JP Morgan Chase 2014 Annual Report Download - page 22

2020
II. BUILT FOR THE LONG TERM
again – in fact, I don’t think our Board would
let me take the call. The WaMu deal might
still make sense but at a much lower price to
make up for the ongoing legal uncertainty
(including the government’s ability to take
away our bargained-for indemnities). I did
not, and perhaps could not, have anticipated
such a turn of events. These are expensive
lessons that I will not forget.
Part of the issue around legal costs is that
banks are now frequently paying penalties to
five or six dierent regulators (both domestic
and international) on exactly the same issue.
This is an unprecedented approach that
probably warrants a serious policy discussion
– especially if those regulators (as at least
some of them have acknowledged) don’t take
into account what is being paid to the others.
For now, it’s simply a reality for big banks,
and certainly for us, that when one or more
employees do something wrong, we’ll hear
from multiple regulators on the subject.
The good news is that our legal costs are
coming down and, we hope, will normalize
by 2016.
Uncertainty remains around regulatory require-
ments, though we believe this will diminish over
time, too. That uncertainty is particularly
acute around the extra capital that JPMorgan
Chase will have to hold because of the new
Global Systemically Important Bank (G-SIB)
rules, the ultimate impact of the Volcker
Rule, total loss-absorbing capacity, CCAR
and Recovery & Resolution. And it’s because
of that uncertainty that a majority of the
time I spend with analysts and investors
these days is devoted to regulation. Very
little time is spent talking about the actual
business, like client transactions, market
share gains or other business drivers. Many
questions still remain, and they are hard to
explain or are dicult to answer, including:
Why did American regulators simply double
the G-SIB capital requirements for American
banks versus all other global banks? Will
higher capital requirements be added later?
Given that much uncertainty, which is
greater for JPMorgan Chase than for most
other banks, it is understandable that people
would pay less for our earnings than they
otherwise might pay.
Having said all this, the contours of all of
the new regulations have emerged, and
we believe that regulatory uncertainty will
diminish over time. And, we hope, so will
the drag on our P/E ratio.
Think like a long-term investor, manage like
an operator
So our ultimate goal is to think like a long-
term investor – build great franchises,
strengthen moats and have good through-
the-cycle financial results. Achieve the
benefits of scale and eliminate the negatives.
Develop great long-term achievable strate-
gies. And manage the business relentlessly,
like a great operator. Finally, continue to
develop excellent management that keeps
it all going. As Thomas Edison said, “Vision
without execution is hallucination.”