Controversy and Jamie Dimon ? Surely not!
William Harrison, former JPMorgan CEO, gives his reasons why current CEO Jamie Dimon should not have his compensation cut over loses from the infamous London Whale trades.
He spoke on Bloomberg Televisions' Market Makers.
On JPMorgan's $5.8bn trading loss and what the bank should do about Dimon’s pay
'I would not penalize him. That might be a controversial statement, but I think Jamie is doing a great job. I think you have to look through this whole thing and see what happened. The stock is just about back to where it was. $5 billion was a big number, but in the context of Q2 earnings, it was very manageable. So the model worked. Mistakes we're made…I wouldn't go after the CEO in a case like this. If it was a $100 billion loss and the company is heading south, than yeah, that's a different thing'.
On whether the loss changes his opinion of Dimon
'No, because the CEO can't get involved in everything that goes on. I would argue that Jamie Dimon knows capital markets and risk better than any CEO I have been around. You start there but he cannot look at every trade. It goes back to the power of a big universal bank. They took a $5 billion hit and still had a great quarter. That is the advantage of diversification, size and earnings'.
On how Ina Drew could let it happen
'Good question, I'm a great fan of Ina Drew who is the epitome of a team player. Company first, not a big risk taker, a great risk taker for 25 years. She never made a significant mistake. Ina was really great. I don't know what happened, but she made a mistake. i don't know what the mistake is. if you read the information on this, they decided to put a hedge on and the hedge went wrong. Whether she monitored it or not, I don't know…It was surprising and I'm sure it was surprising to her. But mistakes do happen. This was a big one and it was unfortunate from a timing perspective, but it was a mistake'.
'One of the plusses of a well-run big universal bank is you can have a great CEO and great people under you and all the way do. Many of these banks do, certainly Jpmorgan does. you had a really outstanding person in ina in that job but somehow a mistake was made. these things happen and it is too bad but I don't know any other way to explain that other than that'.
On whether banks should change the way they compensate and promote risk managers
'I'm sure Jamie Dimon still does it the same way we did it when I was there. The credit risk people are considered right at the top of the management chain and the value chain in the company. They are highly respected but you pay people based on the market. You could make the argument that they should be paid more but I know how that comes out'.
'My guess it was a matrix that risk people report both the line person…that's the way we used to do it. I don't know whether they do that now'.
On whether banks should separate the roles of chairman and CEO
'Absolutely not, I feel very strongly about this. Having a separate chairman and CEO is really a bad idea. you can have it in transitions or of the board is uncomfortable with the CEO and they want more horsepower at the top to watch the incumbent CEO but when you have the right CEO, it is very redundant and difficult to manage with a chairman. The easiest example is BP. When they had the Gulf oil problem, you had a very good CEO, Tony Hayward, but also a very good chairman but he was not an oil guy. When this thing hit, the press and investors turned to him and said you are chairman, what is the deal? The guy didn't know the answer because it is too complicated. You need to be going to the CEO there and separating this is not a good idea'.
On whether Bank of America and Citi should make Brian Moynihan and Vikram Pandit chairman of each bank
'I think each case is different. As long as you are really comfortable with it CEO, I am in the camp that he should have both titles or she should have both titles'.
On why Romney attacked Wall Street banks in last night's debate
'I did not interpret that as attacking big banks. I think he was saying the Dodd-Frank bill and a lot of regulations does not make sense. It needs to be looked at again and made better and that's the way I would interpret the comment'.
'I'm a great fan of Mitt Romney's leadership. The thing that was most exciting last night about this debate is that, for the first time, we were able to see a real difference between the leaders and, potentially the political economic model that the voters will have to choose between. I think last night's debate framed those quite well'.
On why Wall Street would want a president who wants to break up its institutions
'I don't think there's any way that Mitt Romney would want to break up the New York banks…The simple answer to that is more capital and that is in the works through Basel III and other things that are going on and better regulation, not just more regulation. Nobody in the industry after the financial crisis of 2008 would argue against better regulation. They're not happy about more regulation. In Jamie Dimon's annual report, he mentioned there are 14,000 regulatory changes that the banks have to deal with. it will take $3 billion for JPMorgan alone to deal with that issue. You have Dodd-Frank with 400 changes, only 100 have been implemented and another 300 that will happen and these are not half page documents. These are long, complicated rules and regulations. A lot of parts of Dodd-Frank make sense but let's look at it and get the right ones and have better regulation, not just more regulation'.
On whether big banks should stick to their expertise
'I was a client guy for a long time. I stay very involved in the client side after I became CEO. The clients like universal banking model for the same reason we like to go into a shop and you have one-stop shopping. To do that, you have to have convenience, quality, lower pricing, and you've got to have the trust of the consumer or the client. Well run universal banks will have that. What is not to like about that model? That does not mean a company buys everything from one bank. It is just more convenient and they like it, that is the evidence'.
On why big banks are trading at a discount right now
'Size and scale, leadership position, globality, that is a great advantage. Today it is not being recognized in the market because the big banks are not in favor for a whole bunch of reasons and that will change because economics will drive that. I have such a strong feeling that these big universal banks, if run properly, will create a lot more value….It is the perception of risk by investors today. There has been enough that has happened'.
'Now, you've got all these suits--the suit a couple of days ago by the attorney general. This stuff just keeps coming out. There is not a lot to those but they are there and it spooks the investors and investors are looking at the losses that have been incurred. The unfortunate loss that JPMorgan incurred in London, of course. These are surprises that the market does not like but you have to look through that and say long term is this the model that will produce more value for the clients and shareholders and I think it will'.