JPMorgan’s chairman clearly believes more is more when it comes to his letter to shareholders
In Jamie Dimon’s annual letter to shareholders, published in April and stretching to 32 pages, the CEO and chairman of JPMorgan Chase (JPM) tackles the fighting in the Middle East and the fighting spirit of the European Union before he gets into the ramifications for the bank of post-crisis litigation and the burden of increasing US regulation.
‘The European Union is one of the great collective endeavors of all time,’ Dimon writes, before declaring ‘We believe the Eurozone… will work through its problems.’
Jumping across the Mediterranean Sea, he is heartfelt about the conflicts in countries such as Egypt and Libya, evidently freed up to show his compassionate side by the bank’s limited economic exposure to the Middle East (outside of rising oil prices causing another global recession).
‘[W]e hope, first and foremost, that the outcome of these historic movements will enhance the life and rights of the people in the region,’ he continues.
Even his outlook for the American economy has a distinctly global feel. ‘The US economy was, is and will remain for the foreseeable future the mightiest economic machine on this planet,’ Dimon stresses, encouragingly, listing stellar universities, a great work ethic and ‘the most entrepreneurial population on earth’ as a few of the qualities that will keep America competitive against the economic threat from China – although Dimon does refrain from mentioning the Asian country by name.
This primary focus on recent global events is perhaps a reflection of the expanding concerns of JPM’s shareholders, who in last year’s letter were simply told how the bank fared in 2009.
The recipients of the letter may also be thankful for the distraction; it’s difficult for the grass on the other side to be greener when it’s on fire. But to ward off US complacency, Dimon also highlights the threats to US economic supremacy coming from abroad. In a rallying call deserving of a soapbox, he says: ‘America does not have a divine right to success.’
The threats to American dominance abound. On the one hand, the signs are positive for the global recovery: ‘Global investment will amount to $24 tn in 2030, compared with $11 tn in recent years. Banks will play a vital role in financing these investments and in connecting savers and borrowers around the world.’
On the other hand, Dimon provides a stark reminder of the changing world order: ‘In 1989, US banks represented 44 of the 50 largest financial firms in the world (by market capitalization). More than 20 years later, American banks now number only six of the top 50.’
Nor is the foreign threat to US dominance content to simply battle it out on overseas soil. In the new normal, the reemerging old world wants a larger piece of the American pie. ‘Twenty years ago, US investment banks dominated US investment banking, occupying all of the top 10 positions,’ Dimon points out. ‘Last year, US investment banks held only five of the top 10 slots.’
A few thoughts
Fortunately, Dimon, the recipient of a $23 mn pay packet, has a few ideas on how to keep America on top. Firstly, his bank is doing its bit to boost the presence of US banks overseas.
JPM’s clients in Brazil, China and India have increased threefold in five years. To keep ahead of the competition, he is equally eager to spot the economies at the forefront of the chasing pack, picking out Turkey, Indonesia and Malaysia for special mention.
Interestingly, however, it is sub-Saharan Africa rather than Asia that generates most of his excitement. ‘Economic activity in the region is expected to grow annually by approximately 4.7 percent over the next 20 years, from $800 bn to $2 tn, as its population grows by 370 mn to 1.2 bn,’ writes Dimon. ‘We estimate that more than 80 percent of our top multinational clients are doing business in sub-Saharan Africa.’
Secondly, the US has room to improve. Its ‘exceptional legal system’, for instance, could be made even better if the losing party in litigation was required to pay the winner’s costs.
This would deter ‘outrageous claims’, Dimon argues, and restore balance and fairness into class action suits, many of which his bank will continue to face ‘for years to come’, following its acquisition of Washington Mutual and Bear Stearns.
Dimon is also concerned about Dodd-Frank. The new regulations must take account of the already altered landscape, he says, if the US is to achieve economic recovery and avoid negative consequences.
‘The extensive reforms introduced by this legislation represent the most wide-ranging changes to the US regulatory framework for financial services since the 1930s, and we likely will have to live with [them] for the next 50 years,’ he warns.
Up close and personal
The overall effect of Dimon’s round-the-world wordy trip is to give his letter to shareholders more of a personal feel. Talking about numbers and percentages all the time rarely sounds any less intimate than a press release. As Dimon demonstrates, however, penning a personal letter to millions of recipients is clearly both difficult and incongruous.
He begins with the salutation ‘Dear fellow shareholders’ – an obvious nod to his own status as a shareholder of the bank. Almost immediately, however, he begins to struggle with reconciling being outside of the company as a shareholder looking in, and being the ultimate insider as the company’s CEO.
His alternating use of ‘your company’ and ‘our company’ mixed in with ‘we’ ‘you’ and ‘us’ is initially fine, but when he starts describing a trip to Ghana with ‘our’ daughter he opens up a whole world of possible interpretations.
Obviously, a personal letter from the CEO to shareholders is nothing new. Warren Buffet, CEO of Berkshire Hathaway, has famously been putting his thoughts down on paper since 1977.
But one simple letter from the chief executive is no longer enough for Dimon, a man who believes ‘quality business means… constant innovation.’ Which is perhaps why this year he is pushing the envelope by requiring the CEOs of five business lines to each write their own letters to shareholders as well.
Most of these begin with a testimonial from the relevant CEO. ‘In late 2009, I rejoined the investment bank after 10 years in asset management,’ recalls Jes Staley, CEO of JPM’s investment bank. ‘Obviously, there were many changes during that decade as world GDP nearly doubled and the digital revolution hit consumers, businesses and countries on a global scale.’
There is also a Q&A on the topic of mortgages with Charlie Scharf, head of retail financial services, containing the answers to hard-hitting questions like: ‘Why does the firm foreclose on a homeowner?’
Below Dimon’s level, the letters from senior management are restricted to a maximum of three pages per CEO. Nevertheless, they still add an extra 14 pages to the JPM annual report, pushing the 2010 edition to more than 300 pages, up from 250 the previous year – an achievement Dimon can write about in next year’s letter to shareholders, no doubt.
Move over, Warren Buffet – Jamie Dimon is the new American businessman of letters.
| Major issue | What Dimon says |
| Financial crisis | ‘One of the things that made Lehman’s failure so bad was that it came after Bear Stearns, Fannie Mae and Freddie Mac… It was the cumulative effect of the collapse of all these institutions, many of which were overleveraged, that was so damaging.’ |
| US mortgage industry | ‘We need to rethink the mortgage industry from the ground up.’ ‘We generally believe in these [skin in the game] rules regarding securitization (requiring mortgage originators to hold 5 percent of the risk of the loans they make).’ ‘Foreclosures will start to come down later this year.’ |
| Dodd-Frank | ‘For the implementation of Dodd-Frank to be effective, it must recognize the improvements that already have been made… Our chances for a strong global recovery are maximized if we get the rest of the regulatory reform effort right. We’re getting close – let’s not blow it.’ [Of the Durbin Amendment capping bank debit card charges] ‘It is an example of a policy that has little basis in fact or analysis.’ |
| Basel III | ‘Of all the changes being made in the financial system, we believe it is most important to have higher, but proper, capital and liquidity requirements for banks… We understand why, after this crisis, the capital standards should be increased. We now will have 50 percent more capital than we clearly needed during the crisis… We simply do not see the need for even more capital…’ |
| Financial Stability Oversight Council | ‘America should have streamlined its regulatory system. Instead, our legislators have created several additional regulators… In fact, many of the regulators are setting up departments to deal with other regulatory departments.’ |
| Bank levies in other countries (such as the UK) | ‘Banks should pay for the failure of banks but not through arbitrary, punitive or excessive taxes.’ |
| Consolidation of US banks | ‘The degree of industry consolidation has not, in and of itself, been a driving force behind the financial crisis.’ |
| China | ‘JPMorgan is at the forefront of the internationalization of the renminbi, a product that more and more clients are demanding for cross-border trade.’ |
