It’s been a rough year for Jamie Dimon.
The JPMorgan Chase chief executive is steering the bank through a barrage of federal investigations and multibillion-
dollar settlements, leading the industry goliath on Friday to report its first loss in nearly 10 years — and its first under Dimon’s leadership.
JPMorgan reported a net loss of $380 million, or 17 cents per share, after setting aside an additional $9.2 billion for future litigation expenses. The $9.2 billion is part of a $23 billion pot the bank has set aside to cover mounting legal costs.
A portion of that money will go to U.S. and British authorities. JPMorgan agreed in September to pay $920 million to resolve inquiries into its handling of the disastrous “London Whale” trading losses. An additional $389 million has been earmarked to settle regulatory investigations into the bank’s credit card practices.
The bank is also entangled in protracted negotiations with the Justice Department to dispose of multiple government investigations into its sale of shoddy mortgage-backed securities in the lead-up to the financial crisis.
Dimon traveled to Washington last month for a rare face-to-face negotiation with Attorney General Eric H. Holder Jr., but talks have stalled because of the government shutdown. People familiar with the negotiations said any deal would involve JPMorgan paying at least $11 billion, the biggest settlement for a single company.
The usually unabashed Dimon, 57, has remained contrite, humbled by a series of bad turns. Yet he is far from sheepish and continues to insist that the country’s biggest bank is still its best-run bank.
“This company is very sound, with plenty of capital,” Dimon told analysts on an earnings call.
Dimon also said on the call that the bank wants “a reasonable settlement” with the Justice Department but told analysts that it “involves multiple agencies, so you can imagine the complexity.”
Even if that whopping agreement is reached, JPMorgan will still be cleaning up regulatory messes. There are ongoing federal probes into the bank’s debt-
collection practices and its role in the manipulation of a key interest-rate benchmark, among other matters.
Dimon said litigation expenses “will probably be elevated the next year or two.” He added: “We just have to deal with it and deal with the reality as it is. It will abate over time, and the underlying power of the company you can see.”
At several points during the earnings call, Dimon mentioned how “painful” the legal fallout has been for the company.
The quarterly loss is noteworthy given that JPMorgan emerged from the financial crisis relatively unscathed, while its competitors struggled under the weight of troubled loans. Dimon was cast as the sage of Wall Street, a reputable voice for an industry tarnished by the sins of the crisis.
Dimon often criticized regulators and the Obama administration, which may have made
JPMorgan a target, analysts said. Some say the government is going after the nation’s largest bank to further a larger agenda of breaking up all big banks.
“The government says it doesn’t want banks to be too big to fail. This is the biggest bank in the country, therefore the attacks on JPMorgan are not going to stop,” said banking analyst Dick Bove of Rafferty Capital.
There is, however, plenty of fodder to fuel regulatory probes. Federal authorities are examining whether JPMorgan manipulated the energy markets, turned a blind eye to Bernard L. Madoff’s Ponzi scheme and hired the children of Chinese officials to boost its business in China.
“These various violations are very broad and speak to the fact that if Jamie Dimon truly is a great manager, then maybe
JPMorgan is unmanageable,” said Mark Williams, a former bank examiner who teaches finance at Boston University. “The bank really hasn’t balanced the level of risk taking with the level of controls.”
JPMorgan has taken steps to address the problems that are at the heart of several investigations. In a memo sent to employees last month, Dimon said the firm added 4,000 workers across the company to improve compliance operations and has poured about $1 billion into the effort.
Many of the bank’s legal troubles stem from its 2008 purchase of beleaguered financial giants Bear Stearns and Washington Mutual. People familiar with the Justice negotiations said a primary factor driving the talks is a lawsuit brought by the Federal Housing Finance Agency over mortgage securities sold by Bear Stearns and Washington Mutual.
Asked whether he regretted either of those deals, Dimon told analysts, “We didn’t anticipate that we’d be paying anything for prior losses for Bear Sterns.”
He continued: “And in WaMu, we don’t believe we’re responsible, by contract. But that does not mean that people can’t come after you. So that was a little bit of a lesson learned.”
Williams said Dimon is not absolved from encouraging the sort of risk-taking culture that led its traders in London to place out-sized derivative bets that ultimately cost the bank $6.2 billion. Regulators downgraded the bank’s management rating over the trading blunder.
As JPMorgan faces a potential multibillion-dollar settlement, questions are being raised about Dimon’s leadership.
“The board has to now look seriously and ask: We’re taking these billion-dollar losses, we need to protect shareholder value. Is Jamie Dimon an asset or a liability?” Williams said. “I’d argue he’s more of a liability.”
It is highly unlikely that Dimon will be unseated. Shareholders pledged fealty to the chairman and chief executive in May when they voted to have him retain both of his titles in the aftermath a multibillion-dollar “London Whale” trading loss.
Despite the legal tumult,
JPMorgan has been generating record profits. Stripping out the legal expenses and release of reserves — a tactic banks use to boost earnings — JPMorgan earned $5.8 billion, or $1.42 per share, in profit in the third quarter.
Sales volume in the bank’s credit card business shot up by 11 percent, to $107 billion for the quarter. Income from JPMorgan’s asset management business also grew 7 percent from the prior year to $476 million.Profit in the consumer and community bank division also rose by 15 percent, to $2.7 billion.
“The private-sector indicators of the business were all excellent — they added customers, deposits, loans. The public-sector indicators are negative — they have a lot of litigation expenses,” banking analyst Dick Bove of Rafferty Capital said. “If the public pressure was taken away, you’ve got a lot of growth.”