Banking & Finance

Jamie Dimon Plays Offense (JPM)

burning-money-pic16money-stack-image22Jamie Dimon, Chairman & CEO of JPMorgan Chase & Co. (NYSE: JPM), gave a powerful speech to the US Chamber in Washington D.C. today.  Mr. Dimon spoke of many of the issues that got into the current economic mess.  And he had many ideas and suggestions for what lies ahead.  Sounds like the administration and Congress just got some free advice.

Dimon stressed that the economy faces a very different situation than in prior recessions.  On not closing down JPMorgan’s mortgage broker business sooner, Jamie Dimon called this “The biggest mistake of my career.”

He also said that there was a run on JPMorgan, but not a traditional one. Individuals who took money out of money markets and short-term instruments contributed to the decline in money funds and bond funds.

He also stressed much on regulation.  He said, “We need to regulate the entire mortgage industry” and also stressed that “JUST BECAUSE REGULATORS LET YOU DO SOMETHING DOESN’T MEAN YOU SHOULD DO IT.” He noted that bad regulation drives out good regulation, and Basel II allowed companies to become over-leveraged.  Excess leverage was in the entire system.  He thinks that there are too many regulators with overlapping responsibilities and with no real authority.  Dimon actually feels that the regulators need more authority.

Dimon noted that the Iraq War, energy policy, eliminating the uptick short selling all contributed to the economic problems of today.  He argued that taking the TARP money was better for the health of the system.  Banks are lending more because of TARP than they otherwise would have.  Again, he said JPMorgan did not ask for TARP money and  did not need it.  He noted, “We did not expect all of the other restrictions in TARP to get added in.”

Here are his thoughts on the future of the system:

  • changes need to be done wisely with eyes open;
  • there should be a debate over better regulation
  • companies need to start doing the right thing before a crisis
  • there needs systematic risk regulator
  • too big to fail needs to be worked out
  • regulation needs to be by product… mortgages, derivatives, etc.
  • hedge funds and private equity need to be brought into this
  • need to simplify the regulatory system
  • need regulate entire mortgage industry
  • need to stop letting real estate bring us to our knees
  • in securitization, all parties need to have skin in the game
  • need to fix Basel II
  • regulation needs to be fairly applied
  • need to get accounting under control, mark to market accounting is fine but it has come to a ridiculous point… certain marks create too much volatility… too much flexibility in accounting that is not accurate.

Additional policies are needed for appropriate counter-cyclical policies.  Dimon feels that loan loss reserves need to be kept all the time, as a reminder that things can be bad.  On repo financing, it can be made counter-cyclical and there is a need to put things in place where companies can do 2-day rights offerings to raise capital but in a way that is fair for shareholders.

As far as a country, Dimon thinks we need good policies for energy, health care, environment, infrastructure, and more.   As far as those who are worried about losing money due to write-downs or cram-downs: “GET OVER IT!”

Dimon also noted that the Bear Stearns done was done at the behest of the US government, but said “I still think it will be good for shareholders.” He also noted that the company committed to corporate responsibility and want to help the government.  But on the executive compensation issue, he fears that executives are going to come to him and say they cannot afford to work there any more.

But this is the first CEO to take a shot at the grand-standing and bashing of corporate America.  He is tired of the vilification of Corporate America.

He also noted that there are SOME SIGNS OF RECOVERY.  Modest signs of recovery are that LIBOR is down, we just had two of the most active bond market issuance months, leveling off, and he even noted Buffett’s economic war.

While there is no silver bullet, but there is one: we all need to get this fixed.  This situation may be one of the great moments in American history. If we get on it together it can be fixed.  This is not politics as usual.

Well, you get the idea.  Jamie Dimon has made a powerful stand.  So far, no market impact has been seen.

UPDATE: around 2:40 PM EST Jamie Dimon gave a quick interview to CNBC’s Dennis Neal, and Dimon said that JPMORGAN WAS PROFITABLE IN JANUARY & FEBRUARY…..