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JPMorgan's Biggest Asset May be Goldman


Commentary by David Reilly

(Bloomberg) — JPMorgan Chase & Co. (JPM) lists lots of assets, ranging from loans to securities to cash, on its $2 trillion balance sheet. Not to be found is one that might be its most valuable — Goldman Sachs Group Inc. (GS).

For JPMorgan, No. 1 in the too-big-to-fail bank club, Goldman has become the perfect lightning rod for populist outrage that might otherwise be directed at it. That has helped shield JPMorgan from questions about its own size, profits and payouts even as it reaps many of the same rewards as Goldman.

Not a week goes by, for example, without what seems like yet another big magazine article or blog blast directed at Goldman. The latest is an 8,000-plus-word piece in the January issue of Vanity Fair magazine.

JPMorgan, meanwhile, gets articles like a Fortune magazine cover story gushing over how it weathered the financial crisis.

Goldman yields JPMorgan dividends in other ways. Silver-tongued JPMorgan Chief Executive Officer Jamie Dimon has found the perfect foil in Goldman's Lloyd Blankfein, who seems to dig himself deeper with every interview.

Recent chatter about Dimon has focused on his possibly succeeding Treasury Secretary Timothy Geithner, should the need arise. Blankfein, on the other hand, was being widely mocked for joking to London's Sunday Times that he's "doing God's work."

This is about more than image, though. There may be real implications. Goldman is so loathed that it, not JPMorgan, probably would be first to face a firing squad if Congress bowed to calls to break up the biggest financial firms. This is even though JPMorgan has more than double the assets of Goldman, and twice the notional (or face) value of over-the-counter derivatives contracts, and is a huge retail bank with $868 billion in deposits — 20 times the amount Goldman has.

Shareholder FussThat isn't to say Goldman doesn't deserve the opprobrium directed its way. Its own shareholders are kicking up a fuss over the $16.7 billion the firm has so far this year set aside for compensation. It's just that JPMorgan is getting a much easier ride.

Here are a few of the ways JPMorgan benefits from its Goldman asset: — Questions about a back-door government bailout of Goldman via American International Group Inc. (AIG) have erased concerns over, and memories of, JPMorgan's own government aid package. That would be the backing that enabled it to "rescue" Bear Stearns Cos. in March 2008.

That deal helped JPMorgan, the biggest player in global derivatives markets with about $80 trillion in contracts.

Bear was a big derivatives-markets player itself; it had contracts with a face value of $14.3 trillion as of March 30, 2007. The firm's failure would have threatened the $600 trillion derivatives market.

JPMorgan had the most to lose if this happened. In light of that, its purchase of Bear doesn't look exactly altruistic. And JPMorgan didn't have to do all the heavy lifting itself. The Federal Reserve agreed to backstop losses on $29 billion of Bear's problem assets once JPMorgan had eaten $1 billion in red ink. As of Sept. 30, those assets were worth $26.14 billion, according to the New York Federal Reserve. This means the taxpayer so far may be on the hook for more than $2 billion in Bear losses.

Without Goldman— Without Goldman, there wouldn't be a Wall Street for the public to hate. (OK, there is still Morgan Stanley (MS), but the crisis so wounded the firm it isn't a good villain.) And for banks, especially JPMorgan, it's good if there is another focus for that anger.

When Bruce Springsteen, speaking at the recently aired 25th Anniversary Rock & Roll Hall of Fame Concert, lamented the financial crisis, he deplored the fact that it's "High times on Wall Street and hard times on Main Street."

That's much better than a return to Depression-era talk of "banksters."

— Goldman takes the heat for minting money on the back of government bailouts of financial markets. It got funds from the Troubled Asset Relief Program, issued debt guaranteed by the Federal Deposit Insurance Corp. and has seen trading profits skyrocket thanks to the low-interest-rate environment engineered by the Fed.

JPMorgan has done just as well, maybe even better, by these same programs. It got more TARP money than Goldman, $25 billion versus $10 billion (although both have since paid that back). JPMorgan has also issued about $40 billion in FDIC- guaranteed debt compared with about $28 billion for Goldman.

JPMorgan also is reaping bountiful trading profits — its investment-banking division generated more than half the firm's third-quarter net profit of $3.6 billion.

Pay Begins, Ends— Then there is pay. Most discussion of this begins and ends with Goldman. That's fortunate for JPMorgan's own legions of highly paid financiers.

Consider a report issued earlier this year by New York State Attorney General Andrew Cuomo on Wall Street compensation. It showed the JPMorgans are doing a good job of keeping up with the Goldmans.

In 2008, there were 1,144 JPMorgan employees that got a bonus of $1 million or more, topping the 953 Goldman employees getting that kind of payout. And the report said JPMorgan's top four bonus recipients received a combined $74.8 million, a good deal more than the $45.9 million for Goldman's top four.

The end result: JPMorgan, looking like a Boy Scout, gets the last laugh as the pitchfork-wielding crowds bay for Goldman's blood.

Or maybe it's just that Dimon really knows how to sweat an asset — it's not every day you see someone turn Goldman, supposedly the smartest firm on the Street, into a patsy.

(David Reilly is a Bloomberg News columnist. The opinions expressed are his own.)

To contact the writer of this column: David Reilly at dreilly14@bloomberg.net

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