Analysis: JPMorgan's lukewarm results put Dimon under more pressure


JPMorgan Chase & Co Chairman and CEO Jamie Dimon, who came through the financial crisis relatively unscathed, is suddenly looking a little less secure.

The top U.S. bank by assets reported tepid first-quarter results on Friday. Income in its biggest businesses - investment banking and consumer lending - fell, excluding accounting adjustments. Outstanding loans grew by just 1 percent, and profit margins on lending narrowed. Stock and bond trading revenue fell.

Continue Reading Below

Every bank chief executive suffers from similar headwinds, but Dimon is also facing a shareholder vote next month at JPMorgan's annual meeting that could push the board to strip him of his chairman's role. A group of investors behind the proposal says the bank needs to separate the roles of chairman and CEO so that the board can provide more oversight of management.

That follows a similar proposal in 2012 and comes after the bank posted $6.2 billion of derivatives losses last year that came to be known as the "London whale" trades. The losses were recorded by an investment office whose head reported to Dimon.

JPMorgan's stock has lost some of the premium valuation it used to enjoy over the shares of other big banks.

Worse still for Dimon, the bank's relationship with regulators has deteriorated in recent years, and JPMorgan's board blames that in part on the CEO, two sources familiar with the matter said.

"If the board wants to send a message that they want to restore regulatory confidence in the company, it will name an independent chairman," said Michael Garland, who oversees corporate governance for New York City Comptroller John Liu, one of the pension fund investors backing the shareholder proposal.

Garland said the trading loss showed that Dimon needed better oversight from his board of directors.

Dimon was not available for comment.


While Dimon's reputation as one of the best risk managers in the business may have taken a hit, and his pay was cut in half for 2012, he still has strong support from investors and the bank's directors. JPMorgan's board, for example, said last month that it "strongly endorses" keeping Dimon as both CEO and chairman.

"I think he's safe," said Alan Villalon, a senior research analyst at Nuveen Asset Management, which has $120 billion of assets and owns JPMorgan shares.

Dimon has been working to repair his relationship with regulators as well. In his annual letter to shareholders this week, he said, "I feel terrible that we let our regulators down." Getting control of the company's compliance systems is the firm's top priority, he said.

Still, Dimon has signaled that the loss of his chairmanship may make him feel far from comfortable. He told analysts in February he would not have agreed to become CEO of Bank One, which was later bought by JPMorgan, if he could not have been chairman too.

"Troubled company, big turnaround, divided board. Not me. Life is too short," Dimon said at the time.

To Dimon's supporters, the London whale episode underscores his abilities as a manager. In spite of losing more than $6 billion on the trades, the bank posted record profits last year.

"I would hope, as a shareholder, that we see him running the institution as long as I hold the shares," said Kevin O'Keefe, financial services analyst at Brown Advisory, which manages $33 billion of institutional and high net worth assets.


The extent of the dysfunction between JPMorgan and regulators was revealed in a report last month by a U.S. Senate subcommittee, which was probing the trading losses. According to the report, JPMorgan browbeat one of its main regulators, the Office of the Comptroller of the Currency.

In one episode outlined in the report, Dimon declined to provide a daily trading statement to the OCC because he feared the regulator was leaking some of the data.

When Doug Braunstein, the bank's chief financial officer at the time, resumed giving the information to regulators, Dimon shouted at him, according to the report.

A JPMorgan spokeswoman said at the time, "While we have repeatedly acknowledged mistakes, our senior management acted in good faith and never had any intent to mislead anyone."

Last month, the Federal Reserve also told JPMorgan to fix flaws in the way it determines how much capital the bank can return to shareholders. In its stress testing of major banks, the Fed said JPMorgan could increase its quarterly dividend to 38 cents a share from 30 cents, and buy back $6 billion of its shares.

Meanwhile, the opposition to Dimon's dual roles at the bank has grown.

The proposal to split the chairman and CEO roles last year received 40.1 percent of votes cast.

Since that vote, which happened only five days after the company first acknowledged losing billions of dollars on the trades, shareholders have learned much more about the company's failed risk controls and the trouble it has had with regulators. More investors have joined the call for the splitting of the roles.

Last year, the only sponsor of the proxy measure calling for Dimon to lose his chairman's position was a public union pension plan, the American Federation of State, County & Municipal Employees.

This year, New York City and state of Connecticut employee retirement plans and Hermes Fund Managers from the United Kingdom have joined in.

The additional sponsors increase the chances the measure will pass, said Lisa Lindsley, AFSCME's director of capital strategies. The annual meeting is set for May 21 in Tampa, Florida.

The bank's earnings on Friday could lend further support to those dissenting voices.

JPMorgan posted $6.53 billion of net income for the first quarter, a 33 percent jump from the same quarter last year, but much of that gain came from accounting judgments rather than increased customer demand.

The bank recorded essentially no litigation expenses in the first quarter, compared with about $2.5 billion for the same period last year. It put aside less money to cover credit losses and drew down on reserves to cover bad loans - all of which boosted profits in the quarter but led some analysts to question the sustainability of earnings growth.

Another reason for better profit this quarter: the London Whale losses from the bank's big trades in credit derivatives markets are largely over.

"The London Whale was the stupidest and most embarrassing situation I have ever been a part of," Dimon said in his annual letter.

(Reporting by David Henry and Dan Wilchins; Additional reporting by Lauren Tara LaCapra in New York; Editing by Paritosh Bansal and Peter Cooney)