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JPMorgan Chase & Co
The following are comments made by Toronto-Dominion Bank (TD) Chief Executive Officer Edmund Clark during an interview with Bloomberg Television’s Erik Schatzker:
On what being an old-fashioned banker means:
“Fundamentally we say, instead of starting with something that you sell and how do we make money, why don’t we start with what consumers or clients want and support them, and figure we can make money just being better at looking after their needs?
‘‘I think at its core, what fundamentally happened in the mid-90’s, is that banks -- particularly the ones that were securities dealers -- started to drift away from saying ‘I’m here to help my clients’ to saying ‘Geez, I can make money taking deposits and investing them and speculating with them, and get proprietary profits.’
‘‘I think that’s shifting; you can just see the ballooning of balance sheets for banks around the world -- not with assets that were being reinvested in the economy, but bets between banks on who was going to win or lose on these particular events. And I think that’s a very unfortunate drift.”
On whether old-fashioned banking applies to Toronto-Dominion’s non-retail banking businesses:
“You can have old fashioned banking in every one of our businesses.”
On whether regulators want to see a return to old-fashioned banking:
“I think, fundamentally, yes.
‘‘I think they realize that this speculation put the whole banking system at risk, and given, frankly, the privileged role we play in society -- and I think it is a privileged role -- we should not play that privileged role and be speculators.
‘‘That doesn’t mean that you shouldn’t have hedge funds and speculators if you want to, but what you have to do is prepare to let them fail.
‘‘One of the biggest mistakes we made was trying to save Long Term Capital. If we would have let Long Term Capital fail, we would have said ‘you want to speculate, you go down; everyone involved is going to pay the price.’
‘‘I think we have to drive that activity out of the bank and say ‘if you want to speculate, don’t call yourself a bank, call yourself a hedge fund.’’’
On whether other bank CEOs serve their shareholders ahead of clients:
‘‘I think in a sense we’ve taken shareholder value added to the extreme, and saying ‘all we’re here to do is make as much money for the shareholder in the shortest period of time. Oh, and by the way, we’re going to structure our compensation so that we also have the maximum amount of money in the shortest period of time’.
‘‘I don’t think that’s a very good business model. That’s not what we tell our shareholders.
‘‘What we say to our shareholders is ‘we’re going to build the company around the customer and client’, and we know in the long run that if we do that, the shareholders will do very well and management will be fairly compensated.
‘‘So the irony is, the drive to have short-term profit, short-term results for the shareholders turned out to blow out the shareholder and the clients as well.
‘‘I just think it’s a mistake, and we ought to get back to what banking should be doing, which is making the economy grow.’’
On how Clark’s previous career with Canada’s federal government prepared him for banking:
‘‘I think the biggest thing that you learn in government is how many stakeholders you have.’’
On why Canadian banks fared better than their U.S. counterparts during the economic downturn:
‘‘Canada was successful for a number of reasons, but I think regulation was one of the reasons. But the regulation is different than what I call American regulation.
‘‘American regulation is prescriptive regulation, and Canadian regulation is principle-based regulation. And I think if you had to choose, you would choose principle over prescriptive.
‘‘What Canada did was have very strong capital and liquidity rules. And then say to the CEO’s ‘You own the risk. This isn’t you run your institution and we try to catch you. You own the responsibility of getting your institution and running it the way that, if a crisis happens, you will survive.’’’
On how banks and regulators can find middle ground:
‘‘Both of them have to change their attitude here, if we’re going to get a more productive dialog.
‘‘I think the industry has to start with ‘We blew up the world. We made very serious mistakes. We were greedy. We didn’t have the right self-discipline. We chose wrong business models. We get that.’
‘‘Now, why don’t work we together instead of having this as a conflict, because I don’t believe the conflict actually works in the long run in the interests of the consumer or the shareholder or the taxpayer.’’
On whether the world’s largest banks should pay a capital surcharge:
‘‘I’m in favor of the capital surcharge.
‘‘As I said before, it makes me a little unpopular with my colleagues, but you know, I do think we have to recognize that as you get bigger and bigger and more complex -- and I think that most people would say it’s the complexity that’s the issue less than pure size -- but the consequences of you getting it wrong for society are larger, and therefore the cushion or insurance, which is what capital is, should be larger.’’
On whether JPMorgan Chase & Co. (JPM) CEO Jamie Dimon is looking at the capital surcharge the wrong way:
‘‘Well, Jamie, I know, is a phenomenal banker. So I acknowledge that if we had to choose... most people would choose him and not me.
‘‘But, I think fundamentally what he’s saying is ‘the way we did business before, we’re not going to be able to do under the capital and liquidity rules we have.’
‘‘And that’s exactly what the regulator’s trying to get you to do, is change your business model. And no one likes to change their business model.
‘‘I believe in capitalism, and I believe in an economy, what happens when you increase the cost of a good.
‘‘So do I think 10 years from now JPMorgan will be out of business because of Basel III? No. They’ll figure out another way to make money, but in a way that may be more investing in the economy and less speculating against competitors.’’
To contact the reporter on this story: Sean B. Pasternak in Toronto at email@example.com
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