Daily Archives: April 7, 2016

Jamie Dimon’s message to Bernie Sanders

CNBC:

Even by Dimon’s standards, the letter published on Wednesday is long-winded at 50 pages. He nevertheless outperforms peers on both content and readability. There’s an honest assessment on JPMorgan’s sluggish diversity drive and an unexpected nod to the efforts of on-site medical staffers.

The dominant theme is defending the scale of an institution with $2.4 trillion of assets. Dimon is blatant in some areas, as when he notes that JPMorgan holds enough capital to absorb not just the losses theFederal Reserve stress tests ascribed to his bank in last year’s stress test, but the entire $222 billion at the top 31 banks. There’s also a whole section entitled “Does the United States really need big banks?”

Dimon asserts there’s now “virtually no chance of a domino effect” between big banks if one gets into trouble, as they lend very little to each other. While true, it also sounds too much like fighting the last battle. Other risks, including the increasing similarity of assets they hold, go unaddressed.

Often, however, the message is more subtle. On burgeoning financial technology, for example, Dimon says funding for non-banks is likely to dry up in a crisis. In other words, beware the shadow banks new regulations may have helped create. He also points out how size affords banks like JPMorgan the ability to fight back effectively against would-be disruptors in payments and lending.

Dimon even plays the patriotism card. The bank dumped restricted business with thousands of clients after fraud reviews because just one mistake could result in severe consequences. That meant abandoning relationships where he otherwise might “have been supportive of countries around the world that are allies of the United States.”

He can be forgiven the occasional hyperbole given the opposition. As the likes of Democratic presidential hopeful Bernie Sanders and newly installed Minneapolis Federal Reserve President Neel Kashkari advance the carve-up cause with rhetorical flourishes of their own, the banking industry will have to make its case for staying big. Dimon is one of the few who might be up to the task.

Ex-UBS Chief In Frame To Head Bank Watchdog

A former Deutsche Bank and UBS executive has emerged as a surprise contender to become Britain’s top banking regulator.

Sky News has learnt that Mark Yallop, whose CV also includes a spell as chief operating officer of Icap, the interdealer broker, is in the frame to become the next chief executive of the Prudential Regulation Authority (PRA).

Mr Yallop is already a non-executive director of the PRA, having been appointed in the summer of 2014, but a Whitehall source close to the process said he had indicated he would be interested in succeeding Andrew Bailey as its chief executive.

The news of Mr Yallop’s involvement in the process comes as George Osborne, the Chancellor, closes in on a decision about who will take over at the PRA.

Read on.

Citigroup’s new bonus cap fails to sway executive pay critics

Citigroup has failed to mollify critics of its executive pay scheme even after the bank introduced a new cap on bonuses to address their concerns.

The bank, which this year increased the potential pay package for chief executive Michael Corbat by 27 per cent to $16.5m, on Wednesday unveiled changes to how it calculates the bonuses.

But the shake-up was not enough to satisfy Institutional Shareholder Services and Glass Lewis, the influential corporate governance groups that advise investors on how to vote.

Read on.

J.P. Morgan Chase Defends Against Calls from Shareholder for a Breakup

J.P. Morgan Chase & Co. says it is huge, but only in the best way, and just sprawling enough to serve its clients without being unmanageable.

Those were among the takeaways as the country’s biggest bank by assets again argued that its size is a benefit and not a problem that should worry shareholders or regulators.

In a proxy released Thursday morning, J.P. Morgan pushed back against a shareholder proposal for a bank breakup, pointing to its business synergies, benefits of scale and value to clients.

Less than 24 hours earlier, however, Chairman and Chief Executive James Dimon’s annual shareholder letter touted the virtues of the bank’s size and ability to absorb losses—for the entire industry in certain cases.

J.P. Morgan “alone has enough loss absorbing resources to bear all the losses, assumed by [a stress test issued by the Federal Reserve], of the 31 largest banks in the United States,” Mr. Dimon wrote in his 50-page letter. He added that large U.S. banks are “far stronger” because of regulations and higher capital requirements.

Yet J.P. Morgan has continued to face more forceful questions from analysts, investors and shareholders during the past year over whether it might be better for shareholders if the global bank broke itself up into smaller, more manageable units. The issue of whether banks should be broken up is also a consistent topic on the presidential campaign trail.

The bank said in its proxy that the board reviewed a breakup analysis with management that was presented throughout its February 2015 investor day. It “concurred in the conclusion that continuing our strategy and delivering on our commitments is the highest-certainty path to enhancing long-term shareholder value.”

That presentation also referenced $18 billion in pretax synergies, and the bank added Thursday that each of its businesses benefits from its $9 billion in annual technology spending, which includes more than $600 million the bank expects to spend this year on cybersecurity.

The shareholder vote was requested by Bartlett Naylor, a shareholder activist and a financial policy advocate at the liberal lobbying group Public Citizen. He and others have raised the issue multiple times in previous years with other big banks as well, without getting much traction.

Read more: http://www.nasdaq.com/article/jp-morgan-chase-defends-against-calls-for-a-breakup-20160407-00261#ixzz45AZ2NPxy

MetLife : ‘too big to fail’ tag is ‘arbitrary, capricious’: judge

Federal regulators’ decision to designate insurer MetLife Inc as “too big to fail” was “arbitrary and capricious,” the U.S. judge who struck down the determination last month wrote in an opinion that was unsealed on Thursday.

Commenting on the judge’s decision, U.S. Treasury Secretary Jack Lew said the government will vigorously defend the work of the Financial Stability Oversight Council (FSOC), made up of the heads of the country’s financial regulatory agencies, which designated MetLife as a systemically important financial institution in 2014.

“This decision leaves one of the largest and most highly interconnected financial companies in the world subject to even less oversight than before the financial crisis,” Lew said in a statement. “I am confident that we will prevail.”

Obama administration sources familiar with the case said on Thursday they believe that a U.S. government appeal of the decision is likely.

Read on.

Payday lending takes next regulatory priority

Consumer Financial Protection Bureau Director Richard Cordray sat before Senate one last time before he goes to trial with PHH next week over his leadership of the bureau.

And compared to past hearings, this one went pretty smooth for the director, especially considering only 2 years ago he referred to questions from Congress as “offensive.”

Apparently, since then, there are more reasons to praise the work of his regulatory agency.

So what was different today?

This time around Director Cordray came to battle with an army of supporters, keeping the atmosphere in the room extremely calm compared to previous years.

In past semi-annual hearings, Cordray defended the bureau against attacks on itsannual budget, massive data collection, management and lack of oversight, items that barely came up in Thursday’s hearing.

One big reason behind this year’s calm hearing could be the fact that since the CFPB became a watchdog for consumers 5 years ago, it has obtained $11.2 billion in relief for 25 million people.  A number that has skyrocketed from the $3.8 billion reported two years ago.

Before the hearing, the panel received petitions from hundreds of thousands of Americans supporting the bureau’s work.

Here are two examples:

  • National Community Reinvestment Coalition: “NCRC applauds the Consumer Financial Protection Bureau’s final rule expanding the data collected around the Home Mortgage Disclosure Act… We are particularly pleased that the CFPB has followed the recommendation of NCRC and other advocacy groups to disaggregate the data on race and ethnicity. The CFPB has also shown careful consideration of potential privacy issues in this process, which should assuage any concerns surrounding the collection of the data.”
  • National Fair Housing Alliance: “Prior to the establishment of the CFPB there was an obvious void in federal oversight of financial institutions operating to bring a panoply of financial products and services to consumers. This is evidenced by the sheer number of fair lending issues the Bureau is now able to address using its authority under Dodd-Frank. The millions of consumers who have received relief from discriminatory practices are a testament to the Bureau’s necessity. NFHA fully supports the fair lending regulatory and enforcement work the CFPB has undertaken and urges the Committee to do everything within its power to ensure that the agency is fully equipped to continue its work to make our financial markets fair for America’s consumers.”

Read on.

Silence is Deadly. Lessons Learned.

The audience was primarily internal auditors at my presentation this week at the 11th Annual Fraud Summit, held at the University of Texas at Dallas, where I teach, sponsored by the Institute of Internal Auditors, the Association of Certified Fraud Examiners, and Information Systems Audit and Control Association.
I talked about fraud and how as internal auditors there is a clear responsibility on our part to question what we see, if there is doubt, if something is not quite right, if something is not adding up. I mentioned that a large part of the financial crisis could have been avoided if the banks had followed their own published ethics policies and listened to their employees. And the fact that all of the large financial institutions which had either failed or been bailed out  during the 2008 debacle had been given clean audit opinions, including Lehman Bros, Bear Sterns, Washington Mutual, Fannie Mae and Citigroup.
I asked, what about the auditors? Were they asleep at the switch or just plain stupid? Why did they not question if they had any doubts. And why did the banks and employees not follow their ethics policies?
Regards,
Richard