By Anahat Danewalia
When Santa was compiling his naughty list this Christmas, JP Morgan Chase definitely topped the Grey Listers. The dilemma Father Claus was facing was a serious one. Principally speaking, is hiring CEO Princelings so as to secure deals which are otherwise lost to competing agents covertly doing the same a bigger crime than losing potential returns to shareholders by sticking to centuries old fair policies?
The biggest error on part of JPMC was probably the fact that they chose to copy their competitors (hence breaking all moral principles and policies and directly securing a spot in the Naughty list) while maintaining carefully kept records and audits of the same (and being stupid! ) ,hence digging their own grave! In a cut throat competitive environment with surveillance increasing as we speak, that was sheer suicide.
For Wall Street banks enduring slowdowns in the wake of the global financial crisis, developing superpowers led by China offered the last great gold rush. With its booming economy, Chinas State-Owned-Enterprises are using banks to hire billions of dollars in stock and debt offerings. Yet JPM was falling further behind in capturing lucrative deals. Hence the new policies to step up hiring of children of the elite ruling class in order to ramp up deals and avoid any repeat of the 2009 loss to Deutsche Bank (because the CEOs daughter worked there).
Its policy of Hiring and Tracking the deals brought in by these Princelinngs, carefully preserved in detailed audits, shows corrupt policies rampant within the corridors of Wall Street Banks. The investigation sent chills across global banks. It has become a common practice for investment banks to hire people with government connections, but this is especially prevalent in China due to the role the ruling Communist Party plays in the countrys business.
With the same names being hired everywhere; in a job deprived global market where securing a job can be nightmarish for the best of us losing a well-earned seat to a richer-fathered candidate can be heart wrenching and this coming from a Super Dream company like JPM is a direct threat to all aspiring graduates. What incentive does a student have then to study when eventually everything comes down to who is sired by whom?
Hence, the furor created when JPM was caught indulging in fraudulent practices was but justified. And the subsequent audits into Deutsche, Credit Suisse, Citi etc were but natural. The SEC and criminal prosecutors at the Justice Department have been examining whether hiring practices violated the Foreign Corrupt Practices Act, a U.S. law that bars bribes or special favors to foreign government officials in exchange for business. At issue is whether the banks hired unqualified applicants as a favor to a government official who was in a position to award them business.
However, what pinches most is the fact that while JPM got caught because of its own folly of leaving a trail of e-mails and paperwork proving a partial policy towards CEO Sons and Daughters as the Programe was aptly titled- to clinch deals; was this really avoidable? Does the fault lie with JPM or the market? Is JPM formatting such policies or is it the competition and likewise policies everywhere which are shaping and birthing such practices?
At this juncture, it is important to note the punishment meted out by the US Department Of Justice to JPM a penal fine of $13 billion which might seem huge to the uninitiated, but by JPM standards actually amounts to nothing. This fine stands miniscule when compared to the balance sheet of $4trillion and reserve funds especially held by JPM for any such mishap. This is paltry and closely resembles in structure a previous investigation by U.S. authorities into whether oil and gas companies paid bribes to circumvent import regulations in Africa and elsewhere. Six companies including Royal Dutch Shell Plc, Transocean Inc. and Tidewater Inc and their shared freight forwarder Panalpina Inc paid a total of $236 million in 2010 to resolve related investigations.
Moreover, this $13 billion fine will be mostly paid by the shareholders and not the policymakers or hirers. Additionally, because there is no market for corporate control over megabanks, frustration on the part of shareholders and investors cannot result in a change of management. Also, about $7 billion of the fines is likely to be tax deductible. With no arrests, the well placed and politically connected CEO of J P Morgan, Jamie Dimon has been able to steer the company clear of any major penalty or stigma. The US Department has hardly made a scratch on JPM Treasuries. The show might as well go on albeit in a more covert and smarter way.
I guess when you are as big as JP Morgan nothing can really scathe you.
The author is currently pursuing Economics Honors at Shri Ram College Of Commerce with a penchant for anything involving World History, Corporate Finance and Economics, the author is a voracious reader, Classical Dancer (Kuchipudi and Bharatnayam), avid Debator and a National-level Swimmer. I like to explore my potential to the fullest. Currently, Im actively involved with various NGOs like Child Rights and You, Nanhi Chaan etc. You can contact me at anahat.srcc@gmail.com