“His political capital has been diminished,” said Mark Williams, a former bank examiner who teaches finance at Boston University. “Dimon portrayed himself as the responsible banker through the financial storm, but we’ve learned that he is no better than all the other risk-taking bankers.”
On Tuesday, Dimon fended off an attempt by the American Federation of State, County and Municipal Employees (AFSCME), the New York City Comptroller’s Office and fund managers to take his chairmanship role away, leaving him solely as chief executive. Despite the effort, only 32 percent of JPMorgan shareholders approved the proposal at the bank’s annual meeting in Tampa.
More shareholders voted last year to split Dimon’s duties — 40 percent — but the campaign was noisier this year and focused more attention on the shortcomings of a man who had been widely praised for running one of the strongest banks to emerge from the 2008 financial crisis. Dimon, 57, has led JPMorgan to record profits in the past three years while most of its competitors have struggled with troubled loans and bad bets from the economic meltdown.
“We appreciate the support shown by shareholders and the thoughtful way many have engaged with us as they determined how to vote on these issues,” Dimon said in a statement after the vote. “We take the feedback from shareholders very seriously and we will continue to build toward being best in class in corporate governance.”
The question of reducing Dimon’s dual roles at JPMorgan gained momentum last year, a few days after the bank revealed it had suffered a multibillion-dollar trading loss. The damaging bets, initiated by a trader known as the “London Whale,” ultimately cost the bank at least $6.2 billion.
Policymakers in Washington were alarmed by the trading fiasco but continued to hold the bank and its chief in high esteem. Even when Dimon appeared before the Senate to explain how the country’s biggest bank could lose billions on bad bets, lawmakers sought his advice.
At one point during the hearing in June, Sen. Bob Corker (R-Tenn.) asked Dimon, “What would you do to make our system safer?”
Later, Sen. Michael F. Bennet (D-Colo.) asked the chief executive to opine about “the political risk” of Washington not accomplishing long-term fiscal reform.
By March, however, the deference paid to Dimon and JPMorgan had waned. A 300-page report from the Senate’s Permanent Subcommittee on Investigations suggested that Dimon was less than forthright with regulators as he learned of the botched trades. It also accused the bank of hiding losses for three months, overstating the value of its trading positions and ignoring red flags.
At a news conference announcing the report, Sen. Carl Levin (D-Mich.) said JPMorgan “piled on risk, ignored limits on risk-taking, hid losses, dodged oversight and misinformed the public.”
Lisa Lindsley, director of capital strategies at AFSCME, said the union group was disturbed that JPMorgan shareholders were not privy to much of the information that came out in the Senate report.
The findings of the investigation stoked concerns that having Dimon head the board of directors, which is responsible for overseeing the chief executive, presented a conflict of interest. Calls for an independent board chair grew louder from shareholders who insisted it was the best check against excessive executive power.
“There is no oversight,” Lindsley said. “The board thinks this is Jamie Dimon’s show, and they’re going to let him run it.”
Lindsley said she left the annual meeting with little hope of the board responding to concerns over risk management raised by shareholders. Analyst Mike Mayo of the investment bank CLSA walked away more optimistic.
“A clear message was sent to the board to change its risk committee. . . . There is little question in my mind that JPMorgan will follow through,” Mayo said. “Having said that, there is still a degree of regulatory tail risk given the myriad of investigations that are still taking place.”
JPMorgan is facing inquiries on multiple fronts. The Federal Energy Regulatory Commission is probing JPMorgan’s bidding practices and alleged violations of agency rules. Meanwhile, the bank’s primary regulator, the Office of the Comptroller of the Currency, is investigating the way JPMorgan collects on soured credit card debts.
California’s attorney general filed a lawsuit against the bank this month, alleging it used erroneous evidence in hundreds of lawsuits filed against credit card holders.
JPMorgan has also disclosed that it is under investigation by federal regulators for its role in manipulating a benchmark rate know as the London interbank offered rate, or Libor, which is widely used by municipalities, pension funds and other investors.
During the shareholders meeting Tuesday, Michael Garland of the New York City Comptroller’s Office, which backed the separation of Dimon’s roles, noted that JPMorgan “leads its peers in regulatory investigations.”