Wednesday, July 15, 2009

With Fresh Verve, J.P. Morgan Fights Proposed Limits

The bank's tougher stands include stepping up its opposition to the government's proposed legislation on derivatives and telling the Treasury Department it is fed up with haggling over the value of warrants that the government holds in J.P. Morgan. The bank also is talking tough with clients and taking market share and top performers from competitors.

The renewed swagger comes as J.P. Morgan is poised to report strong quarterly results on Thursday, solidifying its place as the strongest major commercial bank. Although the bank's mortgage and credit-card businesses are being hurt badly by rising unemployment and the recession, its traditional Wall Street businesses are booming. The bank also is expected to provide a strong showing from retail branches that it acquired last fall from failed thrift Washington Mutual.

Analysts surveyed by Thomson Reuters expect J.P. Morgan to earn four cents a share in the second quarter. Although a blockbuster earnings report from Goldman Sachs Group Inc. means that J.P. Morgan could beat those expectations, the results still will likely fall well short of the 54 cents that the company reported last year for the same period.

"While some banks have spent the cycle shrinking to survive, J.P. Morgan has been investing, acquiring and expanding," John McDonald, a banking analyst at Sanford C. Bernstein & Co., wrote in a recent report.

The bank's latest effort to promote its views involves the Obama administration's plan to step up regulation and transparency in the derivatives market. The bank supports a proposal to send standard derivatives contracts through an industrywide clearinghouse that can be monitored by regulators. J.P. Morgan, however, opposes a requirement that the trades should be moved onto an exchange, in part, because it would inhibit the use of customized derivatives that clients require.

J.P. Morgan's strong voice starts at the top. Although he initially supported the Troubled Asset Relief Program, Chief Executive James Dimon bristled when the government added restrictions to banks that received the funds. He was particularly furious when the government banned firms that received TARP funds from hiring foreigners to work in U.S. offices. Over the next few months, Mr. Dimon's indignation grew each time a customer or politician referred to the company as a bailed-out bank, according to people familiar with the matter.

Leading one of the few financial behemoths that skirted the types of problems that led to the collapse of Merrill Lynch & Co., Bear Stearns Cos. and Lehman Brothers Holdings Inc., Mr. Dimon has benefited enormously from those woes by scooping up Bear Stearns and WaMu in government-assisted transactions. Although both deals have been expensive and difficult, they also have bolstered the firm's market presence in retail banking and prime brokerage.

Since repaying the funds, J.P. Morgan has taken a tougher stance with the government. Last week, the bank waived its rights to buy warrants that the government received as part of the financial bailout. After the government rejected the bank's offer, the bank opted to allow the Treasury to auction the warrants in the public market.

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