There was a lot of news about the nation’s biggest banks Wednesday. Let’s weigh through some of the most important pieces.
First, JPMorgan Chase released its internal task force report about its more than $6 billion trading loss, cut CEO Jamie Dimon’s bonus and reported record earnings. This from the New York Times on the trading report:
In a 129-page report attached to its quarterly earnings on Wednesday, the bank dissected the multibillion-dollar trading loss at the chief investment office, outlining a breakdown at the highest levels of management and detailing the “remedial” steps it has taken to heal a rare black eye.
Few surprises emerged from the report, which noted that the bank had overhauled its oversight of the chief investment office and fired the executives responsible for the trade. It was widely expected that the task force would issue a broad critique of the bank’s trading strategy and management.
Still, it is not often that a bank pulls the curtain back on its own executive fiasco. Some within JPMorgan were wary of releasing the report, worried that it would provide a road map for plaintiffs’ lawyers seeking to sue the bank. The chief executive, Jamie Dimon, reportedly supported a broad release of the document, however.
Then this from the Wall Street Journal’s story titled, “‘Whale’ Swallows Half of Dimon’s Pay.”
J.P. Morgan Chase & Co. hit Chief Executive James Dimon with a 50% pay cut for 2012 because of the “London Whale” trading debacle that cost the nation’s largest bank at least $6.2 billion in losses, and found Mr. Dimon bore “ultimate responsibility” for the failure.
The move came as the New York company posted record 2012 net income of $21.3 billion, on the back of robust lending and deposit growth and strong results across segments of the bank. For the fourth quarter, the largest U.S. bank by assets reported net income of $5.69 billion, up from $3.73 billion a year ago.
Mr. Dimon’s reduced bonus is the latest fallout from an episode that has shaken the bank and its top executives over the last eight months. The trading losses in the Chief Investment Office, which invests the bank’s excess cash, tainted J.P. Morgan’s reputation as one of the industry’s best risk managers. Several traders and executives involved in the trades were replaced, and some incentive pay was clawed back.
Investment banking powerhouse Goldman Sachs also reported earnings Wednesday. This from Reuters:
Goldman Sachs Group Inc paid a smaller portion of its revenue to employees in 2012 as it laid off staff, signaling that management at the top Wall Street bank may be listening to shareholders demanding higher returns.
The investment bank and asset manager said fourth-quarter earnings nearly tripled as it set aside less of its revenue for pay and earned more from trading. For the full year, employees were paid just 37.9 percent of the bank’s revenue, the second-lowest proportion since Goldman went public in 1999.
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With many banks facing the same problems, analysts expect layoffs across Wall Street. Morgan Stanley plans 1,600 job cuts in 2013, while Goldman cut 900 jobs in 2012, equal to about 3 percent of its work force.
Goldman posted fourth-quarter earnings of $2.8 billion, or $5.60 per share, up from $978 million, or $1.84 per share, in the same period a year ago.
But not to be left out of the picture, there was this WSJ story on Bank of America’s latest mortgage strategy.
Less than two years after embarking on a painful retreat from home lending, Bank of America Corp. is girding for a new run at the U.S. mortgage business. Whether that gamble pays off will depend in large measure on how long the mortgage market’s run of record profits continues.
The Charlotte, N.C., company aims to sell more mortgages through its 5,000-plus branches, executives said. The fourth-biggest U.S. mortgage lender, after Wells Fargo & Co., J.P. Morgan Chase & Co. and U.S. Bancorp is intent on “growing that business,” Chief Executive Brian Moynihan said at a December investor conference.
The decision is Bank of America’s latest about-face in a business that the company once sought to dominate. It also underscores the plight of many U.S. banks, which are struggling to find profitable businesses in the face of a sluggish economy, tougher regulation and hefty legal costs.
There were also reports that European banks may loosen some proposed banking regulations, according to this WSJ story.
One of the euro zone’s most significant commitments last year aimed at containing its financial crisis—a plan to allow the bloc’s bailout fund to directly boost the capital of banks in countries facing debt troubles—could be undermined by technical complications and second thoughts by some governments.
In meetings this week, the head of the bloc’s bailout fund told senior finance ministry officials that allowing the fund to directly recapitalize banks would deplete its lending capacity much faster than extending loans to governments, the fund’s usual role, two euro-zone officials said.
Rich countries, including Germany, meanwhile, insisted that governments should remain responsible for at least some of the direct aid to their banks, potentially leaving them saddled with losses.
It’s no wonder stocks didn’t budge much after the record earnings reports. There’s still a lot of uncertainty about strategy, capital and other issues. It will be interesting to see the trend stories come out after the rest of the firms report later this week.
