JPMorgan may take back pay over trading loss

Marketplace Contributor May 15, 2012

Kai Ryssdal: Jamie Dimon got some good news today, and he got some bad news today. We’ll do the bad first, I guess. There are reports that the Justice Department — the FBI in particular — has opened an preliminary criminal investigation into the trades that led to JPMorgan’s $2 billion loss last week.

The good news? At the bank’s annual meeting in Tampa, Fla., today, shareholders voted to let Dimon keep his $23 million pay package from last year. But those directly involved in the trading debacle might not be so lucky. Dimon said the bank will consider clawbacks — that is, taking back salary and bonus payments from employees who made the mess.

Here’s our senior business correspondent Bob Moon.

Bob Moon: In the wake of the financial crisis, Congress created “clawback” provisions aimed at discouraging risky trading that could cause the biggest banks to fail. Wall Street banks have adopted their own clawback policies that go further: JPMorgan can cancel stock awards or demand they be repaid, if an employee “engages in conduct that causes material financial or reputational harm.”

New York City’s top audit officer, Comptroller John Liu, pushed JPMorgan to adopt the policy. Now, he says, this is exactly the kind of case it was intended for.

John Liu: When executives make wrong decisions or ill-advised decisions to perhaps pump up their own short-term pay at the expense of long-term value for the company, long-term investors, such as the New York City pension funds, get very concerned.

Clawbacks have been used only rarely since the financial crisis, and Paul Sorbera says it’s not clear they’re appropriate in this case. He heads the New York-based executive search firm Alliance Consulting. He says the executives behind these trades had a good track record before they ran into trouble.

Paul Sorbera: Even on the baseball field or the football field, you have people who are start athletes and commit errors and they make mistakes.

But New York City’s comptroller says it’s not fair when shareholders are the only ones who face the consequences. In fact, he thinks the banks need to toughen their clawback provisions.

Liu: Including not only the individuals that were directly responsible for the decision making, but also their superiors.
Moon: Even Mr. Dimon in this case?
Liu: That’s a decision for the board to make.

Most banking analysts consider that highly unlikely.

I’m Bob Moon for Marketplace.

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