Banks vs. Regulators: Jamie Dimon Goes on the Offensive
Jamie Dimon, CEO of JP Morgan Chase, is making headlines today with his controversial call for the deregulation of U.S. banks. His latest rally cry urges America to pull out of Basel III, the incoming international bank rules for functioning in international markets.
Basel regulations were created in response to deficiencies in financial regulations exposed by the global financial crisis.
"The Basel III capital rules are designed to make the financial system safer by making banks build up risk-absorbent 'core tier one' capital to at least 7 per cent of risk-weighted assets. The biggest, including JPMorgan, have to reach 9.5 per cent." (via Financial Times)
"Regulators say all countries compromised on agreeing to the rules, which put eight banks -- five from outside the U.S. -- in the top level of capital."
An outspoken Dimon is calling the rules "blatantly anti-American," claiming the imposition of an additional charge to be an overreaction, and an overcorrection for American banks. "I think any American president, secretary of Treasury, regulator or other leader would want strong, healthy global financial firms and not think that somehow we should give up that position in the world and that would be good for your country."
Critics are weighing in on both side of the debate. According to John Carney, Senior Editor at CNBC, Dimon's criticisms don't go far enough, particularly with regard to covered bonds, the focal point of Dimon's argument.
"Since Basel III restricts how banks operate and finance themselves, giving an advantage to covered bonds will give an advantage to European banks that already own the bonds."
But the prospect of deregulation also has many on edge. Those against it are quick to point out how easily deregulated bank structures helped to bring about the financial crisis.
"Let's not have short memories. It's not an excess of capital and regulation that provoked the crisis that we are still suffering from," said European Union Internal Markets Commissioner Michel Barnier. (via The Economic Times)
Be that as it may, his declarations raise an interesting set of questions about the relationship between U.S. banks and regulators. Do you think banks have won the war against regulators?
Below we list the most profitable banks -- do you think increased regulation will undermine their profits? (Click here to access free, interactive tools to analyze these ideas.)
1. JPMorgan Chase (NYS: JPM) : Provides various financial services worldwide. TTM gross margin at 79.98% vs. industry average at 62.06%. TTM operating margin at 47.17% vs. industry average at 38.76%. TTM pre-tax margin at 25.37% vs. industry average at 16.65%.
2. Wells Fargo NYSE: WFC): Provides retail, commercial, and corporate banking services primarily in the United States. TTM gross margin at 80.18% vs. industry average at 70.96%. TTM operating margin at 41.61% vs. industry average at 39.21%. TTM pre-tax margin at 24.08% vs. industry average at 22.38%.
3. Simon Property Group (NYS: SPG) : Engages in investment, ownership, and management of properties. TTM gross margin at 44.82% vs. industry average at 38.23%. TTM operating margin at 44.82% vs. industry average at 37.37%. TTM pre-tax margin at 24.1% vs. industry average at 13.9%.
4. PNC Financial Services Group (NYS: PNC) : Operates as a diversified financial services company. TTM gross margin at 79.25% vs. industry average at 70.87%. TTM operating margin at 40.02% vs. industry average at 39.23%. TTM pre-tax margin at 26.7% vs. industry average at 22.44%.
5. Bancolombia (NYS: CIB) : Provides financial products and services to individual and corporate customers in Colombia, Panama, El Salvador, Puerto Rico, the Cayman Islands, Peru, Brazil, the United States, and Spain. TTM gross margin at 73.02% vs. industry average at 70.87%. TTM operating margin at 51.89% vs. industry average at 39.23%. TTM pre-tax margin at 26.89% vs. industry average at 22.44%.
6. Fifth Third Bancorp (NAS: FITB) : Operates as a diversified financial services holding company in the United States. TTM gross margin at 75.8% vs. industry average at 70.87%. TTM operating margin at 43.79% vs. industry average at 39.23%. TTM pre-tax margin at 23.22% vs. industry average at 22.44%.
7. M&T Ban (NYS: MTB) : Operates as the holding company for M&T Bank and M&T Bank, National Association that provide commercial and retail banking services to individuals, corporations and other businesses, and institutions. TTM gross margin at 81.58% vs. industry average at 70.87%. TTM operating margin at 45.73% vs. industry average at 39.23%. TTM pre-tax margin at 33.55% vs. industry average at 22.44%.
Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned above. Analyst ratings sourced from Zacks Investment Research.
Kapitall's Alicia Selliti, Becca Lipman and Eben Esterhuizen, CFA do not own any of the shares mentioned above. Profitability data sourced from Fidelity.
At the time this article was published The Motley Fool owns shares of Fifth Third Bancorp, PNC Financial Services Group, and JPMorgan Chase. The Fool owns shares of and has created a ratio put spread position on Wells Fargo. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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