JP Morgan's (JPM) CEO Jamie Dimon is "tired" of his employees being vilified over bonuses. He first made his feelings known in late December when he called British Chancellor of the Exchequer Alistair Darling and threatened to pull out of a $2.4 billion investment in London's Canary Wharf financial district because of Britain's bonus tax. Yet politicians and ordinary Americans see that the banks want it two ways: a "socialized" system when they need help but a private system when it comes to doling out the profits.%%DynaPub-Enhancement class="enhancement contentType-HTML Content fragmentId-1 payloadId-61603 alignment-right size-small"%% Looking to gain some sympathy for his poor overworked employees, Dimon told the audience attending the JPMorgan Healthcare Conference on Monday: "We do not have change-of-control agreements, special executive retirement plans, golden parachutes, special severance packages or merger bonuses." He added that many of JPM's employees work hard with small and midsize businesses.
Do bank employees really work that much harder than employees at other companies that serve small and midsize businesses? Do they really deserve the multimillion-dollar bonuses many of them will receive as banks dole out half of their profits to employees? Does any other type of business in the U.S. or globally dole out such a large share of profits to employees?
Don't the banks need to protect their investors and their businesses by adding profits to retained earnings and hold on to enough assets so they don't need government bailouts the next time trouble hits?
Britain's Bold Move on Bonuses
JPMorgan Chase is still facing losses across its consumer loan portfolios. Dimon also called commercial real estate a "train wreck." Why not build reserves to offset those looming loses? Or is the game plan to count on another government bailout if needed in the next year or two to get out of those messes?
Britain is taking the lead in regulation to get some control of the ever-increasing bank bonuses. Its securities regulator now mandates that top banking executives and earners defer 60% of their total compensation for a three-year period. A trader or banker who receives a bonus of 1 million pounds or more can make immediate use of only 40% of that bonus.
Some American bankers, including Dimon, are saying they won't take it anymore -- and they're threatening to reduce their presence in London's financial market. JPMorgan employs 15,000 people in Britain and had planned a $2.4 billion investment in Canary Wharf. In addition to JPMorgan, Goldman Sachs (GS) has made known that it's reassessing its commitments to London's financial hub.
Are these just bluffs? The costs to the banks to relocate thousands of employees to another European City just to avoid the new bonus regulations in Britain may far outweigh any inconvenience to those bankers.
Despite Britain's moves, if other countries don't follow suit, the banks will win, and their risk-taking behavior that led to the current global crisis will go on. The U.S. is considering another regulatory tactic. President Obama is expected to propose a fee on financial institutions to help reduce the federal deficit when he releases his budget plans in February. Details aren't yet finalized, but the fee would be used to recover some of the taxpayer money put up to bail out the financial system after its near-collapse in the fall of 2008.
Now that many banks are again pulling in robust profits -- thanks to you know who -- they can afford pay back their TARP infusions. But that doesn't mean they should also feel free to keep paying out billions in bonuses to their employees.
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