Tag Archives: JP Morgan Chase

JPMorgan's "Poison Pill" Strategy

If there’s anything banks have learned from the financial crisis, it’s the fact that if you’re too big to fail, you can do whatever you want. This seems now to be the strategy of Jamie Dimond and JPMorgan. who is currently seeking to be more global, expand into the emerging markets and become more like Citigroup.

“In effect, Mr. Dimon is constructing a “poison pill” against takeover by the government. This is so simple, so brilliant, and so dangerous that it should take your breath away.”

The Baseline Scenario

While the financial reform negotiation process grinds to its meaningless conclusion, the real action lies elsewhere – in Jamie Dimon’s executive suite, Simon Johnson at The Baseline Scenario writes.

Dimon, the head of JP Morgan Chase, is apparently seeking to (a) become more global, (b) move further into emerging markets, and (c) become more like Citigroup.

This is terrific corporate strategy – and very dangerous for the rest of us.

Jamie Dimon clearly wants to become too big to fail, too interconnected to fail, and – above all – too global to fail.

He knows that the reform package will, among other (very small) things, create a resolution authority that will give the government more power – in principle – vis-à-vis failing financial institutions in the future.  This is a central part of Tim Geithner’s vision for financial stability.

But Mr. Dimon also knows – as a board member of the NY Fed and sometime White House/Treasury confidante – that a US resolution authority will do precisely nothing to make it easier to handle the failure of a large global bank, e.g., Citigroup, doing business in over 100 countries.

The reason global megabanks will get bailouts in the future is simple – policymakers will fear the chaos that would ensue when competing bankruptcy claims swarm over a defaulted institution, much as happened for Lehman (e.g., in London) in September 2008.

Mr. Dimon and his colleagues – who include some top former global regulators – are also well aware that the G20 (and everyone else) will not make any serious push towards creating a cross-border resolution mechanism.

The best way to signal to creditors that they will be protected in all potential future crises is to make JP Morgan bigger and more global.  This will lower the funding costs for the organization and in turn make this global expansion more profitable when times are good – and when times are bad, there will be government support.

In effect, Mr. Dimon is constructing a “poison pill” against takeover by the government.  This is so simple, so brilliant, and so dangerous that it should take your breath away.

If you press serious administration officials, in private, on how they will use the new resolution authority for Citigroup or (now) JP Morgan Chase, they are quite candid: they would create a conservatorship, as with AIG or Fannie/Freddie.  But there is a huge difference between conservatorship and resolution.  Resolution is about winding down the company, typically involves firing, and should imply losses for unsecured creditors.  Conservatorship is about managing the company as a going concern – and would almost certainly in this context involve full creditor protection.

It is perhaps ironic that Jamie Dimon argued strongly, early in the reform process, for a heavy weight to be placed on a resolution authority as a way to prevent future bailouts.  His actions now to undermine the effectiveness of such an authority further suggest that this administration was unwise and naïve to rely on his advise in the early formative phases of reform.

The White House may now be waking up to the profound dangers that Mr. Dimon and his successors will pose, but they are still unwilling to do anything meaningful about it.

By Simon Johnson

Related by the Econotwist:

Webster Tarpley: The Financial Reform Is A Failure

Bank Protest Sponsored By Banks

Civil And Criminal Probes Against JP Morgan For Silver Manipulation

6 U.S. Banks Collects 93% Of Industry’s Trading Revenue

Wall Street Collapse: Did Somebody See It Coming?

Italy Charge Foreign Banks With Fraud

Banks Face Multi-Hundred-Million Dollar Settlements


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Filed under International Econnomic Politics, National Economic Politics

6 U.S. Banks Collects 93% Of Industry's Trading Revenue

Jepp, it’s the same big banks who have recivied the most of the bailout money. Of the remaining 1236 U.S, banks in 2008, 250 have gone bankrupt, the rest are not making any profit at all. About 700 of them is still in danger of being closed down by the regulators. And here’s an interesting question for you: Which of these banks would you trust the most in handling your money? The big ones? Or the smaller banks?

“If there’s one thing you should have learned during the past four years it is this. Large global commercial investment firms are about as trustworthy as a used car salesman.”

J.S. Kim

My guess is that we probably never will know the full truth about what’s been going on in the financial industry over the last decade. Most likely we have no clue on what is going on at the moment, either. But here are some facts; the three most profitable U.S, banks in 2009 was at the brink of collapse a year earlier, they’ve all recivied an unknown amount of bailout money from American tax payers and they are all under criminal investigation for alleged fraud and market manipulation.

The absurdity of the situation is becoming more clear every day.

The latest smelling evidence of a rotten system is to be found in the documents of the U.S. Security and Exchange Commission, based on the banks latest earnings reports.

As the figures below shows, the top 15 U.S, banks collected 97,8% of the total revenue in the American financial industry in 2009, mounting to USD 62,8 billion.

The remaining 986 banks had to share 2,2%, or USD 1,4 billion.


* The top 6 bank holding companies have significant investment banking operations and account for 93% of industry trading revenue. 

* The next 3 bank holding companies are traditional trust and custody banks. Including those 3, the top 9 banks account for 96% of industry trading revenue.

* The next 2 bank holding companies are not community banks but rather an insurance company and an automotive financing company. Those 2 included, the top 11 banks accounts for 97% on industry’s trading revenue.

* The remaining 4 banks on the top 15 list account for less than 1% of industry trading revenue.

* The remaining 971 bank holding companies that filed FR Y-9C reports for the year ending December 31. 2009, and approximately 6.800 commercial banks accounted for the remaining 2,2% of the financial industry’s trading revenue.

51 Billion Dollar Profit (Of 60 Billion Revenue)

The top 6 bank holding companies made a total pre-tax profit of USD 51 billion in 2009.

The remaining 980 bank holding companies lost about USD 19 billion.

Moreover; aggregated 2009 trading revenue for the top 6 bank holding companies is USD 60 billion, and exceed their aggregated pre-tax income of USD 51 billion.


Top 3 Criminals?

According to the original document the three most profitable bank holdings companies in 2009 were:

1. Morgan Stanley (Growth, y/y; 176,8%)

2. JP Morgan Chase (Growth, y/y; 127,3%)

3. Goldman Sachs (Growth, y/y; 61,3%)

Among the other top 6 banks, Bank of America had a marginal growth of 0,7% in 2009, while Citigroup and Wells Fargo had negative growth – around -30%.

And just to put a final touch on the picture:

Morgan Stanley and Goldman Sachs are now under criminal investigation, suspected of misleading investors and rating agencies in order to inflate the grades(ratings) of certain mortgage securities before the whole thing collapsed in 2008.

JP Morgan is being investigated for manipulation of the silver market.

This brings me to the question I asked at the top of the article; which one of these banks do you trust with your money?

It’s a kinda important question as a substantial number of banks (excluding those on the top 15 list) are about to disappear.

Since the “house of cards” fell apart in 2008, 250 banks have gone bankrupt and have been closed by the FDIC.

The regulators still have about 700 companies on their list of  banks in danger of default.

That makes it even harder to come up with a definitive answer.

However, J.S. Kim at SmartKnowledgeU has a very clear opinion.

3 Reasons to Cut All Ties with Commercial Banks

“If there’s one thing you should have learned during the past four years it is this. Large global commercial investment firms are about as trustworthy as a used car salesman,” Mr. Kim writes in his latest letter to clients.

Adding: “This has been the case since the birth of Wall Street, but people are only waking up to this reality today after the ugly secrets of the industry have finally been revealed to the outside world in the past several years. The lesson the public-at-large is learning today is one that old-school American gangster Lucky Luciano learned after spending a day on the floor of the New York Stock Exchange, an eye-opening lesson that allegedly induced him to comment: “I realized I’d joined the wrong mob.”

“In this article, you will be reminded of how firms bundled mortgages they knew were toxic into CDOs, sold them as solid investments to clients, and then shorted them behind their clients’ backs. You will further learn how under Congressional inquiry, only 25% of all investment bankers believed that it was their duty to act in the best interests of their clients. Sure, these bankers may tell you in face to face meetings that they always put your interests first, but according to their testimony in Congress, in reality, they think of you as a sucker more than anything else. Furthermore, I’m betting that more than half of the 25% of investment bankers that stated they should act in the best interests of their clients only stated this because they knew their statements would become part of the public record.”

“In this second article, you’ll be reminded of how JP Morgan somehow commingled $8.6 billion of their clients’ money with the firm’s own assets – an act that JP Morgan’s internal audits did not catch for seven years and an act that would have left their clients penniless if the firm had gone bankrupt during the time they did not separate their clients’ assets from the firm’s investments.”

“Finally, although almost every single US commercial investment firm adviser shuttles their clients that desire gold and silver into the paper ETFs GLD and SLV, I’m guessing that almost ZERO of these advisers properly explain the risks of the GLD and SLV, as paper proxies for real gold and silver, to their clients. Remember that bottom line profits to the firm from purchases of the GLD and SLV will be much higher than the zero profit that would result if clients opted to buy physical gold and physical silver on their own. As this third article explains, the probability is extremely high that these two funds will offer little of the protection that physical gold and physical silver will afford its owners, should the second phase of this monetary crisis progress in the manner we believe it will progress.”

Read the rest at TheUndergroundInvestor.com.

Related by the Econotwist:

Banks Face Multi-Hundred-Million Dollar Settlements

You Sue Me, I Sue You, Oh Peggy, Peggy Sue

Civil And Criminal Probes Against JP Morgan For Silver Manipulation

How To Create A 3 Trillion Dollar Bubble And Burst It

SEC To Take Action Against Moody’s

U.S. Stock Crash Compels Further Investigation of Wall Street Scam

The Truth, Some Truth And Something Like The Truth

Goldman Sachs Charged With Fraud – Here’s The SEC filing

Goldman’s Collateralized, Securitized And Synthesized Fraud

Obama: “It Is Time”

AIG: What Did FED Bail Out and Why?

EU Wants Answers From Wall St. On Greek Debt

Italy Charge Foreign Banks With Fraud

Where Exactly Is “Money Heaven”?

Organizing Financial Rebellion


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