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.

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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?

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Regards,

Richard

Richard M. Bowen III
richard@richardmbowen.com
www.richardmbowen.com/
214- 604-5492

Leaked Files Offer Many Clues To Offshore Dealings by Top Chinese

In this story

• Relatives of at least eight members of the top leadership of China’s Communist Party have offshore holdings
• So do China’s super wealthy business executives and kung fu star Jackie Chan
• Offshore companies incorporated in offices in China and Hong Kong account for 29 percent of Mossack Fonseca’s active companies worldwide

For months, Gu Kailai worried about a secret that threatened to upend her comfortable life and stop her husband’s climb to the top rungs of China’s political leadership. So she took action.

In a hotel room in the southern Chinese megacity of Chongqing, she mixed tea and rat poison in a small container as Neil Heywood, a British business associate, lay drunken and dazed on the hotel bed.

Then she dripped the mixture into Heywood’s mouth.

Hotel staff found his body two days later.

Gu eventually confessed to the 2011 crime. She had been driven to murder, she said, by Heywood’s threats to expose a dark secret: millions of dollars in real estate held in an offshore account on the other side of the world.

If Heywood revealed that she had used a company in the British Virgin Islands to hide her ownership in a villa in the south of France, she figured, the scandal would jeopardize the accession of her husband, Bo Xilai, to the Politburo Standing Committee, a body of fewer than 10 men that stands at the apex of political power in China.

Just over two weeks after the murder — in a previously unknown postscript — the ownership structure of Gu’s offshore company suddenly changed. Her shares in the company were transferred to another business associate, perhaps in an effort to further obscure her ties to the company or to make it easier for the trusted associate to act swiftly as events unfolded, a trove of secret records shows.

In the end, nothing could hide Gu’s secrets. Her pursuit of offshore anonymity ended in death for Heywood and prison for her and her husband — and added more fuel to longstanding concerns about how members of China’s elite use tax-haven hideaways to conceal their wealth.

The leaked documents that provide fresh details about Gu’s overseas dealings also reveal a wealth of new information about the offshore holdings of the families of other powerful Chinese. The documents reveal that Xi Jinping, China’s “Chairman of Everything,” — his titles include president, Communist Party chief and military chief — has a brother-in-law who has had companies in tax havens. Relatives of at least seven other men who have served on the tiny Standing Committee — including two members currently serving with Xi — also have offshore holdings, the records show.

One of these relatives is a grandson-in-law of the late Chairman Mao Zedong, the founding father of the People’s Republic of China.

Read on.

Fed and presidential campaign: where candidates stand

4 Traders:

Three of the five candidates running for U.S. president – Donald Trump, Ted Cruz and Bernie Sanders – have said they supported initiatives that would subject the Federal Reserve’s policymaking to greater scrutiny or change its policy framework.[L3N16W46S]

Here are details of the candidates’ views and the two proposed bills:

CANDIDATES:

* DONALD TRUMP, the Republican front-runner, tweeted in February, “It is so important to audit The Federal Reserve” – a reference to an “Audit the Fed” Senate bill that the central bank fiercely opposes. He has said the Fed played a role in stoking asset bubbles and predicted a “very massive recession.” A spokeswoman declined to elaborate on Trump’s views on Fed independence.

Last year, before the Fed raised rates in December, Trump accused the central bank of keeping rates low at the bidding of President Barack Obama, something the White House has denied.

“Janet Yellen is highly political and she’s not raising rates for a very specific reason: because Obama told her not,” Trump told a news conference in November. “He doesn’t want to see a big bubble burst during his administration.”

* TED CRUZ, the No. 2 Republican candidate, supports Fed audits and a commission to consider a monetary rule tied to gold rather than discretion, according to spokeswoman Catherine Frazier. The United States dropped the gold standard in 1933.

In a Republican debate in October, Cruz said: “I think the Fed should get out of the business of trying to juice our economy and simply be focused on sound monetary policy and monetary stability, ideally tied to gold.”

* BERNIE SANDERS, the No. 2 Democratic candidate who as senator backed Audit the Fed, said in an emailed statement that such an annual policy review would help make the Fed “a more democratic institution that is responsive to the needs of ordinary Americans rather than the billionaires on Wall Street.” He also opposes Fed payments to banks on excess reserves.

In a New York Times column published in December, Sanders wrote: “To rein in Wall Street, we should begin by reforming the Federal Reserve… The sad reality is that the Federal Reserve doesn’t regulate Wall Street; Wall Street regulates the Fed.”

Sanders also criticized the way Fed officials are selected:

“Banking industry executives must no longer be allowed to serve on the Fed’s boards and to handpick its members and staff,” he wrote. “Board positions should instead include representatives from all walks of life — including labor, consumers, homeowners, urban residents, farmers and small businesses.”

Today, bankers and heads of business, industry, unions, and community groups and organizations serve as district Fed directors.

* HILLARY CLINTON, JOHN KASICH

Clinton, the Democratic front-runner, and the third-place Republican Kasich have not commented publicly on Fed policy independence.

LEGISLATION:

* The Federal Reserve Transparency Act, known as “Audit the Fed”, was introduced by Republican Senator Rand Paul early last year. It would instruct the Government Accountability Office, a non-partisan congressional watchdog agency, to review and evaluate the Fed’s monetary policy decisions, repealing a decades-old firewall between the GAO, which now reviews other Fed activities including bank regulation, and policy decisions on interest rates. The bill has struggled to gain Senate support and was referred to a committee.

* The Fed Oversight Reform and Modernization Act (FORM), sponsored by Republican Representative Bill Huizenga, passed the House in November. Among other changes to Fed structure and bank supervision, the bill would tie policy decisions to a single “directive” rule. An audit could be launched or congressional testimony called if the GAO determined the Fed strayed from the rule. The bill was sent to the Senate and also referred to its banking committee.

* GAO Managing Director Orice Williams told Reuters that, were either of the bills to become law, the agency would take a non-partisan approach and hire experts as needed to do the job.

Larry Summers criticizes Fed’s Kashkari for ‘blatantly political’ comments

Larry Summers needs to crawl under a rock…

ST. LOUIS — Former Treasury Secretary Lawrence Summers on Wednesday sharply criticized the “style and tone” of Federal Reserve Bank of Minneapolis President Neel Kashkari’s recent push to address whether taxpayers may have to rescue the biggest U.S. banks in the future.

Kashkari, a senior Treasury official during the financial crisis who became president of the Minneapolis Fed in January, said in a February speech that postcrisis financial reforms didn’t go far enough to prevent future government bailouts and floated the idea of breaking up the biggest banks. Kashkari on Monday hosted a high-profile symposium on “Ending Too Big To Fail” in Minneapolis.

“I thought President Kashkari’s first speech on the topic was one of the two or three most blatantly political things…that I’ve seen come from a prominent Federal Reserve official in the last 15” years, Summers, a former candidate for Fed chairman, told reporters Wednesday before delivering a lecture at the St. Louis Fed. “I did not think the style and tone and degree of collaboration with others was the kind of thing one could expect from the Fed.”

Summers, a Harvard University economist who served as Treasury secretary under President Bill Clinton, said, “There is no question that Dodd-Frank is a place to start, not a place to finish, in achieving financial stability.” But he added that he “would far prefer an inquiry that stayed a little further from sloganeering.”

Read on.