A year ago,
For Dimon, a CEO who exited the 2008 panic with his reputation emboldened and who runs what he characterizes as a fortress cog in the U.S. financial system, crises are friendly territory.
On Wednesday evening Dimon made a nuanced argument for regulatory leniency in JPMorgan's annual letter to shareholders, ditching much of the bluster that's made him Wall Street's most quotable CEO. In fact, he conceded post-crisis regulations made the U.S. banking system simpler, better capitalized and less of a risk to the wider economy. But, he then used the prospect of a next financial crisis as a rhetoric device to argue some rules are hamstringing lenders.
In a new panic Dimon said JPMorgan will be reluctant to accept deposits fleeing failing or struggling firms - a contrast to the 2008 crisis where the bank took in over $100 billion in deposits. So-called pro-cyclical capital requirements make inflows of deposits prohibitively costly, Dimon said, while stating, "it is unlikely that we would want to accept new deposits the next time around because they would be considered non-operating deposits (short term in nature) and would require valuable capital under both the supplementary leverage ratio and G-SIB."
In other places in the annual letter, Dimon fretted about how new capital and liquidity charges make it harder for banks to extend credit against non-AAA rated collateral. In 2008, JPMorgan lent tens of billions of dollars by accepting mid-grade collateral and having risk managers come up with adequate haircuts. Those haircuts would now cut against JPMorgan's capital, another penalty, Dimon said.
The same holds true for revolving credit lines. As cash crunched borrowers max out their available credit, Dimon said Basel rules could cause capital requirements to spike 15%, stemming lending. Some $20 billion was drawn down from JPMorgan revolvers in 2008, but Dimon characterized new Basel rules as "very procyclical and would force banks to hoard capital."
Dimon's complaints also spanned liquidity-parched securities markets, tough-to-bite accounting on securities portfolios, and the punitive nature of risk-weighted-asset assessments. He concluded, "banks may be less able to act positively in the next crisis."
There's a middle ground in Dimon's argument - banks do have higher capital levels, better liquidity, and don't peddle in many of the exotic financial products, OTC derivatives, and shoddy mortgages that fueled the 2008 crisis. They are "far stronger and unlikely, in our opinion, to create the next crisis," he said. But, with a look into the next crisis, presumably not created by reckless lenders, Dimon is asking for the ability to lend without such high balance sheet penalties, and have greater discretion over the types of loans to make and securities to hold or buy.
After experiencing a forgettable few years - when he went from Wall Street's golden boy to the most under attack CEO in the industry - Dimon appears to be trying to recapture the touch that once served him so well.
It is easy to forget that Dimon was lionized for picking up Bear Stearns and Washington Mutual on the cheap. He broke a ridiculous deadlock among bank CEOs by being the first to accept financial-system-saving TARP money, winning over top government officials. When the recovery struck, it was Goldman Sachs, not JPMorgan that was pilloried for thriving.
And then it all turned. Surprise trading losses that weren't a "tempest in a teapot," relentless mortgage fines, market manipulation probes, criminal activity, and the ouster or exit of much of JPMorgan's top brass, all raised serious doubts about Dimon's position atop Wall Street.
Everything about Dimon's annual shareholder letter, his arguments about how to change regulations and his diplomatic tone, indicate he thinks he's back, and crises are a helpful guide.
