His ears are smaller. And there is no crown. But on Wall Street at least, Jamie Dimon is America’s answer to King Charles III: flattered by some, resented by others, but incontrovertibly powerful.
Days before the coronation of the British monarch, Demon he cemented his royal status in finance with another landmark deal for JPMorgan Chase, the bank he has led since 2005.
With the state-orchestrated takeover of the failed First Republic, JP Morgan it has tripled from before the 2008 financial crisis and now has an asset base of nearly $4 trillion.
THE Acquisition of the First Republic recalls two major bailout deals triggered by the 2008 crisis, when politicians worked with Dimon to facilitate JPMorgan’s purchase of bankrupt investment bank Bear Stearns and Washington Mutual, a struggling commercial lender.
The Federal Deposit Insurance Corporation, which handles the bankruptcies of US banks and administered the First Republic deal, clarified that JPMorgan had won the deal ahead of other bidders, largely due to its clout. It could afford to offer a better value package to the FDIC, and the organization has a legal duty to choose the “least cost” solution.
But this is a self-perpetuating argument, and with the banking turmoil of recent months turning into a full-blown regional bank crisis, JPMorgan could very well become the natural buyer for other troubled banks. It seems neither healthy nor sustainable. Complying with the “least cost” law, without considering the bigger long-term picture, is short-sighted.
Not that the short-term picture is serene. The feverish financial climate of recent months has so far proved beneficial to the big banks, which enjoy greater trust from depositors and equity investors. But at least in theory, the instability could extend beyond weaker regional banks, especially if the looming US debt ceiling leads to stronger suggestions, if implausible of a default.
In that kind of bleak scenario, the bigger the bank, the bigger the problem. Compared to the systemic risk that big banks pose to their home countries elsewhere in the world, JPMorgan is actually modest in size. Its assets are less than 17% of the gross domestic product of the United States. The bank would need to bail out 102 more First Republics to also equal US GDP (or 234 of them to double GDP, the size of UBS relative to the Swiss economy after the Credit Suisse bailout).
In terms of market share, JPMorgan also appears modest by international standards, with a domestic deposit share of less than 15%, half that of UBS, after Credit Suisse.
In an absolute sense, though, JPMorgan is vast and unparalleled in the Western world. (Only China’s Big Four lenders outnumber him in assets.) And with critics by voicing their opposition to its benchmark status for the FDIC, there is a possibility that the bank will be forced to meet stricter regulatory standards. It already has an unusually high tier 1 capital ratio – a crucial measure of financial strength – in large part because it is subject to the highest capital surcharge of any global systemically important bank. That premium could rise further, according to some analysts, offsetting the financial benefit of its growing scale.
Which brings us to the question of whether JPMorgan benefits from such deals. Looking back at its (much larger) 2008 acquisitions one comes to mixed conclusions. While they bolstered the business in some areas, the acquired businesses also accounted for the majority of $19 billion in legal fees and the penalties it ended up paying, largely related to pre-existing mortgage crimes. (Experience prompted Dimon engage that he “wouldn’t do something like Bear Stearns again”.)
However good or bad these types of transactions prove to be for JPMorgan, it is clear that they create an ever larger bank that becomes increasingly difficult to manage.
One reason for Dimon’s near-royal status is that he has an unwavering record of meeting that challenge, with the obvious exceptions of the $6.2 billion London whaling scandal and the bank’s strange loyalty to former client and convicted sex offender Jeffrey Epstein, in connection with which Dimon himself is deposed next month.
But if there are doubts about the 67-year-old’s ability to lead an increasingly large and complex bank, there are many more about the (unknown) heir to his throne. Even without that succession risk, US officials would have to weigh one pressing question: Is JPMorgan simply too big: too big to fail, too big to manage, or, as the FDIC seems to think, too big to do without?
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