JPMorgan Chase & Co. chief executive Jamie Dimon said during his company's annual investor day Thursday that he has been turned off by the "capricious, arbitrary and punitive behavior" of regulators since his company accepted $25 billion in aid as part of the bailout of the financial industry in 2008.
While the company has since returned that aid with interest, JPMorgan Chase [JPM] has been lumped in with all of the troubled institutions that may have acted irresponsibly in the run-up to the financial crisis, Dimon said. It is also facing a slew of new accounting rules, federal fees and other regulatory changes that could sap its bottom line.
If he could do things again, Dimon said: "I don't know if I would" accept aid. "But then again, when you are in that situation, and your country calls, it's hard to say no."
At the least, he said, he would have tried to find some way to avoid the "vilification" that came from accepting federal aid.
Dimon has assumed the role of the country's most credible banker and outspoken banker since JPMorgan Chase has emerged from the recession as perhaps the healthiest and most powerful commercial bank in the U.S. He spent about 45 minutes yesterday addressing several concerns hanging over his company and the banking industry as a whole.
After drastically cutting its dividend last year, JPMorgan Chase would like to raise its quarterly payout from a nickel to 75 cents to $1 per share as soon as it becomes clear that economic recovery has taken hold, he said.
"We want to see employment go up consistently for several months," Dimon said. "If we're lucky, it will happen some time this year."
The company doesn't expect to lose a lot of money should interest rates rise, as it has been focusing on reducing its rate exposure. A 100 basis point increase would translate into a $500 million loss, which he described as "mostly noise in our company."
JPMorgan Chase also doesn't have a lot of exposure to the debt woes plaguing Europe. "Greece itself wouldn't be an issue for this company. Neither would any other country, in my opinion," Dimon said.
He said JPMorgan Chase is actually more concerned about California's deficit troubles, which could actually pose a higher default risk than the sovereigns in Europe.
Dimon said the company also has no timeline for winding down its $40 billion in loan-loss reserves, which some industry watchers say could deliver a jolt to earnings in coming years. He said the bank's reserves should be considered some $10 billion to $20 billion of excess capital that it will have at its disposal when things improve. "We're going to keep them as high as we can keep them," he said. "We think it protects the company."
Dimon was the last speaker to take the stage during the daylong event. The others — Chief Financial Officer Mike Cavanagh and the heads of the company' six business lines — hammered two themes throughout day. The first was that being part of a diversified financial behemoth is a huge competitive advantage. The second: JPMorgan Chase aims to take advantage of its financial heft to invest heavily in new people, products and initiatives in 2010 and beyond.
Cavanagh said the $2 trillion-asset lender, having stayed profitable through the downturn while maintaining its famous "fortress balance sheet," has the capital, earnings power and talent to overcome challenges in the economy or regulatory front. "We think we're positioned well for any environment," he said.
Charlie Scharf, head of retail financial services, said his division plans to open 120 new branches in 2010. It will also hire nearly 3,000 bankers and sales representatives over the next few years as it extends its reach into California and other markets it breached with the purchase of Washington Mutual Inc. Scharf said the health of the corporate parent has let the retail bank open branches and replace ATMs while rivals avoided new investments.
Thursday was also a coming-out party of sorts for Jes Staley, who was tapped as a potential heir apparent to Dimon in September when he was put in charge of the company's powerful investment bank. Staley spoke for more than an hour about how the division should be able to meet its aggressive earnings targets even as profits are taxed by more regulation and a cooling fixed income market, among other challenges.
"The JPMorgan investment bank is remarkably powerful," Staley said. "We're not going to make a significant strategic shift to the left or to the right. We have a great business."
Maintaining a high return won't be easy. Staley spelled out a number of things that could hurt the company's bottom line, including increased competition in equities and a cooling of the red-hot fixed income markets, where its margins are down more than 50% so far this year and should remain at that level. Fewer financial companies will tap the equity markets this year, which could cut into its capital markets business. Regulatory pressure is another issue, he said, although the company is confident it can thrive in the face of any regulatory changes as long as they impact the industry equally. JPMorgan will also pass onto customers higher funding costs that may result as tighter regulation.
"We're going to reset the price of credit globally, and in a dramatic way, if the regulators go beyond the bounds that they should," Staley said.