JPMorgan Investors on Edge Over Vote on Dimon

JPMorgan Chase Chairman CEO Jamie Dimon
J. Scott Applewhite/APJPMorgan Chase & Co. Chairman and CEO Jamie Dimon.

By David Henry

TAMPA, Fla. -- As final ballots come in on a proposal to strip JPMorgan Chairman and Chief Executive Jamie Dimon of his chairman title, some worry about what will happen if shareholders win what will likely be a close vote.

JPMorgan Chase & Co.'s (JPM) annual meeting Tuesday will bring to head a months-long and bitter shareholder campaign demanding more oversight of Dimon, who has suggested that he may eventually leave the bank if he loses the vote.

Investors say that while Dimon, 57, may need more oversight after the bank posted $6.2 billion in losses from failed derivative trades last year, they do not want him to quit.

Among big bank CEOs, Dimon ranks first for stock returns and has been praised for leading the bank through the financial crisis with no quarterly losses and a strong balance sheet.

If Dimon were to leave, the bank's shares could fall as much as 10 percent and erase about $20 billion of market value, according to Mike Mayo, a bank analyst with brokerage CLSA.

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JPMorgan also has no ready replacement for Dimon, Mayo wrote in a research note, adding that the two lieutenants best positioned to succeed him -- Matt Zames, 42, and Mike Cavanagh, 47 -- seem to be about three years short of being ready for the job.

Zames became sole chief operating officer of the largest U.S. bank in April. Last year, Cavanagh became co-CEO of the company's reconstituted corporate and investment banking segment following a stint as head of treasury and securities services and several years as chief financial officer.

JPMorgan wasn't immediately available for comment.

"Take a winning football team. One could always ask the question whether the team would have been as effective without the quarterback," said Benjamin Ram, a co-manager of the $1.6 billion Oppenheimer Main Street Select fund.

"The team gets part of the credit, but Jamie Dimon as the leader also gets the credit," Ram added.

Ram's fund has 6.4 percent of its assets in JPMorgan shares, more than any other diversified fund, according to Lipper, a Thomson Reuters company.

The shareholder proposal is non-binding, meaning the bank's board doesn't have to follow through with the recommendation even if the measure gets majority shareholder support. Still, a defeat would be an unpleasant rebuke for Dimon.

A similar shareholder proposal last year won 40 percent of the vote, before most of the trading losses from the so-called "London Whale" imbroglio came to light.

Obliged to Make Changes?

JPMorgan's board has recommended that shareholders vote against the proposal and the bank has been lobbying hard against the measure, with tensions rising in the run-up to the meeting.

Proponents of the independent chair proposal said that if the measure gets 40 percent or more of the vote for a second consecutive year that the board should feel obligated to make at least some changes to increase its oversight of management.

Last week, the company that collects votes from investors, Broadridge Financial Solutions Inc, stopped telling shareholders how votes had been cast so far for this and other measures. Investors use this information to determine how to tailor their campaigns.

JPMorgan decided to release the results to shareholders after the New York Attorney General's office intervened over the weekend, a source familiar with the situation said Monday.

"We were cut off from the tallies during the crucial week leading up to the meeting," said Dieter Waizenegger, executive director of the CtW Investment Group, which advises pensions that were voting against the bank in a separate measure regarding the reelection of directors.

Waizenegger said receiving the information at this late stage was of limited use.

The vote comes amid a growing trend in U.S. corporate governance to have an independent chairman lead the board. Many investors believe that doing so ensures that the chief executive does not have too much sway over the board and leads to better outcomes for shareholders overall. The debate, however, is far from settled.

Even if Dimon wins the vote, some shareholders plan to keep the pressure on the bank's board. Two major JPMorgan investors have told Reuters that they will continue to press directors behind the scenes to increase their oversight over management.

One investor said that they will likely encourage the bank to give more authority to its lead independent director, former ExxonMobil (XOM) Chief Executive Lee Raymond.