By VW Staff. Originally published at ValueWalk.
JPMorgan Chase & Co. (NYSE:JPM) CEO Jamie Dimon gave thirty minute Q&A to Young Wall Street, opening the floor to any question they cared to ask: “child raising, philanthropy, gay marriage, politics, Elizabeth Warren, derivative clearance, whatever’s on your mind.” So it’s disappointing that most of the crowd played it so safe, asking about his college major, how to deal with setbacks and so forth.
One questioner who seemed like she was trying to rile Jamie Dimon up (she prefaced the question by saying Goldman Sachs Group Inc (NYSE:GS) was ‘widely regarded as the best run bank on the street’), asked him point blank if he thought there was a valid argument for breaking up JPMorgan, prompting one of the most interesting parts of the Q&A.
“The regulatory, political and legal burden we’re bearing is astronomical. I wouldn’t pay as much for our company as I would for those separate companies because the punishment doesn’t fit the crime sometimes, it fits the size of the bank,” said Jamie Dimon. “But the things I just mentioned – legal, regulatory – will go away.”
Three reasons Jamie Dimon won’t breakup JPMorgan
The question, and the Goldman Sachs reference, was from an analyst report saying that JPMorgan is currently trading at a discount because it’s a conglomerate and that splitting up the four divisions (asset management, investment banking, commercial banking, US retail banking) might increase total value for shareholders.
Jamie Dimon rejected the idea that JPMorgan is a conglomerate or carries a conglomerate discount, and pointedly mentioned that the report was an analyst’s opinion that Goldman Sachs CEO Lloyd Blankfein had disavowed to Dimon personally.
He felt that the reason JPMorgan may have a discount (he says it’s about one PE turn) is because of the regulatory and legal burdens that it faces, but he thinks those things will pass. He also argues that you don’t save any money by breaking up the four businesses because you would have to replicate trading floors, retail outlets, IT systems, and so much else that whatever other benefits you might get from simplifying disappear. Finally, the break-up would be a huge undertaking, giving up 2 – 3 years of growth for investors.
The ‘raw material’ of banking will double, says Dimon
Jamie Dimon is also very optimistic about the future of the banking industry. He says that the number of billion dollar companies, assets under management, traders, individual billionaires, M&A activity, debt, and equity are all going to double in the years ahead.
“You can come up with all these theories about why it won’t be true – you’ll probably be wrong,” said Dimon. “The actual raw material that you deal with, the fuel that drives the business, will grow dramatically.”
That doesn’t mean every bank will manage the transition, but Jamie Dimon isn’t worried that regulations will prevent banks as a group to grow and be profitable.
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