Jamie Dimon won a big victory last week over a gaggle of lefty activists who tried to strip him of his title of board chairman of JPMorgan. But another, bigger, battle looms for Dimon, one with more far-reaching consequences — proving to the world that the megabank isn’t too big to manage.
Morgan was always big, but it got bigger still in the aftermath of the financial crisis, snapping up parts of other troubled banks, notably Bear Stearns. Today, with nearly $2.5 trillion in assets and more than $1 trillion in customer deposits, it’s the country’s largest bank.
Morgan mostly avoided the pitfalls that plagued other banks, steering clear of the wild risk-taking and major scandals that nearly destroyed the financial system. Dimon deserves the credit for that.
But the bank hasn’t been as scandal-free of late. Regulators are picking through a number of issues, including why Morgan’s controls didn’t prevent the multibillion “London Whale” trading loss.
Thing is, no bank of this size can ever stay scandal-free. This fine point was lost on the lefty crew behind the drive to strip Dimon of his role as bank chairman (he would remain as chief executive officer). The thinking there was that the same guy who navigated JPMorgan through the financial crisis somehow needs yet another person looking over his shoulder, on top of the bank’s board.
The effort was soundly defeated because most shareholders saw the flaws in that premise. Morgan already has plenty of internal oversight, while some of the biggest corporate scandals came at places that separated the CEO and chairman.
Totally ignored in the months of debate over Dimon’s jobs was the question of whether JPMorgan (or any other megabank, such as Bank of America or Citigroup) is simply too big for anyone to effectively manage. But the question should be urgent, given how the post-crisis financial system so concentrates both power and risk into a handful of institutions.
Dimon would say this is a good thing. After all, the smallest firms, such as Bear Stearns and Lehman Bros., sank first back in 2008, thereby threatening to bring the whole system down. He’s also told me if Morgan does shrink, corporations would move their business to European megabanks, since they love getting all the banking needs done at one place.
Huh? Last I checked, Goldman Sachs has plenty of customers, though it’s far smaller than Morgan, Citi or BofA. And, sorry, every Wall Street bank, including JPMorgan, was imperiled during the 2008 crisis; they all took government funds to ensure their survival.
Morgan may have survived the tumult best because it was better managed, but there were no guarantees as the system began to hemorrhage.
For all the excellent work of Dimon and his team before, during and since the crisis, they did miss the London Whale. And if the best bank CEO in the country and maybe the world can miss that fiasco, what would happen if screw-ups of that magnitude occurred at a lesser institution, such as Citigroup?
And what happens if Dimon just screws up again, on something bigger? With so much financial risk squeezed into so few firms, 2008 might look like a walk in the park.
Charles Gasparino is a Fox Business Network senior correspondent.