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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 — adulated by some, resented by others, but incontrovertibly powerful.
Days before the British monarch’s coronation, Dimon 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 failing First Republic, JPMorgan has swelled to three times its size before the 2008 financial crisis, and now commands an asset base of nearly $4tn.
The First Republic takeover is reminiscent of two larger crisis-triggered rescue deals from 2008, when policymakers worked with Dimon to facilitate JPMorgan’s purchase of the failing Bear Stearns investment bank and Washington Mutual, a troubled commercial lender.
The Federal Deposit Insurance Corporation, which manages US bank failures and administered the First Republic transaction, made clear JPMorgan had won the deal ahead of other bidders, essentially thanks to its heft. It could afford to offer a better value package to the FDIC — and the organisation has a legal duty to choose the “least-cost” solution.
But this is a self-perpetuating argument, and with the banking turbulence of recent months turning into a full-blown regional banks crisis, JPMorgan could well become the natural buyer of other troubled banks. That feels neither healthy nor sustainable. Respecting the “least-cost” law, without considering the longer-term bigger picture, is myopic.
Not that the short-term picture is cloudless. The febrile financial mood of recent months has so far proven helpful to big banks, which command greater trust from depositors and equity investors. But theoretically at least, instability could spread beyond the weaker regional banks — especially if the looming US government debt ceiling leads to louder, if implausible, suggestions of a default.
In that kind of bleak scenario, the bigger the bank the greater the problem. Relative to the systemic risk big banks pose to their home countries elsewhere in the world, JPMorgan is actually modestly sized. Its assets are less than 17 per cent of US gross domestic product. The bank would have to rescue another 102 First Republics to even match US GDP (or 234 of them to get to twice-GDP, UBS’s size relative to the Swiss economy after its rescue of Credit Suisse).
In market share terms, too, JPMorgan looks modest by international standards, with a domestic deposit share of less than 15 per cent, half that of UBS, post-Credit Suisse.
In an absolute sense, though, JPMorgan is vast and unparalleled in the western world. (Only China’s big four lenders outweigh it in assets.) And with critics voicing their opposition to its go-to status for the FDIC, there is a chance that the bank is forced to meet tougher regulatory standards. It already has an unusually high core equity tier one 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 surcharge could go higher still, some analysts believe, 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 (far bigger) 2008 acquisitions yields a mixed conclusion. Although they bolstered business in certain areas, the acquired businesses also accounted for the majority of the $19bn of legal costs and penalties that it ended up paying, largely related to legacy mortgage misdemeanours. (The experience prompted Dimon to pledge that he would “not do something like Bear Stearns again”.)
However good or bad these kinds of transaction prove for JPMorgan, it is clear that they create an ever bigger bank that becomes ever more challenging to handle.
One reason for Dimon’s quasi-regal status is that he has a consistent record of rising to that challenge — with the obvious exceptions of the $6.2bn London Whale trading scandal and the bank’s odd allegiance to former client and late convicted sex offender Jeffrey Epstein, related to which Dimon himself is being deposed next month.
But if there are doubts about the 67-year-old’s ability to run an increasingly large and complex bank, there are many more about the (unknown) heir to his throne. Even without that succession risk, the US authorities should be weighing an urgent question: is JPMorgan just too big: too big to fail, too big to manage, or as the FDIC seems to think, too big to manage without?
patrick.jenkins@ft.com
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