Is Jamie Dimon Still the Best Manager in Banking?

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On Friday, JPMorgan Chase (NYSE:JPM) reported third-quarter financial results that fell short of analyst expectations. The firm, America’s largest bank by assets, reported an unexpected net loss of 17 cents per share for the quarter, largely the result of enormous legal expenses. Analysts were expecting a profit of about $1.19 per share, which compares against year-ago earnings of $1.40 per share.

“While we had strong underlying performance across the businesses, unfortunately, the quarter was marred by large legal expense,” Chairman and CEO Jamie Dimon said in the report. “We continuously evaluate our legal reserves, but in this highly charged and unpredictable environment, with escalating demands and penalties from multiple government agencies, we thought it was prudent to significantly strengthen them.”

Legal expenses came to $7.2 billion in the third quarter, bringing the total amount of money that the firm has set aside for legal costs since 2010 to about $28 billion. Just last month, JPMorgan agreed to settle various probes related to the London Whale trading scandal for $920 million.

These costs — compounded by regulatory ill will and a hit to the bank’s previously sterling reputation for risk management — have weighed heavily on Dimon. In an April letter to shareholders, Dimon described the London Whale incident as the “stupidest and most embarrassing situation I have ever been a part of,” and said that the event cost the bank more than money.

“It was extremely embarrassing, opened us up to severe criticism, damaged our reputation and resulted in litigation and investigations that are still ongoing,” he wrote.

But despite the costly ordeal, Dimon still has his supporters. According to Bloomberg, Laban Jackson, a member of the bank’s board of directors, called Dimon “the best manager I’ve ever seen” at an annual conference for corporate directors on Saturday.

Many would be quick to question Jackson’s claim. It’s unclear what the total costs of the London Whale incident will end up being, but JPMorgan has lost as much as $6.2 billion on the synthetic credit portfolio so far alone. Many have placed ultimate responsibility for the loss on Dimon and other senior executives who should have been aware of what was going on in the bank’s chief investment office.

Shareholders have generally been forgiving of the legal headwinds facing JPMorgan. Shares are off marginally over the past month but have climbed more than 17 percent this year to date, outpacing the S&P 500 by a fraction. Dimon is credited with steering the bank through the financial crisis with relatively minimal losses, and he has led the firm through a strong recovery despite anemic economic conditions and increased regulatory pressure.

Since Dimon took over at the end of 2005, JPMorgan has outperformed other financial institutions like Bank of America (NYSE:BAC) by leaps and bounds. JPMorgan stock is up more than 31 percent over the past eight years, while Bank of America is down more than 60 percent, having never fully recovered from the financial crisis. Bank of America, of course, has faced its own whirlwind of regulatory action, most recently agreeing to pay $500 million to rid itself of allegations that it sold defective mortgage-backed securities during the crisis.

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