See the bipartisan U.S. Senate investigations subcommittee's report on the infamous "JPMorgan Whale Trades" for a 307-page report on lies, deceit of government regulators, overrides on internal controls, anger mismanagement, and poor investment choices by Jamie Dimon's giant bank, which lost more than $6 billion in a series of aggressive interest-rate bets. Read it here. More may come out in today's follow-up Senate hearing with JPM bosses and the U.S. regulators they fooled.
And yet... JPM remains profitable, multinational, highly-valued by investors, and a major lender to U.S. industry and consumers. Should Congress go ahead and break it up, with other banks that are "too big to fail" -- or, apparently, too big to prosecute?
Check out what's happening to local banks -- like the for-profit community lenders reviewed by Merion Capital Group's Jason O'Donnell in a report to clients this morning. As "Pennsylvania's economic growth continues to lag the national trend," with "meaningful higher" unemployment (despite Gov. Tom Corbett's efforts to be welcoming to employers) than other states, banks in the state are recovering, thanks to revived commercial real estate and mortgage lending, O'Donnell notes.
But those modest gains are threatened, O'Donnell adds, by "higher regulatory costs" imposed by Congress and federal bank regulators in their efforts to keep more banks from failing; by continued low interest rates and tough competition under Federal Reserve chairman Ben Bernanke's cheap-money policy; and by "moderation in mortgage banking revenues," since everyone who's credit deserves a cheaper refinanced mortgage has presumably, by now, gotten one.
(Although bank regulators, at least, may be backing off a bit: Wells Fargo & Co. has won their approval to increase its shareholder dividend, and PNC Financial Services Group will likely follow suit, analyst R. Scott Siefers of Sandler O'Neill + Co. writes in a report to clients this morning.)
Re local economic growth: To be sure there are more and more apartment projects and rehabs going up in Philadelphia and its suburbs. But how long will that last? "With the job market improving and home prices having stabilized, migration within the United States re-accelerated in 2012," writes Janney Capital Markets analyst Ryan Conners. The "migration to (the) Sun Belt (is) Back On," he adds, with most movers headed from the Midwest Rust Belt and upper New England toward Texas, California and Florida, where the jobs are.
Banks -- at least in our part of the country -- can't make much money through traditional lending and saving; like small businesses generally they are hunkering down. JPMorgan Chase & Co. faces the same problem, writ large. Which is why the big New York and multistate banks have committed so much capital to proprietary trading, derivative securities and other specialties where canny traders can get rich boosting profits -- or lose the bank.
Should we stop banks from making those bets? They are, after all, federally-insured -- though it's other banks (and their shareholders and depositors), not taxpayers, who typically pay that insurance.
If banks go back to simply gathering deposits and making loans -- if other companies and Wall Street geniuses are no longer allowed to compete with cheaper products and more complex financing schemes -- we'll be able to worry less about bank failures. But we'll also be back to paying higher rates and fees. Is that a good choice?