Just What the Doctor Ordered: More Oversight at JPMorgan
JPMorgan (NYSE:JPM) announced on Monday that it intends to edit its corporate governance principles, expand its board of directors, and increase the authority of its lead independent director to supervise Chairman and CEO Jamie Dimon. Separately, at the Barclays Global Financial Services Conference, Chief Financial Office Marianne Lake said that the bank has increased its litigation reserve by more than $1.5 billion — a move that highlights the enormity of the legal hurdle facing the firm.
JPMorgan has been slammed with numerous legal and regulatory headaches in recent months. Not only is the bank dealing with the legal repercussions of 2012’s $6+ billion London Whale trading loss, it is involved in more than a handful of separate investigations led by U.S. Department of Justice and other government agencies looking into various aspects of several of JPMorgan’s past operations.
The legal problems and resulting pressure on JPMorgan’s stock is unusual for the bank, which up until the London Whale fiasco was often held up as an example a well-run financial institution — it even emerged from the financial crisis stronger than most of its peers. But now, JPMorgan has calculated that its losses from lawsuits and federal investigations could exceed its legal reserves by as much as $6.8 billion, according to a filing made August 7 with the Securities and Exchange Commission.
Dimon has been forward with the challenges facing the company. In his 2012 letter to shareholders, he said that, “Our biggest problem of the year — the ‘London Whale’ Chief Investment Office (CIO) issue — has been widely chronicled. Unfortunately, we also fell short on multiple control issues highlighted by the regulatory consent orders that we received. (Consent orders may be given to a bank when a regulator determines that the bank fails to meet proper standards — and they demand improved procedures.) Our consent orders came not only from the CIO issue but also around mortgage foreclosures and anti-money laundering practices.”
In order to help address these issues, the bank has hired about 3,000 employees. The establishment of the Lead Independent Director role will give Lee Raymond additional authority over the governance of the company. Some of his new authority includes the right to call a board meeting at any time, the right to approve the board agenda and add new items, guide an annual evaluation of Dimon, and meet one-on-one with him after board meetings.