In 2008, US Treasury Secretary Hank Paulson prevailed on the good nature of JP Morgan’s CEO Jamie Dimon to take Bear Stearns and its toxic balance sheet, riddled with sub-prime lending and CDO exposures, off the Street of Dreams. By agreeing to this success, he all but insured his impregnability as the Prince Regent of Wall Street in perpetuity. He tucked this ailing fixed interest titan neatly in to JPM’s portfolio adding another irritant in the form of Washington Mutual for good measure. To Dimon’s eternal credit JPM’S balance sheet was in relatively decent shape and consequently was able to manage these ‘damaged goods’.

Jamie Dimon’s continued presence as CEO at JP Morgan for the past 15 years has given much needed continuity, stability and credibility to JP Morgan, which is arguably the best bank in the world. Since 2009 its share price has risen like the proverbial grilse from $15 to $132 yesterday. Mr Dimon has shares in JPM valued at $500 million and it is thought that he may be awarded a bonus, perhaps to include shares worth $31 million, this year.

The US banking sector’s recovery since the dark days of 2009 has been in many cases meteoric. JPM’s journey has met with not many metaphorical potholes along the way. However, in 2012 there was a serious problem. One of the investment banks trading ‘arms’, run by Bruno Iksil, affectionately known as the ‘London Whale’, assisted by Achilles Macris and others managed to incur a loss of a gargantuan sum of money - $6 billion! In normal circumstances senior heads would roll. In fact, it is fair to say that had Jamie Dimon been at the head of European bank, he would have been history. However, Mr Dimon was considered a hero on Wall Street for leading the charge of financial recovery, and though he was under the cosh for a while, his continued presence as CEO was never really in doubt.

When one considers the slew of CEOS that UBS, Credit Suisse and Deutsche Bank have enjoyed, Mr Dimon’s success provides the deserved credibility. The quality of JPM’S balance sheet has been the key to the kingdom.

Since 2007 Deutsche Bank’s shares have fallen from €117 in May 2007 to €7.81 including copious rights issues, UBS from CHF 70 in May 2007 to CHF 12.06 today and Credit Suisse CHF 88 in May 2007 to CHF 12.64 today. Their respective collapse in share price tells us that many constituents from the European banking sector have been in the depths of despair for over a decade and recovery has been painfully slow. In the case of UBS and Credit Suisse the change of emphasis away from international banking to wealth management makes sense, but the journey is slow. Deutsche conveys the impression that it is drowning in a huge derivative position and unwinding it is proving very challenging. Ironically at the turn of the century these three banks were considered amongst the best in the world.

To jog our memories at the time of ‘Big Bang’, Deutsche Bank acquired Morgan Grenfell, who already had scooped up Pember & Boyle and Pinchin Denny into its portfolio. Along the way, UBS swept in Phillips & Drew, Swiss Bank, SG Warburg, Ackroyd & Smithers, Mullens & Co, Rowe & Pitman and Paine Webber. This made these banks very powerful institutions in the world of investment banking, before the banking and credit crisis in 2008, when they fell from grace. UBS and Credit Suisse were involved tax evasion allegations in the US, with the former losing about $50 billion on injudicious investments.

The management turnover at these banks has been a regular and ruthless occurrence. In the case of Deutsche Bank, Rolf Breuer handed over to Josef Ackermann in 2002. Ackerman remained in situ for a decade to be replace by Anshu Jain and Jurgen Fitschen as joint CEOS. All three failed to turn the bank’s fortunes around. The baton was handed to John Cryan in 2015 until 2018. Many think he was not given the time or freedom to deal with the problem. The poisoned chalice is now in the hands of Christian Sewing. The market wishes him well.

Oswald Gruebel was CEO of Credit Suisse from 2002-7 handing over to Brady Dougan, an America, who dealt with the banking crisis. Tidjane Thiam’s services were acquired from Prudential in 2015. He has found turning this banking titan around a rather tortuous challenge. He was not helped by being allegedly embroiled on the peripheries in an internal spying scandal. The adverse publicity attracted was irritating, but this grey cloud appears to have disappeared.

At UBS Marc Rohner surrendered his position to Oswald Geubel. Rohner’s position was becoming untenable with the losses incurred especially in the US. Greubel reputation was superb. However, one Kweku Adoboli’s fraudulent behaviour, which cost the bank $2.3 billion, precipitated Greubel’s resignation. There was never any question of him hanging on. The buck sits at the top.

In closing the changes in UK banks at the top have been multiple. For the past decade Barclays have changed their CEO regularly for copious reasons from Qatar to corporate governance to lack of progress. – John Varley, to Bob Diamond to Antony Jenkins to Jes Staley. In the case of HSBC – it’s been Stephen Green, to Stuart Gulliver to John Flint to Noel Quinn. Lloyds has fared well, with just Eric Daniels and Antonio Horta Osorio in situ. RBS saw the back of Fred Goodwin. Stephen Hester failed to cut the mustard with George Osborne, and was replaced by Ross McEwan who, after a decade, has just handed over to Alison Rose. There was also turmoil at Standard Chartered Bank. However, its demise took place later. The highly respected Lord Mervyn Davies handed over to Peter Sands. There were issues with regulators in the US and here. Bill Winters has been at the helm for five years. What a labyrinth of intrigue! However, despite these tales of woe, Jamie Dimon’s star is still in the ascendancy!

David Buik

Core Spreads

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