Break Up the Bank? It’s Not for You to Ask
JPMorgan Chase is trying to put
its troubles behind it. Having agreed to pay a $13 billion settlement
to the government for its past
mortgage-lending misdeeds, it
wants to move on. At the big “Investor Day” meeting with shareholders
Jamie Dimon, its chief executive,
and his top lieutenants extolled the bank’s strong and diversified
position in its four main businesses. “I am so damn proud of this
company,” Mr. Dimon exclaimed.
not so fast. Proxy season is around the corner. And, behind the
scenes, a skirmish is flaring over what will be put to an investor
vote at the bank’s annual shareholder meeting this spring.
private battles rage every year in companies across the country,
pitting shareholders, who want to hear other owners’ views on topics
related to management, against company officials who’d rather not. The
Securities and Exchange Commission
adjudicates these disputes, deciding which shareholder proposals must
be included on a company’s proxy.
the more interesting proposals this year is from Michael C. Davidson,
a tax accountant and individual investor in Portland, Ore., who owns
about 300 JPMorgan Chase shares. The S.E.C. hasn’t yet ruled on
whether it will require the bank to have shareholders vote on the
Mr. Davidson, 72, is new to the shareholder proposal business, the
topic he has seized upon is a venerable one — specifically, how to
resolve the problem of financial institutions that are too big and
interconnected to be allowed to fail.
threat was supposed to have been eliminated by the Dodd-Frank law of
2010. But it wasn’t, as a throng of experts has acknowledged. Among
them are Ben S. Bernanke, the former Fed chairman; Janet L. Yellen,
the current Fed chairwoman; William C. Dudley, the president of the
Federal Reserve Bank of New York; and Richard W. Fisher, the president
of the Federal Reserve Bank of Dallas.
Davidson’s view, it’s high time for big-bank shareholders to weigh in
on this crucial issue. His proposal, should the S.E.C. allow it to
stand, recommends separating JPMorgan’s commercial bank operations
from its investment banking and asset management units, similar to the
way banks operated after the
Glass-Steagall law was passed in
the 1930s. The proposal asks the company’s board to create a committee
of independent directors “to develop a plan for divesting all noncore
banking business segments” and to report to shareholders on that plan
within 120 days.
Davidson said in a recent interview that between the $13 billion
settlement paid by shareholders and the nice raise the board gave to
Mr. Dimon, “I really think they’re not looking out for investors’
interests.” He added: “I hope the proposal is allowed to appear
because I think there should be some kind of debate going on among
shareholders on this.”
JPMorgan, of course, disagrees. Its lawyers have argued at length to
the S.E.C. that the proposal should be excluded from its proxy. The
main reason, the bank contends, is that the proposal involves
“ordinary business” or “routine matters,” which under S.E.C. rules can
be exempted from a shareholder vote.
represent it in this matter, JPMorgan has hired an expert who is
steeped in the proxy process. He is Martin P. Dunn, a lawyer at
Morrison & Foerster who spent 20
years in high-level positions at the S.E.C.’s division of corporation
finance, the unit that determines whether a shareholder proposal makes
it onto a corporate proxy. Mr. Dunn did not return a phone call
seeking comment, and a spokesman for the bank declined to comment
further on the proposal.
Cornish F. Hitchcock, a lawyer in
Washington who represents Mr. Davidson and his proposal before the
S.E.C., said the agency typically rejects a shareholder proposal if it
involves aspects of company business that according to its rules are
“mundane in nature and do not involve any substantial policy or other
considerations.” But the debate over too-big-to-fail institutions is
about as substantive a policy matter as exists today, he said.
philosophy is that ordinary business matters are best left to the
management and board, but some situations raise a significant policy
issue on which it is appropriate for shareholders to advise,” Mr.
Hitchcock explained. “The classic example from many years ago was
whether electric utilities should not invest in nuclear power. In that
case, the S.E.C. said
nuclear energy raises significant
policy issues and shareholders have the right to advise.”
if the S.E.C. allowed the proposal to be put on the proxy and a
majority of shareholders supported it, JPMorgan wouldn’t have to abide
by its terms. As a so-called precatory proposal, it is not legally
binding on the company.
JPMorgan wants to keep it off the ballot.
Proposals like Mr. Davidson’s get shareholders talking about issues,
which, in turn, forces company insiders and directors to listen.
Georgeson, a provider of
shareholder consulting services, shareholders of large companies voted
on 263 proposals on a variety of corporate governance issues in the
first six months of 2013. Many of these — 109 — came from pension
funds and labor union investment funds. But even more — 129 — came
from individual investors.
the topics broached in these proposals were
executive pay, disclosures
surrounding a company’s political contributions and the repeal of
classified boards, where director elections are staggered to protect
against the ouster of an entire board at one time.
Davidson says he thinks his proposal is important, and not only
because it would let shareholders express their views on an issue
affecting the entire economy. He said JPMorgan shareholders would be
better off if the bank was broken up because the individual parts
could be more valuable than the combined entity. As precedent, he
points to the early 1980s, when AT&T was broken up into regional
“Looking back at the AT&T breakup, the shareholders made out like
bandits because the thing was worth a lot more in pieces than whole,”
Mr. Davidson said. “JPMorgan is identical — it’s got this banking side
and risk-taking side. If you break it in half, it’s going to be worth
more to shareholders.”
bank officials reject this thesis. Mr. Dimon and his associates
contend that the size and scope of JPMorgan’s businesses strengthen
rather than weaken the institution. And as for too-big-to-fail, Mr.
in his letter to shareholders
last year that new regulations were well on the way to eliminating the
problem. “Clearly more work needs to be done, but we are collaborating
closely with the regulators to accomplish this goal,” he wrote.
Nevertheless, given some of the management missteps at JPMorgan in
recent years — most notably the London Whale mess — and its regulatory
run-ins, it certainly seems appropriate to ask shareholders whether
they think the institution is too big to manage. Even as simply a
point of information, such a vote could be revealing.
version of this article appears in print on March 2, 2014, on page BU1
of the New York edition with the headline: Break Up the Bank? It’s Not
for You to Ask.
© 2014 The
New York Times Company