While researching JPMorgan Chase & Co. (NYSE:JPM) as a possible addition to my own portfolio, I came across some staggering problems that I had not anticipated I would find. It turns out that Jamie Dimon is no genius. In fact, I think he’s going to end up costing JPM stock holders almost 35% of the company bottom line across five years.
JPMorgan Chase should be trading far below $70, given the pending disaster that I uncovered.
First, we need some background. Remember back during the financial crisis, when Bear Stearns failed overnight? The Federal Reserve strong-armed Dimon to buy up the troubled company. Along with Washington Mutual, JPM picked up a tremendous book of business that seemed like a good move at the time.
Disaster for JPMorgan Chase
It turned out to be a disaster, and I can’t understand why people think Jamie Dimon is some master investment banker.
In 2013, the Department of Justice entered into the largest settlement in American history — $13 billion — with JPM “to resolve federal and state civil claims arising out of the packaging, marketing, sale and issuance of residential mortgage-backed securities (RMBS) by JPMorgan, Bear Stearns and Washington Mutual prior to Jan. 1, 2009. As part of the settlement, JPMorgan acknowledged it made serious misrepresentations to the public — including the investing public — about numerous RMBS transactions.”
Dimon purchased Bear and WaMu and took on all their liabilities. As one of the leaders behind the mortgage meltdown, he had to have known buying these entities would encompass a ton of liability. What dumb moves!
But that was just one of the big fines and settlements that JPM stock has endured under Jamie Dimon. In 2012, the DOJ hit JPMorgan Chase with a $5.29 billion fine for “robo-signing” affidavits in foreclosures, “deceptive practices in the offering of loan modifications; failures to offer non-foreclosure alternatives before foreclosing on borrowers with federally insured mortgages; and filing improper documentation in federal bankruptcy court.” 2013 saw another $1.8 billion paid for more improper foreclosures, and a $4.5 billion hit for selling toxic mortgages to institutional investors.
Then there was the “London Whale”, which cost JPM stock $920 million in fines, on top of the $6 billion in trading losses. What’s particularly vexing about this story was that losses that JPMorgan Chase experienced actually originated in the portion of the JPM office that handled risk! Where was the oversight? It wasn’t there, considering that “risk limits … were breached 330 times in the first four months of 2012”.
It’s Dimon’s arrogance through this whole debacle that really concerns me. As Bloomberg reported, Jamie Dimon boasted about how conservative JPMorgan Chase is, when two days earlier, he saw a presentation showing the London derivatives portfolio has far greater risk than it had previously held. The Bloomberg article linked above is a must-read to see just how incompetent and arrogant Dimon has been.
Thus far, when one adds up all the fines that JPM stock has suffered under Dimon — just since 2013 — the total comes to more than $35 billion. This is unconscionable, and I cannot understand how Jamie Dimon is still running JPM. The last 3 ¾ years have seen JPMorgan Chase’s net income total $75.4 billion. If one adds back the fines, the company should have profits of $110 billion — meaning Dimon has cost JPM stock more than a third of its bottom line during this period.