear Stearns and Washington Mutual -- before they were acquired by JPMorgan. Of course, not long ago, those acquisitions were a major part of the JPMorgan success story. Who could've predicted that buying failed banks on the cheap at the nadir of the financial crisis would end up being anything other than a massive windfall?
Asked whether he regretted either of those deals, Dimon told analysts, “We didn’t anticipate that we’d be paying anything for prior losses for Bear Sterns.”
He continued: “And in WaMu, we don’t believe we’re responsible, by contract. But that does not mean that people can’t come after you. So that was a little bit of a lesson learned.”
Does that sound like a brilliant, forward-thinking CEO? Did Dimon really think he'd be able to snatch up Washington Mutual for a bargain price, absorb only the lucrative and profitable consumer retail and credit card arm and not face exposure to the failed bank's liabilities? (Obviously he did think this. JPMorgan is pushing to have the FDIC pay for WaMu's misdeeds. In other words, socialize the losses and privatize the gains remains the secret to JPMorgan's stunning success.) Dimon's defense now rests not on his bank's profitability, but on the fact that no one could've predicted that the U.S. would begin aggressively enforcing securities laws.
While his bank enriches a small army of corporate attorneys, Dimon is still going about playing the respected elder statesman and economic sage. Just last week he opined seriously and soberly on the debt crisis at a financial conference in Washington. Earlier this month he and some of his bank executive friends met with Barack Obama to tell him, in person, that the debt limit is a very serious and important issue that must be dealt with seriously. Then they met with House Republicans, and said similar things. Then Dimon said more of the same things to a Bloomberg View columnist. "It's a terrible way to go about this," Dimon said. (One thing Wall Street could do to help avoid these sorts of market-spooking crises is stop funding the Republican Party: "In 2012, the industry gave 239 House Republican candidates about $16 million, or, on average $67,175 apiece. ")
None of those stories, on Important Man Jamie Dimon's Important (rote, empty, useless) Words on the Debt Fight, mentioned that Dimon's previous trip to Washington involved a meeting with the United States attorney general in which he attempted to settle multiple ongoing criminal investigations, at a cost of many billions of dollars. For some reason his name is rarely preceded by the words "master financial criminal" in the financial press. (OK, fine, that is an unfair exaggeration, a Master Financial Criminal would not lose so much money in legal fees.) Dimon's curious ability to remain insulated from blame for the flagrant abuses of his apparently unmanageable megabank looks undiminished. The bubble that I failed to penetrate on my visit to the NYSE remains intact. Jamie Dimon won't be fired any time soon.
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