Jamie Dimon, chief executive of JPMorgan Chase & Co. (NYSE:JPM), is getting a raise after a year in which the firm paid nearly $20 million in regulatory fines.
According to reports in both the Wall Street Journal and New York Times, JPMorgan Chase & Co. (NYSE:JPM)’s board voted to increase Jamie Dimon’s pay package after a debate which at times was described as “heated.”
Jamie Dimon’s pay cuts
The JPMorgan Chase & Co. (NYSE:JPM) board had cut Jamie Dimon’s pay by half in 2013, to $11.5 million, resulting from a series of setbacks, most notably collateral damage from the “London Whale” trade in illiquid credit default SWAPs markets. The bet on interest rates lost the bank billions when major hedge fund players recognized JPMorgan could not escape and was forced to exit its wrong-way bet at a significant loss in what is known as a “liquidity squeeze.”
For a bank to engage in traditional hedge fund trading activities using a balance sheet that includes consumer deposits and use the US government as a risk backstop has been the cause of consternation among critics. In 2013 these critics were bolstered by record bank fines. These include the recent $2 billion fine in the Bernie Madoff case where JPMorgan agreed to pay a penalty for its role in the largest ponzi scheme in US history, as well as a $13 billion settlement in 2013 with the US government over sale of mortgage backed securities leading up to the financial crisis and a fine for rigging interest rates. No individual bank executives were prosecuted in any of these matters, yet Dimon seemed to favor individual prosecution. In an interview yesterday on CNBC when asked if individual executives should be held responsible, Dimon said “I think if people broke the law, they should be punished.”
Could have been much worse
Behind the scenes banking executives note that in 2013 Jamie Dimon actually managed to keep the bank out of significant trouble and the fines levied against JPMorgan Chase & Co. (NYSE:JPM) could have been much worse. “Mr. Dimon’s defenders point to his active role in negotiating a string of government settlements that helped JPMorgan move beyond some of its biggest legal problems,” the New York Times report notes. “He has also solidified his support among board members… by acting as a chief negotiator as JPMorgan worked out a string of banner government settlements this year.” Hours before the DoJ was planning to announce a potentially damaging lawsuit against JPMorgan in the mortgage securities issue that could have exposed criminality, Jamie Dimon personally called US Attorney General Eric Holder and negotiated a settlement. In the Madoff Ponzi scheme, Dimon worked with US Attorney Preet Bharara to settle the case. Complete details of all the settlements have not been made public.
Stock price up despite legal issues
Despite the legal problems, JPMorgan Chase & Co. (NYSE:JPM)’s stock price is up over 20% in 2013, indicating that investors may have been cheering Dimon’s skillful negotiating with the US government and the prospects for the bank going forward. Jamie Dimon’s deft negotiating with DoJ and regulators is one of several factors cited as reasons why the bank chief is deserving of a raise. Typically the stock price is one key barometer of the success of a company and a key factor playing into CEO compensation. Further, bank executives across Wall Street are said to be receiving raises. While Jamie Dimon’s compensation is not expected to return to 2011 lofty $23.1 million salary, it is interesting to note that by comparison he is a relative bargain when compared to Goldman Sachs chieftain Lloyd Blankfein, who took home $21 million in 2012, or John Stumpf, Wells Fargo & Co. (NYSE:WFC)’s chief executive, who took home $19.3 million. While JPMorgan did pay hefty regulatory and legal expenses in 2013, it still reported profits of $17.9 billion and was able to keep its head above water during 2008.