Risky trading practice leaves Dimon with a black eye.
Jamie Dimon, CEO and chairman of JP Morgan Chase, left the company’s annual shareholder meeting yesterday relatively unscathed, after disclosing a $2 billion plus trading loss at the bank.
In fact, most of the shareholder ballots were locked in prior to Dimon’s announcement of the company’s loss. But the annual meeting gave investors the chance to challenge the high-profile CEO about the company’s $2 billion blunder, which took a toll on investor confidence. Yet, shareholders stood strongly behind Dimon. An Associated Press report found that Dimon’s pay package from last year – $23 million - passed with 91 percent of the vote, while the vote to separate the CEO and chairman role ‘won only 40 percent support.’
Many corporate governance experts have long argued that, in order to boost transparency and enhance accountability, the roles of the chairman and CEO should be separated. But for Dimon, who is known as one of the ‘smartest bankers in the US’, holding both roles will pose no threats to the firm’s current corporate governance structure.
‘In a vast majority of cases separating the roles creates balance of power in the boardroom,’ says Paul Hodgson, senior research associate, GovernanceMetrics International. ‘Combining the roles is definitely not a good idea.’
Meanwhile, as analysts and industry observers are still criticizing Dimon’s costly mistake, regulators are continuing to monitor the trading situation at top Wall Street firms. On Tuesday, a Reuters report revealed that representatives from some of the country’s top financial regulators met to add more language to the Volcker rule, a provision of Dodd Frank that will go into effect in late July.
Under this rule, top financial institutions like JP Morgan, Goldman Sachs and Bank of America will be prohibited from making bets that will contribute to the company’s profits instead of its clients'.
‘There should be tighter regulation around the hedging of risky bets,’ adds Hodgson. ‘When companies like JP Morgan invest money in order to gain profits, it serves as a distraction from the actual business of an investment bank, which is to make money for clients instead of themselves.’
Dimon has been a strong opponent of the Volcker rule, saying that it will restrict competitiveness in the marketplace by imposing limits on proprietary trading by banks.
In reality, however, after Dimon’s trading debacle last week and President Obama’s call for tighter regulations coupled with movements like Occupy the SEC, it seems the Volcker rule is slated to become banks' worst regulatory nightmare.
