A recent column by Andrew Ross Sorkin is instructive, although not in the way Sorkin might have wished. His portrayal of JPMorgan Chase CEO Jamie Dimon as the innocent and beleaguered victim of "writers, editors and bloggers" is likely to stand as a cautionary tale, a warning for future generations about what happens when financial journalists lose their objectivity even as financial institutions lose their moral compass.
Sorkin is outraged that "some in the pundit class" have decided that "Jamie Dimon should be fired." Targets for Sorkin's outrage include Mark Gongloff of the Huffington Post and an investment blogger for TheStreet.com. He seems particularly offended by the headline which accompanied Gongloff's piece, "NOW can we talk about firing Jamie Dimon?" although his own - "The Bloodlust of Pundits Swirls Around Jamie Dimon" - hardly seems restrained.
Despite his lede, Mr. Sorkin brackets his article with quotes from Dennis Kelleher. Kelleher, who runs a nonprofit banking watchdog called Better Markets, is neither a writer, an editor nor blogger. His bio says he's a former senior Senate staffer and was a litigation partner with the powerful law firm of Skadden, Arps.
"By any objective measure," says Kelleher, "Jamie Dimon should be fired. The compliance failures are egregious and systematic."
Sorkin, who is a pundit, then provides a 15-paragraph apologia for Dimon, before concluding with a quote from Kelleher which makes it sound as if the distinguished gentleman hasn't heard a word poor Mr. Sorkin has been saying.
The Praise Singers
Rather than overpraise Dimon directly, Sorkin's places his encomiums in the mouths of sources who were predictably enthusiastic. "Are you crazy?" Sorkin quotes Marvin Schwartz as saying. "Jamie Dimon is one of the best CEOs of any company in the world."
Mr. Schwartz's kind words could hardly have been a surprise to Mr. Sorkin. Schwartz has lavishly praised Dimon whenever he's asked - and, for all we know, even when he isn't. He celebrated the defeat of shareholder initiatives to limit Dimon's authority, for example, by cheerfully allowing that the JPM CEO is "quite unique and special and no one can deny that."
Eagle-eyed readers may recognize Mr. Schwartz's name from accounts of the fall of Lehman Brothers, the investment firm whose excesses and subsequent collapse helped trigger the 2008 global financial crisis. As Peter Lattman reported in Mr. Sorkin's own newspaper, the New York Times, Mr. Schwartz was number two on a list of extravagantly well-paid employees in that doomed institution, receiving "$31.2 million in 2007, $27 million the year before and $14.8 million in 2005."
Given his penchant for believing that bankers are victimized by criticism, Sorkin may feel that this observation about Schwartz is an assault of some kind. Actually, it's something much simpler: It's information. It gives the reader some context with which to interpret Schwartz's remarks. It demonstrates that, at best, Schwartz is comfortable aligning himself with highly self-confident CEOs like with Lehman's Dick Fuld or JPM's Dimon.
Fuld's self-confidence was not a predictor of future success, and neither necessarily is Dimon's.Schwartz's praise for Dimon should be viewed in that light.
Sorkin also quotes Daniel Loeb, an "activist investor," who says that Dimon is "being used as a scapegoat and piñata to satisfy some kind of bloodlust." But Sorkin doesn't tell the reader that Loeb has his own, bizarre sense of victimhood. Sorkin himself characterized one Loeb outburst, from a quarterly investors' letter, as sounding "as if he were preparing to join Glenn Beck in Washington over the weekend." (Beck held a wacky Tea Party-ish rally there shortly after Loeb's letter was published.)
Loeb's loony letter compared himself and his fellow hedge fund managers to mistreated minorities, and to workers being robbed of the fruits of their labors. For all we know, when Loeb calls a banker "a scapegoat and a piñata" it means he's getting off lightly.
Sorkin then turns to Laban P. Jackson, head of the audit committee for JPM's board, who says that Dimon is "the best manager I've ever seen, and I'm old." Jackson was Dimon's stalwart defender when insurgent investors attempt to unseat Dimon from his unusual dual roles as CEO and Board Chair.
But Sorkin fails to inform his readers that the same investor uprising which sought to downsize Dimon's role also attempted to unseat Jackson from his audit role, due to the dissatisfaction a number of shareholders had with the quality of his oversight work. As with Schwartz, it's not necessary to draw negative inferences about Jackson's competence in order to conclude that readers deserve to know more about him.
A Few Minor Scrapes With the Law
Sorkin describes the bank's many legal losses and challenges, which he characterizes gently as "a series of problems." He mentions "the London Whale, the sale of flawed mortgage-backed securities without fully warning investors of the risks" - note the use of the word "fully" in this context, as if that somehow mitigated the offense - "accusations of manipulated energy markets in California and Michigan and a continuing inquiry into the banks hiring of the sons and daughters of political leaders in China."
Sorkin's list of "problems" is woefully incomplete. Here are some of the items he left out or underplayed in JPMorgan Chase's list of past and present offenses:
- Bribery offenses in Jefferson County, Alabama, which contributed significantly to that county's subsequent bankruptcy;
- The sale of restricted securities in violation of lock-up agreements;
- Misleading investors in a 2007 mortgage securities transaction, which led to a153.6 million fine;
- Rigging municipal bond reinvestment transactions in more than 30 states, an offense which led to a $51.2 million fine in 2011;
- Numerous fraudulent transactions regarding foreclosures which led to JPMorgan Chase's participation in a $25 billion settlement with federal agencies and state Attorneys General;
- Jamie Dimon's own remarks regarding the London Whale on an investor call, during which he called the case a "tempest in a teapot" even though subsequent reports indicated that he knew losses would run into the billions;
- Leading investors to believe that Mr. Dimon had instituted state-of-the-art risk management throughout the bank, when the unit responsible for the London whale was disregarding those risk management controls whilst reporting directly to Mr. Dimon;
- Paying $100 million to settle a class-action suit which charged the bank with improperly raising minimum monthly payments to its credit card customers;
- Altering the results of an outside analysis of its mortgage securities after those results showed deficiencies in those mortgages, as revealed in the Dexia Holdings lawsuit; and,
- Foreclosing on members of the armed forces and their families, in violation of the Servicemembers' Civil Relief Act.
The bank also stands accused by the Federal Energy Regulatory Commission of "manipulative schemes" designed to maximize the profits from power plants. The Attorney General of California has sued it for "fraudulent and unlawful debt-collection practices." And it is being investigated, as Mr. Sorkin generously notes, for violation of federal law regarding the bribery of foreign officials after it hired the children of high government figures in China.
In September of this year JPM, along with Assurant Inc., agreed to pay $300 million to settle charges that it forced homeowners to buy overpriced property insurance. In that same month, the consumer financial protection board announced that the bank was paying $80 million in fines and would refund an estimated 309 million more than 2 million customers to cover illegal credit card fees.
Regulators in the United States and Great Britain also announced that month the JPMorgan Chase would pay $920 million to settle charges relating to the London whale case, with the bank admitting it had violated security laws.
Performance Review
Under the circumstances, a little public criticism of Jamie Dimon is hardly the miscarriage of justice Sorkin seems to think it is. It's entirely possible that Mr. Dimon is as morally offended by these instances of repeated fraud and abuse as are most other Americans, however, and sincerely wanted the bank to comply with agreements it later violated. If so, he has certainly proven to be an ineffective executive.
And since Dimon insists his bank is not too big to manage. what alternatives are we left to consider except firing?
Sorkin uncritically accepts Chase's claim that 80 percent of the violations in its current legal battle with the government come from its acquisition of Bear Stearns and Washington Mutual.(It told the Wall Street Journal the figure was 70 percent.) Sorkin points out that the government encouraged Chase to acquire these institutions at the height of the crisis. That's true, but Chase knew exactly what it was doing. It reportedly acquired Bear Stearns for less than the market value of that company's Manhattan headquarters, for example.
Gongloff and other critics haven't raised the idea of Dimon's dismissal solely on moral grounds. JPM's many legal misadventures during Dimon's tenure recently led to a $9.2 billion loss for legal expenses. That, in turn, contributed to the bank's first unprofitable quarter in eight years. It's one thing to cast a shadow over your bank's reputation through an apparent inability to end wrongdoing. It's another to turn your bank toward unprofitability with your failure to rein in rampant misbehavior.
What Dimon Means
It's always odd when a rebuttal is longer than the original piece, as is now the case with this one. But then, Sorkin was making the case for Dimon and JPM. We've been listing their transgressions and errors, which takes up a lot of column length.
Dimon has held himself up as a paragon of banking expertise, which makes these missteps and offenses even more conspicuous - and significant - than they would have been otherwise. He has reaped the benefits that come with running the largest bank in the nation, while insisting that no such benefits exist. He has used his own bank's alleging integrity as an argument against additional financial regulation, even as that illusion of integrity crumbled.
And he has an ally in Andrew Ross Sorkin, who has been so focused on the offenses of "writers, bloggers and editors" that he's failed to see the broader significance of JPM's far greater transgressions.
Partial References:
"JPMorgan Chase: Out of Control" - Analysts' Report from Graham Fisher & Co. http://www.scribd.com/doc/130291230/GF-Co-JPM-Out-of-Control
Corporate Research Project: http://www.corp-research.org/jpmorganchase
Levin Permanent Subcommittee Report on the "London Whale": http://www.hsgac.senate.gov/subcommittees/investigations/hearings/chase-whale-trades-a-case-history-of-derivatives-risks-and-abuses
"JPMorgan Chase: Incredibly Guilty": http://ourfuture.org/20130920/jpmorgan-chase-incredibly-guilty