At annual meeting, chief executive tries to show investors and analysts that last year’s London Whale trade was an anomaly
JP Morgan Chase CEO Jamie Dimon has dismissed fears over last year’s huge trading loss at the company, insisting to investors: “Whatever it is, the company will be fine.”
That’s a long way from the fears around JP Morgan just 10 months ago, when metastasizing losses around the risky London Whale trade dented the bank’s aura of invincibility compared to its rivals. Dimon, who spoke at JP Morgan’s annual investor meeting in front of about 250 investors and research analysts on Tuesday, made a point of treating the incident as an anomaly.
Last year, several JP Morgan executives, including Ina Drew, announced their departures as news of the whale losses leaked out. But on Tuesday Dimon underplayed the effect of trading mistakes on staffing.
“No one at JPM ever, ever worries about losing their job for making a mistake,” Dimon said, asking: “Why would you work there?” He went on to denounce infighting and sniping among colleagues that he said hurts rivals. “You worry about getting shot in the back of the head. That is what destroys these companies.”
Still, some analysts were skeptical. Mike Mayo, a famously pugilistic analyst with CLSA, asked Dimon about functioning under a higher level of scrutiny: “If you chew gum and throw it on the sidewalk, you’re ‘in trouble’ because of the whale loss,” Mayo said. Dimon parried by saying that the bank has navigated through tougher times, including the financial crisis.
Some of those tougher times may be coming again. Dimon identified several “black swans”, as random and devastating financial events are known, that could hurt the bank.
Dimon also talked about potential shocks to JP Morgan and the financial system, including the eurocrisis, which he called a “roller coaster”. He recalled his trip to the World Economic Forum at Davos last month. “When I was at Davos everyone was benign” he said, contrasting that with this week’s queasy market reaction to Italian elections.
On the euro, Dimon said, “You are going to feel good sometimes, other times you will feel sick to your stomach. Sometimes you feel that the euro will be saved, other times no way.”
Dimon also weighed in, indirectly, on the current congressional fight over taxes and the batch of deep spending cuts known as the sequester. He called fiscal uncertainty “a legitimate thing to be worried about”.
While many in the financial markets have been worried about whether interest rates will rise, JP Morgan’s co-head of investment banking, Daniel Pinto, said the bank will only make money if they do. He estimated that every percentage point rise in interest rates would benefit JP Morgan by $400m.
The company did, however, talk about its plans to rein in expenses.
During the day, JP Morgan announced that it would be reducing headcount, with 17,000 jobs lost over the next two years. In 2013, the bank expects to save about $1bn by reducing 6,000 jobs in its division that deals with consumers, then adding back 2,000 jobs in the credit card business. The bank stressed that it does not plan on layoffs, but will instead depend on attrition for this year’s job cuts or will redeploy some workers.
In 2014, about 15,000 job cuts will come from the mortgage division, which executives said has fewer foreclosures and delinquent mortgages to process. Chase held mortgages on 640,000 homes between 2009 and 2012, and 60% of those were either paid off or on track to be while 9% were either in foreclosure or default. The bank plans to cut expenses in its mortgage business by $3bn compared to 2012.
Dimon defended JP Morgan’s plan to release reserves that it has been holding in case of more foreclosures or delinquencies. Instead, JP Morgan will allow that money to boost its profits. “It’s not that I’m trying to manipulate our earnings,” Dimon told analysts. His argument hinges on the expectation that foreclosures will continue to decline.
Those reductions are in line with rivals including Bank of America, which announced last fall that it would be cutting 16,000 jobs, and Citigroup, which announced 11,000 job reductions.
Dimon also argued against splitting up the roles of chairman and CEO, which he currently occupies. He argued that chairmen and CEOs often team together “in cahoots” and intimidate the other members of the board of directors, who become afraid to disagree. He suggested that the aftermath of the London Whale, in which an outside director was appointed to run a particular crisis inquiry, was an ideal arrangement.
After a long day of complex charts and numbers, Dimon, in a stylish suit and his trademark New York accent, came onstage at the end to take questions. He won favor with the crowd with lighthearted asides and sparring with analysts including CLSA analyst Mike Mayo.
After Mayo asked Dimon why JP Morgan did not imitate UBS in keeping a bigger buffer of cash, the two went back and forth until Dimon retorted: “Well, I’m richer than you.”
Dimon also quipped to laughs from the crowd that JP Morgan’s chief risk officer, John Hogan, was a “son of a bitch” for taking a sabbatical for a few months as the bank is still honing the ways it manages risk in the wake of the whale trade.
Other executives who presented during the day also spoke about some of the larger pressures on the bank, including regulation. Dimon said the bank lost money because of the Durbin amendment, which reduced the amount of fees that payment processors can collect.
Daniel Pinto, the co-head of JP Morgan’s investment bank, took a parting shot at the Volcker Rule, a regulation that is part of the Dodd-Frank financial reform act and currently in draft form. It will encourage banks to separate their investing activities from their advice to clients. Pinto said that JP Morgan would be currently in compliance with “the letter and spirit” of the Volcker Rule.
“I think we will see the effect of Volcker two or three years down the road,” Pinto said. But he predicted it would reduce the amount of cash available to support trading by banks. “It will hurt market liquidity in some way.”
Dimon’s airy assurance in front of the crowd underscores the confidence the bank brought to its annual investor meeting. He was the closing act, and his final speech and Q&A with investors often sounded like a particularly well-honed sales pitch.
He assured the crowd that not only is the banking sector safe, but that new regulatory rules mean that “Banks are going to have too much capital in two years. They won’t know what to do with it.” He touched upon the sometimes controversial issue of compensation and bonuses by telling the crowd that the bank refused to sign guaranteed contracts with it bankers: “There are no special deals in this company,” he said, adding in an urgent stage whisper: “Zero!”