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Monday, April 15, 2013

JPMorgan’s Management: Overly-Defensive From Weakness?

According to the Wall Street Journal, at JPMorgan, the largest U.S. bank by assets, revenue in the first quarter of 2013 fell 4% from the same period a year earlier. The mortgage squeeze affected the firms' overall results. Net-interest income, which reflects the amount a bank makes from its loans, dipped 6%, to $10.9 billion, from a year earlier. Even so, J.P. Morgan's net income rose 33%, to $6.53 billion, or $1.59 a share, as a jump in investment-banking income and a cut in expenses helped cushion the mortgage pullback.
Even so, the bank’s CFO, Marianne Lake, told CNBC on the day of the announcement that all the businesses of the bank were doing extremely well,"performing strongly, growing strongly." For good measure, she added, "We feel great about the position of the company" in spite of the fact that some of the profit number came from reserves releases and mortgage write-offs. The viewer would never guess that net-interest income was 6% lower than a year earlier. Even though Lake claimed in the interview that the bank's management "tells the truth," her choice to approach the interview with overly rose-colored glasses raises concerns over whether investors can really believe the asseverations of top officials at the bank. Did that management learn its lesson from how it reported the $6.2 billion trading loss fiasco? I doubt it.

Where selling eclipses reporting, the management of a company can lose credibility. In the face of short-sellers during a crisis, such credibility can be vital to a bank’s survival. In other words, it is in the interest of JPMorgan’s shareholders that the management of the bank report the bad with the good.

Considering the upcoming stockholder vote on whether to remove Jamie Dimon as chairman of the board, the issue of managerial defensiveness is relevant. Put another way, saying everything is great when it is not can be an indication of a bank’s operation being beyond the reach of its management. This in turn could add ammunition to the argument that the $1 trillion-plus asset banks, which are too big to fail, pose a significant systemic risk to the economy in part because those banks are so large they are virtually unmanageable.


Dan Fitzpartrick and Shayndi Raice, “J.P. Morgan, Wells Fargo Struggle,” The Wall Street Journal, April 12, 2013.