“Chase recently received $25 billion in federal funding. What effectwill that have on the business side and will it change our strategiclending policy?”
It was Oct. 17, just four days after JPMorgan Chase’s chief executive, Jamie Dimon,agreed to take a $25 billion capital injection courtesy of the UnitedStates government, when a JPMorgan employee asked that question. Itcame toward the end of an employee-only conference call that had beenlargely devoted to meshing certain divisions of JPMorgan with its newacquisition, Washington Mutual.
Which, of course, it also got thanks to the federal government. Christmas came early at JPMorgan Chase.
The JPMorgan executive who was moderating the employee conferencecall didn’t hesitate to answer a question that was pretty politicallysensitive given the events of the previous few weeks.
Given the way, that is, that Treasury Secretary Henry M. Paulson Jr. had decided to use the first installment of the $700 billion bailoutmoney to recapitalize banks instead of buying up their toxicsecurities, which he had then sold to Congress and the American peopleas the best and fastest way to get the banks to start making loansagain, and help prevent this recession from getting much, much worse.
In point of fact, the dirty little secret of the banking industry isthat it has no intention of using the money to make new loans. But thisexecutive was the first insider who’s been indiscreet enough to say itwithin earshot of a journalist.
(He didn’t mean to, of course, but I obtained the call-in number and listened to a recording.)
“Twenty-five billion dollars is obviously going to help the folkswho are struggling more than Chase,” he began. “What we do think itwill help us do is perhaps be a little bit more active on theacquisition side or opportunistic side for some banks who are stillstruggling. And I would not assume that we are done on the acquisitionside just because of the Washington Mutual and Bear Stearnsmergers. I think there are going to be some great opportunities for usto grow in this environment, and I think we have an opportunity to usethat $25 billion in that way and obviously depending on whetherrecession turns into depression or what happens in the future, youknow, we have that as a backstop.”
Read that answer as many times as you want — you are not going tofind a single word in there about making loans to help the Americaneconomy. On the contrary: at another point in the conference call, thesame executive (who I’m not naming because he didn’t know I would belistening in) explained that “loan dollars are down significantly.” Headded, “We would think that loan volume will continue to go down as wecontinue to tighten credit to fully reflect the high cost of pricing onthe loan side.” In other words JPMorgan has no intention of turning onthe lending spigot.
It is starting to appear as if one of Treasury’s key rationales forthe recapitalization program — namely, that it will cause banks tostart lending again — is a fig leaf, Treasury’s version of the weaponsof mass destruction.
In fact, Treasury wants banks to acquire each other and is using itspower to inject capital to force a new and wrenching round of bankconsolidation. As Mark Landler reported in The New York Times earlierthis week, “the government wants not only to stabilize the industry,but also to reshape it.” Now they tell us.