JPMorgan's Coronavirus Challenge Just Got Much Tougher

(Bloomberg Opinion) -- Wall Street’s giants are grappling with an unprecedented test of their business resilience — arguably their biggest challenge since 2008. A potential pandemic is forcing a complete rethink of how they operate, while stock markets plummet amid fears of an economic slump. For JPMorgan Chase & Co., the world’s most systemically important financial institution, the sudden absence of its powerful leader, Jamie Dimon — albeit temporarily — couldn’t have come at a more delicate moment. How the bank navigates the weeks ahead is of concern not just to its investors and customers, but to markets everywhere.

JPMorgan late on Thursday said its co-presidents and co-chief operating officers Daniel Pinto and Gordon Smith were taking over the running of the biggest U.S. lender while their 63-year-old chief executive officer recovers from emergency heart surgery. Dimon, the only leader left to have steered a global bank through the financial crisis, “is awake, alert and recovering well,” JPMorgan said.

Pending his return, it’s essential for the firm — and the financial markets — that the bank manages a speedy and smooth transition to his established lieutenants. Dimon, whose charisma and directness have made him a spokesman for the finance industry, is also the bank’s chairman. That puts a lot of emphasis on the board to get this right. Dimon, who had held court at the bank’s investor day just a couple of weeks back, checked himself into hospital on Thursday morning.

Fortunately, unlike some of its peers, JPMorgan appears to have built some genuine strength on the bench. Dimon’s two effective deputies have had broad responsibilities since their appointments two years ago, and they run the firm’s biggest divisions. Pinto has been overseeing the corporate and investment bank, while Smith runs the consumer and community banking division. Their hands-on expertise will be essential as the coronavirus strikes at the bank’s working practices and at its trading and consumer businesses.

Just this week, as the outbreak spread from Asia into Europe and the U.S., JPMorgan started dividing its sales and trading desks to restrict the disruption that would occur if an outbreak struck a particular team. Some units are being split between the main offices in New York and London and backup locations such as Brooklyn and New Jersey. While traders might enjoy a spike in volatility, it’s not yet clear how any changes to working practices might affect their operations.

This doesn’t just apply to JPMorgan. Banks have been admirably robust in testing their off-site working capacities. But it’s still not an easy thing to work remotely given the technical and compliance requirements, and — for those working at home — missing the usual cut and thrust of sitting with a team. JPMorgan has also asked thousands of staff across its consumer bank to work remotely as part of resiliency testing.

Dimon’s company is critical to the stability to the financial markets. Under Pinto, its investment bank has grown into a behemoth generating $38.3 billion of revenue. It has a 12% share of fixed-income trading income among the top banks and an 11% share of equity trading; it’s the world's biggest derivatives house. Crucially, with a $2.7 trillion balance sheet it plays a critical role in the repo market, the essential part of financial market plumbing that seized up last September prompting emergency measures by the U.S. Federal Reserve.

Even with a solid plan to cover Dimon’s temporary absence, it’s no surprise that JPMorgan stock fell in pre-market trading. Investors will want to know what arrangements might be made if Dimon cannot come back soon. Capable as they are, Smith and Pinto aren’t necessarily seen as long-term successors, as my Bloomberg News colleague Michelle F. Davis points out.

After the company saw a number of potential successors depart — from Jes Staley to Bill Winters to Matt Zames — JPMorgan has been grooming Marianne Lake and Jennifer Piepszak for the top job. Lake has been running the consumer lending division since May after seven years as chief financial officer, while Piepszak took over as CFO after leading the credit-card business. Doug Petno, who runs commercial banking, and Mary Erdoes, the asset and wealth management chief, are other senior leaders.

The internal succession list is more impressive than at some rivals. Citigroup Inc. reassigned many of CEO Michael Corbat’s deputies last year after the departure of several executives; HSBC Holdings Plc has been looking for a permanent CEO since August. JPMorgan at least has some options. 

To contact the editor responsible for this story: James Boxell at jboxell@bloomberg.net

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

Elisa Martinuzzi is a Bloomberg Opinion columnist covering finance. She is a former managing editor for European finance at Bloomberg News.

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