Monday, January 27, 2014

Three Stops on the ‘Business as Usual’ Circuit

Three Stops on the ‘Business as Usual’ Circuit

Most American’s will be lucky to get a raise in 2014.  Not Jamie Dimon.  Most of us have to suffer our investment losses.  Not William Ackman.  Most of us will be thrilled if we can sneak off to the beach for a long weekend.  Not the attendees of the World Economic Forum.  The Friday edition of The New Time’s Deal Book captured a world that is ever more distant from reality of most people’s lives.
Work Teams I (1996)
From the Board Room: We begin our tour with the Board of Directors of JP Morgan.  Despite settling one case after another, Jamie Dimon is going to receive an increase in his compensation this year.  In 2012 his compensation was cut in half to only $11.5 million.  While Mr. Dimon was forced to survive on half pay, the rest of his senior management team didn’t take any hit at all and split $54 million among four executives.  Amazingly Mary Erdoes, the CEO of Asset Management where the large trading losses occurred, was given a $500,000 raise to $15 million in 2012.[1]

Mr. Dimon’s backers cite the bank’s strong performance in 2013, excluding the settlements, as evidence that Mr. Dimon deserves a raise.  With borrowing costs at nearly zero courtesy of the Federal Reserve and an ebullient stock market, JP Morgan had the winds at their backs.  Fixed income trading was probably the only business that was disappointing in 2013.

The Times reported the followings positions on Mr. Dimon’s compensation.  These views are only sustainable in the upper reaches of corporate America.

Leaving his compensation unchanged could have sent a symbolic message of contrition to authorities.

Yet cutting Mr. Dimon’s pay would, some board members feared, alienate the chief executive.

Mr. Dimon is also benefiting, the people say, from a view among some board members that the government’s assault on JPMorgan is driven less by the bank’s actual transgressions and more by a desire, stoked by anti-bank sentiment, to appear tough against Wall Street, the people said.[2]

Mr. Dimon owns about $425 million worth of stock in JP Morgan, and he’s going to receive more shares.  Whatever his compensation, I don’t think it will send a message of contrition.  Whatever his compensation, I don’t think he should feel alienated.  Whatever his compensation, it is hard to feel sympathy for the powerful and wealthy when they attempt to cast themselves as helpless victims.  In any event, Mr. Dimon made his feelings clear about the government’s investigation of JP Morgan when he said in an interview in Davos, “I think a lot of it was unfair.”  In the end, the board raised his compensation to $20 million, a 74% increase over 2012.

From Capitol Hill: Senator Edward Markey has asked the Federal Trade Commission and Securities and Exchange Commission to look into the business practices of Herbalife (NYSE: HLF), the nutrition company whose sales practices have been questioned by William J. Ackman.  Mr. Ackman runs Pershing Square, which has a big short position in the stock and has lost a great deal of money.  There isn’t an obvious and direct connection between Senator Markey and Mr. Ackman.  The New York Times notes that Sen. Markey is certainly aware of Mr. Ackman’s views on Herbalife and his short position.  Moreover, the paper notes that Mr. Ackman is a significant contributor to the Democratic Party and the Democratic Senate Campaign Committee in particular.  Senator Markey was a recipient of money from the DSCC.  Since 2000, Mr. Ackman and his wife have donated $414,000 to various candidates and PACs.

In defending Mr. Ackman, The Times quotes Martin H. Peretz, the former editor of The New Republic and a friend of and investor with Mr. Ackman, as follows:

Political contributions don’t necessarily come with strings attached.  [C]ompared with the vast wealth of Mr. Ackman, who is a billionaire, the contribution to the senatorial campaign committee last year was small.[3]

While Mr. Ackman’s $32,400 contribution to the DSCC may be small in the hedge fund world, it is the maximum allowed under campaign finance laws.  I’m sure the Democrats were glad to get the money, because Mr. Ackman made the maximum contribution in 2007, 2008, 2009, and 2010 before contributing $20,000 each to the Republican Senate and Congressional Committees in 2012.[4]   Mr. Ackman, like many other money managers, backed away from President Obama and the Democrats in 2012.  

Campaign contributions, especially the big ones, always have strings attached.  For billionaires like Mr. Ackman, the price of influence is simply cheap.

From Davos:  After a day exploring the plight of Syrian refugees, the causes of extreme poverty, and the fallout from global warming, it is time to party.  Here’s a description of the scene from Dealbook:

A run-down bar on the ski resort’s main drag was completely transformed with stuffed animal trophies, including heads of buffalo shooting laser beams from their eyes. Wine and cocktails flowed. John Legend sang and played the piano. And the guests included Ms. Mayer of Yahoo, Lloyd C. Blankfein of Goldman Sachs and a crown prince or two.[5]

One of the hot invitations this year is from Google, which planned to return to the party scene on Thursday night. Ms. Blige was indeed scheduled to perform, and food was to be prepared by a Michelin-starred London chef, Tom Aikens.

Many critics would ascribe these three scenes to income inequality.  The social inequality and entitlement represented by these stories is even more damaging.



  1. An interesting alternate view on JD, though I tend to side with you that with funding virtually free and a roaring bull market it's hard for JPM not to make money:

  2. This blog is really awesome in all respects.
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