JP Morgan: Are investors about to clip Jamie Dimon's wings?
The all-powerful chairman and chief executive of JPMorgan, weakened by gigantic trading losses on his watch, faces calls to split his roles
Nikhil Kumar is The Independent's New York correspondent. He was formerly assistant editor on the foreign desk and has also done a variety of jobs on the city desk, where he wrote about markets, commodities and other business and economics topics.
Tuesday 21 May 2013
There could be thunderstorms in Tampa, Florida, this afternoon, not just in the literal sense – there’s a 50 per cent chance of rain – but, as far as Wall Street is concerned, when shareholder votes are counted at JP Morgan’s annual meeting at its Highland Oaks Campus on the east side of the city.
Among the proposals for which final voting tallies will be announced is a non-binding one calling for the separation of the jobs of chairman and chief executive.
Thus far they’ve been fused in the silver-haired personage of Jamie Dimon, who burnished his credentials during the financial crisis. That storm took down Lehman and its overleveraged brothers – but JP Morgan emerged bigger and stronger, and Wall Street gave the credit to Mr Dimon. A shareholder rebellion against the 57-year-old would be a massive blow for a man who just last year was being mooted as a possible Treasury Secretary by none other than Warren Buffett.
Mr Buffett remains a fan – as do others, including a fund manager at the JP Morgan shareholder T Rowe Price – with the Sage of Omaha saying recently that he is 100 per cent for Mr Dimon holding on to both his hats at the helm of the bank. But for his critics, including two of country’s most prominent shareholder advisory firms, Institutional Shareholder Services and Glass Lewis, it is about time that the powerful bank boss got a boss of his own.
Exhibit A in the case against Mr Dimon is the massive loss suffered when a series of trades involving complex financial instruments went awry (losses which he initially appeared to dismiss; he has since changed his tune). The so-called “London Whale” debacle, named after the Wall Street moniker for a London-based trader at the centre of the fiasco, dealt the bank a blow worth around $6bn (£4bn), triggered a series of regulatory inquiries and Congressional scrutiny, and led JP Morgan’s directors to slash Mr Dimon’s pay for 2012. His package fell to $11.5m from $23m for 2011.
“Even a Master of the Universe can be swallowed by a London Whale. We need a system of checks and balances to protect shareholders,” said Lee Saunders, the president of the AFSCME union group which, along with the City of New York Comptroller’s Office, Hermes Fund Managers and other investors, put forward the proposal to split Mr Dimon’s roles. The New York Comptroller, Jon Liu, said that as far he was concerned, “without an independent board chair, JPMorgan will be unable to restore investor confidence and ensure future compliance”.
For critics of Mr Dimon’s dual role, the Whale loss shows how important it is to step up oversight at every level of the bank, including the board. And true oversight involves appointing an independent chairman who can hold the chief executive to account, particularly at what is America’s biggest bank holding company – bigger than Citigroup, Bank of America or Wells Fargo.
Although proposals to split Mr Dimon’s roles have been tabled in the past, they received little attention before the Whale loss. Last year, however, votes representing around 40 per cent of shareholders came down on the side of appointing an independent chairman. But that was very soon after the Whale losses first emerged, and when their full extent wasn’t known. Those in favour for a split are hoping that this year they can cross the 50 per cent threshold – and thus send a powerful message to Mr Dimon, and Wall Street in general.
The case for the defence has been articulated by the company itself, as JP Morgan’s directors – a number of whom are themselves in the firing line, with both Glass Lewis and ISS advising against the re-election of a clutch of directors – have strongly endorsed Mr Dimon’s position, advising shareholders to think twice before backing the motion. They say that not only should the board be allowed to retain the flexibility of deciding the question of whether the jobs should be separate, but also that there is little evidence to suggest that an independent chairman is always a good thing.
As for questions of oversight, in a letter to shareholders earlier this month, the bank’s presiding director, Lee Raymond, and William Weldon, the chairman of the board’s governance committee, said they’d held the bank and Mr Dimon to account, “even though the company achieved record earnings in 2012”.
“During Mr Dimon’s tenure, and largely with the current board in place, our stock has outperformed the industry averages and most other financial services companies, and we have achieved a top-two leadership position in each of our lines of business,” they wrote.
Mr Dimon’s supporters also point out how far the bank’s share price has come, despite the Whale losses. The stock began 2013 at just over $40 apiece. Since then, strong quarterly earnings have helped to drive the price up to over $50.
Already, even before the meeting commences, the proposal has sparked controversy, after the firm that’s been collecting ballots cut off those who put forward the proposal from receiving early voting tallies. The move by Broadridge was triggered following a request from a Wall Street lobby group. JP Morgan’s managers, however, continued to receive updates on how the voting was going.
Mr Dimon himself has not said much in recent days – at least not publicly. But earlier this month he was reported to have to hinted that “I might leave” if the proposal does succeed today. On the other hand, if the proposal fails to attract enough support, it will cement his position as one of the most powerful – if not the most powerful – bank bosses of our time.
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