JP Morgan is sometimes called ‘The House of Dimon’ for the all encompassing presence of its CEO, Jamie Dimon. For years he has been unquestionably the most powerful banker in the United States, and as such, the de facto voice of Wall Street.
But over the last year that has slowly changed. His friends in Washington are deserting him, and tomorrow, JP Morgan shareholders will vote on whether or not he should keep his total grip on the bank. Dimon is both CEO and Chairman of the Board at JPM — many believe that he should leave his role as Chairman.
This vote is the culmination of months of scandal — scandal that would’ve seemed impossible during the financial crisis when Dimon, then a strong Obama supporter, intoned that bank CEOs that had lead their companies to destruction should be served “Old Testament Justice.”
The public loved it: Here was a handsome, straight-talking leader with a slight Queens accent. A Harvard Business grad who would get on Fox Business wearing Wrangler Jeans and speak about the fact that his name was being floated around for Treasury Secretary with light, good humour. Dimon is funny, charming, and excellent on camera. He wears cuff links given to him by the President of the United States.
In a time when Americans were scared and confused about what was happening to them, the CEO of JP Morgan could be trusted to give it to them simply.
Jamie Dimon became a household name.
As for his House, JP Morgan never needed a bailout. In fact it bought the broken Bear Stearns in what can only be called a total firesale (Bear was worth over $11 billion and JPM paid $260 million for it). It also bought Washington Mutual and became the biggest bank in the country while still consistently beating analyst estimates on profit.
But with size comes increased scrutiny and, more importantly, increased complexity. Legacy lawsuits from the mortgage crisis continued to pile on, but that wasn’t so bad, many of those transgressions could be attributed to what was done at Bear Stearns.
The whale in the teapot
At least that was the story until last spring, when reports of strange activity in the credit markets started making headlines. Reporters asked Dimon about a huge position that an unknown trader in JP Morgan’s Chief Investment Office (CIO) was making. They heard it was a whale, Dimon said it was a “Tempest in a Teapot.”
It was not. It was a $6 billion trading loss that employees in the CIO hid from their bosses for months, and in doing so, only made worse. Heads rolled, including that of CIO head Ina Drew. Still, Dimon, Presidential cuff links and all, was forced to testify in front of Congress.
That’s when the narrative changed. The switch flipped. Instead of confident, Dimon was arrogant. Instead of wanting to meet out Old Testament Justice, he wanted the government to accept his bank’s report on the ‘London Whale’ and let JP Morgan handle the affair on its own.
Too big to manage
His critics charged that Dimon had lost control and that JP Morgan may be too big to manage for anyone.
Evidence to support that thesis, at first, started trickling out and then came in steady streams. In January, JP Morgan faced an order to tighten its money laundering controls. At the same time, the bank faced sanctions for withholding documents related to the Bernie Madoff Ponzi scheme — JPM was his banker for decades.
Most recently, Federal regulators have warned Dimon that Washington is growing tired of JP Morgan’s antics. Eight agencies are investigating the bank right now, including the Federal Energy Regulatory Commission, which will likely pursue action against the bank for trading in the California and Michigan electric markets, says the NYT.
So yes, JP Morgan is still reporting healthy profits, but for many on the board that’s not enough. They want better governance, they want the boss of all bosses to have a boss. That is, after all what the Chairman of the Board is supposed to do — ensure that the CEO is working in the best interest of shareholders.
Last year, 40% of JP Morgan shareholders voted to strip Dimon of his Chairmanship. This year it looks to be more. Proxy advisors, Institutional Shareholder Services and Glass Lewis, have advised JP Morgan shareholders to vote in favour of splitting the two roles. Massive pension fund CalPers has said that it will vote for the split as well.
A vote of loyalty
It is not in Dimon’s nature to take anything lying down, and so he hasn’t. He has said that he will leave the bank entirely if the shareholders votes him out as Chairman, even though the vote is only advisory.
Not only that, but last week, The Securities Industry and Financial Markets Association (an organisation of which JP Morgan is a part) asked Broadridge, the company tallying incoming shareholder votes, to stop sharing the results with Dimon’s opponents.
His opponents, in turn, filed an inquiry with the SEC to see if withholding that information is legal, according the Reuters.
Tomorrow there will be protestors outside the bank’s headquarters, but inside the bank sources tell Business Insider that no one is worried. Dimon’s army of traders, bankers, lawyers, etc. remain loyal to the chief.
That said… it’s not up to them.