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Goldman's Modest Proposal: It May Be Time To Break Up JPMorgan
Back in 2008, Goldman got rid of not one but two main competitors when first Bear and then Lehman quietly went into that good night when a Goldman-controlled Fed refused to bail these banks out, in the process unleashing the biggest taxpayer-funded, and still ongoing, wealth transfer to bank executives in history. 7 years later, banks have proven surprisingly resilient to the massive commodity deflationary impulse even as the global growth is slowing to a pace not seen since the events in 2008, which is why Goldman decided it is time to take matters into its own hands with what may be the most "modest proposal" of the day, if not year: it may be time for JPM to break itself up voluntarily... a process Goldman (and its bonus-receiving employees, not to mention shareholders) would endorse wholeheartedly as it would remove its biggest and most connected competitor in the US financial landscape today.
From Goldman:
The Fed’s recent G-SIB proposal raises JPM’s capital requirement to 11.5%, 100-200bp higher than money center peers, reigniting the debate about whether a breakup could unlock shareholder value given that size is now a regulatory negative. A breakup could create value by reducing or removing JPM’s 20%-plus discount to pure play peers and increasing capital returns and ROEs, as each standalone business would face a lower G-SIB surcharge. While a breakup thus looks accretive, we would weigh this against the execution risk associated with a breakup of this magnitude, likely reductions in JPM’s estimated net income synergies of $6-7bn and the consideration that each standalone business would likely still be subject to CCAR (although perhaps not asset management), which remains the binding capital constraint for most banks. And despite its higher G-SIB requirement, JPM’s current ROTCE potential remains higher than that of most peers, which face similarly high capital requirements as JPM after factoring in CCAR.
A victim of its own success? Standalone strength enables breakup
JPM is somewhat unique among the money center banks, as nearly all of its business lines are top quartile performers. This is a double-edged sword as it suggests synergies from JPM’s business model do exist but also implies enough strength to operate as standalone companies. Our analysis suggests that a breakup – into two or four parts – could unlock value in most scenarios, although the range of outcomes we assessed is wide, at 5-25% potential upside. Upside is sensitive to the magnitude of the multiple rerating, the speed and size of potential capital returns from each standalone business, and reductions in estimated synergies.
We view a JPM breakup as a “put option” if regulation gets tougher
Capital requirements could move higher again if the Fed adds G-SIB surcharges into CCAR, something it is considering. If this were to unfold, we believe JPM (and other money centers) would strongly consider strategic alternatives, providing shareholders with a breakup “put option” if capital requirements get tougher. In the meantime, we see valuation support at ~9.5x 2016E EPS and re-iterate our Buy rating.
***
With JPM now facing materially higher capital requirements than peers on a spot basis (although we would argue its capital requirements are similar to peers once CCAR is factored in), investors are thinking through:
A complete breakup : Under this hypothetical idea, JPM’s four operating segments would become independent companies, enabling a multiple re-rating (as the discount to pure play peers is reduced) and capital efficiencies (and thus a higher ROE) as G-SIB requirements are reduced. Offsetting this would be lost business synergies. We provide this analysis for illustrative purposes and acknowledge that a wide range of potential outcomes exist.
Our view: Our analysis indicates that even accounting for lost synergies, a JPM breakup would be accretive to shareholders in most scenarios. That said, breaking up a company of JPM’s size into four pieces (all of which would still be very large financial intuitions) would carry considerable execution risk. An inability to return excess capital (owing to CCAR limitations) or a lack of multiple re-rating could likewise meaningfully reduce potential upside.
A spin-off, or split down the middle: Under the Fed’s methodology for calculating G-SIB buckets, as a bank shrinks its G-SIB buffer declines. This could incent JPM to spin-off one (or multiple) of its businesses to drop down one or more G-SIB buckets and bring its required capital level in line with peers. We provide this analysis for illustrative purposes and acknowledge that a wide range of potential outcomes exist.
Our view: We estimate “minor surgery” like spinning off the trust business alone would only result in modest capital relief (~50bp) and likely not justify the execution risk. That said, we believe a split of JPM in two (a traditional bank and investment & trust bank) would result in considerable capital synergies while likely keeping half of JPM’s synergies intact. While the benefit of this scenario (vs. a full breakup) is higher retention of synergies and less reliance on capital return, a reduction of the discount to pure play peers would be at greater risk if the company were only being split into two pieces.
The synergies of JPM’s businesses: JPM has disclosed it receives $6bn+ of net income synergies from its business model. Determining how much of these synergies would be eliminated in a breakup (the answer varies according to how the new companies are divided) and how JPM’s business lines would perform as standalone companies are key factors in any breakup analysis. We provide this analysis for illustrative purposes and acknowledge that a wide range of potential outcomes exist.
Our view: While synergies are tough to verify from the outside, our analysis shows that most of JPM’s business lines are top quartile performers, providing some credence to the numbers. That said, strong performance by business lines also provides credibility to the idea that these businesses could function as standalone companies.
* * *
And Goldman's clearest reco that the time to break up its biggest competitor is nigh:
A breakup into JP Morgan & Chase could be accretive with less risk
Similar to our math around a complete break-up, we run through the hypothetical exercise of splitting JPM into two companies: (1) the trust bank, investment bank and asset management business (which we will call the institutional businesses) and (2) everything else (i.e. the more traditional banking businesses). We use the capital requirements outlined on the page above (i.e. a 300bp G-SIB buffer for the institutional business and a 150bp G-SIB buffer for the retail business) plus 100-150bp (to account for a conservative CCAR cushion). From a valuation perspective, we use MS, BK, STT, BLK, AB, TROW, LM, and IVZ as P/E comparables on the institutional side, and WFC, PNC, USB, STI, HBAN, COF, DFS, BBT, CMA, FITB and ZION on the traditional banking side.
Is Goldman's hint about to be taken seriously by JPM? If so, expect an update on the status of Jamie Dimon's throat cancer, currently said to be in remission as the bank prepares to call it a day on its current layout, one which happens to host some $65 trillion in derivatives.
Alternatively, if JPM sees this as a hostile act by the FDIC-backed hedge fund, then the gloves are about to come off between the world's two most important banks. In short: it's popcorn time.
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...and leave Goldman intact? LOL!!!
They both stink of desperation.
Who gives a damn anyways?
no dog in this fight ...
will this affect my checking account??
About time these mothafuckas turn on themselves after raping most of the rest of humanity such that there is no sheeps left to rape
Main Event headlined by Blankfein vs Dimon, I would pay to watch that match.
Last night I was driving on the New York State Thruway. I had to use the restroom at one of the stops and as I was coming out a man who looked just like Jamie Dimon was going in. I nearly punched him in the face. Good thing I restrained myself.
Should have punched him.
Remember when David Stockman was the brain in .gov/ws, everyone was getting David Stockman haircuts.
We need the anti Jaimie Dimon makeovers....
The insider rats are turning on each other..... good sign of positive things to come as these assholes eliminate each other. Long Gold and Lead,...
I am more intrested to find out what type of treatment Jamie Diamond recieved for his cancer. He never looked like he went through Cemo or Radiation theropy. Probly Vitiamin B-17 or Anti Neo plastons I bet.
I'm guessing these fuckers have fully functioning non-ionising Rife radio frequency machines that they stopped us having in the 1930' so big pharma could rape us.
Tribal Warfare.
"If we consider how greatly JPM has sinned against the taxpayers, how it has squeezed and sucked the blood again and again; if furthermore, we consider how the people gradually learned to hate it for this, and ended up by regarding its existence as nothing but punishment from god, we can understand how hard this shift must be for JPM."
- Lord Blankfein
(irony)
How about shutting down both GS and JPM... They have both gone to the Dark Side of the Force and need to be exorcised from the collective memories of the financial world...
when the time comes to break up goldman i pray they take page out of the inquisition.
haha, but, really this is good for jpm stock.
"you are an Oak" Doc Holiday
Doc Holliday to Johnny Ringo - "I'll be your Huckleberry"...
Right before he put a bullet right between his eyes...
Best movie ever...
You would never have forgiven yourself if you saw him enter a chauferred Maybach.
yes. eventually
it makes sense, doesn't it? for The Vampire Squid Firmly Wrapped On Humanity's Face, of course
there were eight superbanks, then four megabanks, and the US Banking System risks becoming a duopoly. Along political lines, of course. Red Bank and Blue Bank?
and before you ask: we europeans aren't much better at all. many of our countries already have one megabank each, if any. and cling to it as on capital ships in previous times
it's time we all wake up and find out that all megabanks are deleterious. cut them all to size, dammit, or they will suck out the life of the real economy. banking used to be accounted as 2% of the economy, now megabanksters pose as if they were the real economy, instead of a state-sponsored facilities
Red Pill?
Blue Pill?
Take neither and punch morphius in the face. "You aren't my supervisor!"
Goldman =
Who has the popcorn? Shits about to get interesting as Blankfein just bitch slapped Dimon with his white glove. Hopefully this escelates quickly.
I'm friends with a litigation and arbitration attorney at Milbank Tweed (you know the international law firm located at 1 Chase Manhattan Plaza.. the building built by the Rockefellers and occupied by JP Morgan). It goes without saying his professional life is about to become extremely interesting. Milbank will be circling the wagons regardless of how Mr. Dimon chooses to react to this 'proposal'.
Exactly, JPM conclusion: Break up GS
"a process Goldman (and its bonus-receiving employees, not to mention shareholders) would endorse wholeheartedly as it would remove its biggest and most connected competitor in the US financial landscape today."
Competitor. Funny. I puked in my mouth a little.
I tried to open a checking account with GS, but there are no branchs near me. Also I'm having a hard time locating their ATM's.
Oh an quick joke, How does GS spell ATM? Taxpayers.
better watch your throat jpm, the squid has its turgid blood funnel out
If it weren't so self serving this is probably the one area where the squid is right. The morgue needs to be broken up, preferably taken down into a steaming pile of shit by market forces hauling the squid down with it.
Guess we now know whose on the wrong side ofthose $22tn in oil derivatives.
Thats what i want to Know: How MUCH in oil derivatives....held by who, and when are their trigger dates?
Im an idiot but i have to ask: Do you imply it is JPM holding the oil derivatives?
Assumption is oil deriv. will fail due to oil price...and then the SHTF.
derivatives... derivatives... ah, now I remember. no worry, the US Taxpayer is on the hook for them. just recently passed through the US Congress
I mean, they could have made them illegal again, particularly CDS, but in it's endless wisdom it decided differently
Please, banks all over the earth are playing the same bullshit games. Fuck em all.
I seriously doubt that any "member" of congress knows what a CDS is, much less why they should be either narrowly regulated or banned. (Oh... and the new spelling and grammar books should demote the words "Congress and Congressman and Senator and President" to lower case frst letters since they have been doing lower case jobs for years.)
I'll put my vote in for a return to no multi-State/cross border banks, reinstall Glass-Steagal, and FIRE every former employee of any megabank from the Fed or from any position in Congress, including congressional staffers.
So yes... break up JPM - And Goldman. I mean why would they worry? When Standard Oil was broken up, every new subsidairy became bigger than the original company - so it could be said that Mega-Corp status hinders growth! (Don't know if it's true or not - but it could be said... and it sounds good.)
A few years back I asked a Congressman what he thought of the new Basel rules and the BIS. He didn't know anything about the BIS. Your plan would be a good start.
I am sure Goldman Sachs is "right" as always. They helped Greece and Italy to hide their debt. The whole world is ruled by them. Really, really nice! Good luck, Putin Tickmill! Hope to JP Morgan takes over Goldman Sachs and the rest soon. The world would be a better place without the bankers, nuclear weapons and Putin.
$22tn according to one analyst on tv this am.All unwinding in Q1 & Q2.
About the same as the mortgage mess.
Clash of the titans.
Nobody see the old 900 lb Gorilla at the back of the room?
Buffet. Him and WF, licking their chops. Recall that Warren invested big time in GS, and does not like to lose.
I was wondering what was missing from the story above. I forgot about Warren buying into GS.
The Slime are turning on each other which is positive. The House of Cards in it's death throws. Gonna miss you Jamie. Can i bag your lucky cufflinks when your gone motherfucker?
I've been waiting for these psychopathic fuckers to start killing each other off.
When the chum disappears, the sharks eat eachother.
https://www.youtube.com/watch?v=i9SSOWORzw4
It is a fucking comedy, and it continues...
The best of chums in a turf war? War of the Roses?
But they made such a stunning couple. Unpossible.
I want Blankfein and Dimon to wrestle with each other naked on TeeVee.
u fagala?
no r u?
Coated in honey, covered with fire ants?
Kazahs in Donbas think that they are living in Russia which is empire & Putin is their emperor:
http://youtu.be/DGVKHJYExuQ
You need to spend more time reading the good book.
Mein Kampf in your case.
Two Jewbags scratching at each others eyes. Classy as always.
they saw how it worked out for Icahn and Ackman, so they wanted to join in the fun
I hear they have large talons!
Dick Fuld approves this message......but Blythe Master does Not
lol
Let's hope they all turn on each other. Send them gift cards for Home Depot- they can go get nail guns- Wall Street gang fights.
There can be only ONE '1 World Bank'!
More material for WilliamBanzai7..
Jamie Dimon and Blankfein dressed like Connor MacLeod and The Kurgan..
These jewboyz sure are greedy little fuckers. Banking is over-ripe for a shumpetarian wave of creative destruction.
We Europeans think it is better if America breaks up.
It's only for your own good.
-1. go break your country, and leave other people's countries to their own affairs
(of course I can imagine a Spaniard wanting to get even about the Spanish-American War, and fly a flag with the Pillars of Hercules over Miami, for example)
I am actually Dutch.
If you break that up you are left with very small pieces.
U who thumb down this very wise advice knee-jerk style have no idea the considerable merits of a dozen different countries on this part of the North American Continent and how much more opportunity there is in disassembly rather than all the gains going to the top 1%, in Consolidation.
Wise the fuck up and realize that the United States is ONLY a great benefit to the 100 or so very rich men who run this fucking place.
e.g. How many more jobs would be created in the break up of any Conglomerate? Now extend that principle to breaking up a nation that is crushing you, your kids, and grandkids.
If you ever want to rid the country of the 100 oligarchs that run it, you need to bust it up!
And THIS from an ultra liberal gay website, no less:
http://www.thedailybeast.com/articles/2015/01/05/the-hundred-rich-people...
Of you break up the morgue, where do the bodies go? The Fed.
Nope. (should be) Legally barred.
I posted this... then had a thought (yes, I do get them once in a while.)
IF JPM is busted up, leaving only Goldman, and all the former JPM people went to the Fed... things could get nasty for Goldman (which would be a GOOD thing!) It's said "revenge is sweet", and no revenge could be sweeter than the blood (accumulated/stolen wealth) of your enemy?
I was thinking of the financial corpses. We know GS won't claim any.
It took till end of the article to get to the real underlying cause:
Below is a quote from the link provided in article:
http://www.occ.gov/topics/capital-markets/financial-markets/trading/deri...
However, in most derivatives transactions, such as swaps (which make up the bulk of bank derivative contracts), the credit exposure is bilateral. Each party to the contract may (and, if the contract has a long enough tenor, probably will) have a current credit exposure to the other party at various points in time over the contract’s life. Moreover, because the credit exposure is a function of movements in market factors, banks do not know, and can only estimate, how much the value of the derivative contract might be at various points of time in the future.
So, what does the term “swaps” mean in this context? They are pre-dominantly interest rate swaps. Municipalities issue bonds and they want said bonds insured against rate increases. It is not politically palatable to go back to voters and say, “Hey, we need to tax you more as interest rates went up.”
So, municipalities enter into insurance contract as swaps, where the bank pays if interest rates go up. The total cost of muni bonds is then insured from political risk.
As long as rates stay low, the direction of currency flow is from Taxpayer, to Municipality, to Banker.
If interest rates go up, the direction of flow is from Banker, to Municipality, to maybe taxpayer.
“Supposedly” these contracts are like a neutral balance beam where the flow goes back and forth evenly across time. But, the reality is banksters put their thumb on the scale, like a crooked butcher measuring weight. The balance beam is always toward banksters, and they will rig markets to continue their rental gains; witness Libor scandal.
Bail-ins have legal priority now, ultimately to pay the bonds should interest rates rise. Banker’s will bail in your dollar savings and then swap you with their bank stock. Your dollar savings will then flow toward the municipalities as per the derivative contract. Good luck in court trying to swap your bank stock for money. By then you will be screaming at the government for help.
Remember that word “swap” is always an uneven and inequitable word, and top of money power pyramid will always win – something like at a Casino.
JPM trillions in swaps is risk, and the risk contagion can be contained better if it is firewalled by breaking JPM into parts.
All of these events that we see are a predictable output of our “international for-profit debt-spreading banking system” design.
After interest rates rise, the answer to the municipalities will be, “Hey, that part of JPM is bankrupt, and can’t pay you per contract obligation. Thanks for the many years of rental income we siphoned off of the taxpayers.”
Ok, in real life, the Banksters won’t be honest and mention their rental gains.
"After interest rates rise, the answer to the municipalities will be, “Hey, that part of JPM is bankrupt, and can’t pay you per contract obligation. Thanks for the many years of rental income we siphoned off of the taxpayers.”---
LOL! If this actually happens you can expect the response from states like Texas to be secession and to immediately stop sending any tax income to Washington. In fact, this will the response from any productive state with energy and a deep/cheap labor pool.
Texas also has nukes and a strong military participation rate. they would be all too happy to tell Wall Street and thier puppets in D.C. to go fuck themselves.
Fucking bring it.
Which would be like Eddie Gein hosting a brunch buffet for a couple of his friends.
Here's a close up view of Dimon's cuff links:
http://www.dailymail.co.uk/news/article-2160340/JPMorgan-Chase-CEO-Jamie-Dimon-wear-presidential-cufflinks-prompting-speculation-gift-Obama.html
JP Morgue is the fed, Goldman is the fed, this is all bullshite.
Maybe JPM is going to have some derivative malfunction, they know it and when it happens they can run the "we did this on purpose" story to calm their muppets.
They don't want to see a stampede into PMs.
Up Next : Bankster gunfights on Jobs Ln.
who gives a f*ck.
dog eat dog.
popcorn time.
It get to a point even the big boys no longer need any nore credit... they just don't know what to do with it. The $65 trillion dollars in derivatives will blow up soon. 2008 on steroids is about to be unleashed.
http://www.globaldeflationnews.com/jaguar-inflation-a-laymans-explanatio...
Which causes...
http://www.globaldeflationnews.com/anatomy-of-a-bubble-how-the-federal-r...
How about we forcefully break all of you up with Glass-Steagall
Alternatively, we could break up the vampire squid into 2 parts. One with 10 employees running a small bank, and the rest in prison.
European history has been about the gradual move from:
absolute monarch -> aristocracy -> meritocracy
Interestingly, US history seems to be working in reverse:
meritocracy -> aristocracy (0.1%) -> absolute monarch
Today they are forming their aristocracy (0.1%) and when one of these families dominates they will move to an absolute monarch (following current trends).
As I speculated earlier today the US has two contenders:
Jamie I (Dimon) and Lloyd 1 (Blankfein)
Lloyd is making his move.
Can we break up the FED as well?
Arrest Jamie Dimon and Lloyd Blankfein
Many are for breaking up JP Morgan - Maybe with high explosives?
Moar evidence of the public spirited, selfless dedication of Goldman Sachs to the interests of the common people like me. My admiration for banksters is confirmed. Really!
Actually, this Goldman Sachs play is hilarious. Apparently the irony of their statement is lost on them. But then they are so lost in the clouds of the financial manipulation Powers That Be universe that they cannot see the irony.
Maybe Goldman Sachs is just jealous that Jamie Dimon and Citi got the credit for the amendments to the CRomnibus bill.
no honor among thieves
Not so fast, Jamie. I think we'd rather confiscate the 6 big banks, put the key officers in prison for the rest of their lives, and sell off the pieces to replenish our US Treasury which you and the boyz raided. How's that sound?
Oh, you do have to laugh!