Even Jamie Dimon Should Answer to Someone
JPMorgan’s failure to disclose a six-year ban on expanding branches shows shareholders need more representation.
(Bloomberg Opinion) -- Even Jamie Dimon, the CEO of JPMorgan Chase & Co. and arguably the best banking chief of his generation, shouldn’t be all-powerful.
New evidence of that came last week. On Friday, Bloomberg News reported that for almost six years starting in 2012, the Office of the Comptroller of the Currency, a U.S. bank regulator, halted JPMorgan from significantly expanding its bank branches. Putting aside the issue of whether regulators should be encouraging what is already the largest U.S. bank to get even bigger, the branch expansion ban, which had not been reported before, is no longer an issue for JPMorgan. It was removed earlier this year — one of the many moves by regulators appointed by Donald Trump to ease rules on banks — and JPMorgan is now planning to aggressively open retail branches.
The issue is that JPMorgan never disclosed the ban’s existence, keeping it secret from shareholders.
It’s not clear why JPMorgan never disclosed the ban. JPMorgan seems to be hinting that it didn’t matter. A person close to the bank told Bloomberg that it wasn’t planning on an expansion anyway, given the weak economy. But Dimon has said for a while that he thought the economy was in better shape than many realized. What’s more, Morgan Stanley has estimated that JPMogan could add as much as $1.5 billion a year by expanding its branches, an amount that would seem to qualify as material.
Banks have to obtain permission from the OCC to disclose any informal actions it takes against them. But experts say anything as strict as a banning a bank from expanding branches into new areas would most likely have been a formal action. The OCC says none of its rules exempt banks from the reporting requirements they have under securities rules. So even if it was an informal action, JPMorgan should have asked to disclose the ban and the OCC should have approved. Publicly traded companies and their regulators should not be in the business of withholding information from shareholders.
It’s unclear what, if anything, transpired between the bank and the OCC regarding disclosure. A JPMorgan spokesperson declined to comment. The OCC said it has a policy of not commenting on actions it has taken against banks.
Dimon has undoubtedly been a great leader for JPMorgan. He steered the bank through the financial crisis with minimal damage and led the acquisitions of both Bear Stearns and Washington Mutual. JPMorgan’s shares have returned nearly 130 percent, including dividends, in the past five years, which is by far the best of its rivals.
But Dimon is both the CEO and chairman of JPMorgan’s board. And he has been showing an increasing desire not to have to answer to shareholders. He said recently that annual shareholder meetings were a waste of time and a “farce.” Earlier this year, along with Warren Buffett, Dimon said that all public companies, not just his bank, should stop giving investors quarterly guidance. I argued at the time that if Dimon and other CEOs wanted to give investors less information, they needed to give them more power, like appointing an independent chairman. Now it appears Dimon and the board he heads were withholding important information from shareholders for years.
In the wake of the financial crisis, investors agreed that bank CEOs should have more checks on their power. Both Bank of America Corp. and Citigroup Inc. split the chairman and CEO roles. Now things are going in the opposite direction. Bank of America ditched its independent chairman a few year ago, and Citi is hinting it will soon do the same. CEOs should get a fair amount of room to determine the best strategy for their companies, but even the greatest CEOs shouldn’t be allowed to cut shareholders completely out of the equation.
To contact the editor responsible for this story: Daniel Niemi at dniemi1@bloomberg.net
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Stephen Gandel is a Bloomberg Opinion columnist covering banking and equity markets. He was previously a deputy digital editor for Fortune and an economics blogger at Time. He has also covered finance and the housing market.
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