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Dimon Letter Derides Contrived, Confusing Financial Rules

Published: April 5, 2012 | 7:30 am
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Jamie Dimon, chairman and chief executive officer of JPMorgan Chase & Co. (JPM), used his annual letter to shareholders to rail against “contrived” and confusing financial rules that he said may stymie lending.
U.S. and international officials “made the recovery worse than it otherwise would have been,” Dimon wrote in the letter released yesterday. They almost botched the U.S. debt-ceiling vote, constrained bank leverage “at precisely the wrong time” and adopted bad and uncoordinated policy, he wrote.

Dimon, 56, defended a banking industry that has been besieged by new rules and public contempt after lax mortgage lending contributed to the worst economic slump since the Great Depression. He championed the use of derivatives and the right of banks to lobby lawmakers, and hailed the U.S. economy and corporations as engines of job growth.
“We have hundreds of rules, many of which are uncoordinated and inconsistent with each other,” Dimon said in the 38-page letter, his longest since becoming CEO in December 2005. “Complexity and confusion should have been alleviated, not compounded.”
Dimon called a cap on debit-card transaction fees, a provision of the Dodd-Frank Act, “price-fixing by the government that will have the unfortunate consequence of leaving millions of Americans unbanked.” Stricter capital rules will make it “prohibitively more expensive” for banks to lend to consumers with subprime credit scores, about 40 percent of all Americans, he said.

‘Combative by Nature’

“Jamie has taken on this mantle of defending this entire industry,” said Michael Driscoll, who worked for Dimon as a trader at the Smith Barney brokerage and is now visiting professor at Adelphi University in Garden City, New York. “He’s combative by nature. And like a lot of these alpha dogs, when he’s backed into a corner, he’s going to bark back.”
Still, Dimon said he agreed with the intent of most of the financial reforms passed by Congress. He said he supported giving regulators the authority to unwind failing firms and say on some executive-compensation issues.
“But the result of the financial reform has not been intelligent design,” he wrote. “Simplicity, clarity and speed would be better for the system and better for the economy.”
Dimon said big businesses tend to not get enough credit for creating jobs in the U.S.

‘Overly Simplistic’

“We often read that small business is the primary driver of new jobs — this is both incorrect and overly simplistic,” he wrote. Large corporations generally are more stable and resilient in a recession and companies with more than 500 employees account for 51 percent of all jobs, he wrote.
Most of the “bad actors” responsible for the financial crisis are gone, Dimon said in the letter. The remaining banks are stronger than they were four years ago and don’t deserve to be portrayed in the same light.
“The frustration with — and hostility toward — our industry continues,” he wrote. “In the face of many difficult challenges, JPMorgan Chase is trying to do its part. We have not retrenched. Just the opposite — we have stepped up.”
He also defended the use of derivatives, saying clients have a “large need” for them and that such tools help investors, banks, airlines and farmers to mitigate risk.
“Ninety percent of the global Fortune 500 companies actively use derivatives,” Dimon wrote. “They don’t use them because we want them to do so. They use them to manage their own exposures.”

‘Flashing Green’

Dimon gave some reason for hope. U.S. housing is starting to rebound, fueled by growth in population and jobs, he said.
“If one looks at the leading indicators, all signs are flashing green,” he wrote. “The turn is coming if it is not here already.”
JPMorgan, even with the housing downturn, generated a record $19 billion in profit last year and the company rewarded Dimon with a compensation package totaling $23 million, the same as a year earlier.
Without the mortgage losses and related costs, the bank could be earning about $24 billion annually, Dimon said.
“The main difference between what we are earning and what we should be earning continues to be high costs and losses in mortgage and mortgage-related issues,” Dimon wrote. While mortgage losses have abated, they will “persist at elevated levels for a while longer,” he wrote.
JPMorgan still faces litigation from its lending and mortgage-bond business, even after settling some bigger cases in the past year.
The lender agreed in February to pay $5.3 billion as part of a $25 billion industrywide settlement with state and federal officials over abusive foreclosure practices. JPMorgan also agreed in June to pay $56 million and to reduce mortgage rates for deployed military personnel to settle claims that it overcharged active-duty soldiers and seized the homes of those protected by the Servicemembers Civil Relief Act.


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