Why JPMorgan and Wells Fargo are diverging
In a match of Wall Street swagger vs. Midwestern sensibility, a clear winner is emerging.
There are fundamental financial reasons why two of the biggest U.S. banks turned in such equally opposite results Friday. Wells Fargo is enjoying improving credit in its mortgage portfolio. JPMorgan suffered from lower trading revenue in its fixed-income, currency and commodities arm.
But in this post-crisis environment, there is a deeper division between the institutions that’s driving the bottom line. Culturally, these institutions could hardly be further apart. JPMorgan and its brash, risk-taking Wall Street swagger, Wells Fargo and its West Coast cool with roots in Midwestern sensibility.
It begins in the executive suite. JPMorgan’s Jamie Dimon remains undeterred in challenging regulators, as evidenced by his annual letter to shareholders issued Wednesday, in which he said the bank was under tremendous regulatory pressure and that compliance costs would hurt the poor. And John Stumpf of Wells Fargo? His most controversial comment was probably this statement he gave to USA Today.
"There is more regulatory certainty today than there was in the last five years," Stumpf said. "On top of that, at least in our company, we have gotten a lot of litigation done and have dealt with the issues."
It's also important to note that Dimon and Stumpf are paid on dramatically different scales. Both are well-compensated by Wall Street standards -- both were awarded about $20 million in compensation -- but Stumpf's pay was more modest given that his bank produced more profit, better return on equity and had a better stock performance than its New York rival.
To put it bluntly, one could argue Dimon is being paid on a Wall Street scale and Stumpf is closer to Main Street, if only by an inch or two.
And, finally, there is a stark contrast in what the banks do and why they do it. JPMorgan was created from the merger of two New York mega banks, JPMorgan & Co. and Chase Manhattan Corp. Wells Fargo is the product of three of mergers: Charlotte, N.C.,-based Wachovia Corp. in 2008, Minneapolis-based Norwest in 1998 and prior to that, Los Angeles-based First Interstate in 1995.
It's these strands of banking DNA that have shaped the banks today. Wells Fargo with its concentration on traditional mortgage lending and stable management, and JPMorgan with its revolving-door management and smorgasbord of products -- everything from credit cards to synthetic derivatives.
While neither JPMorgan nor Wells Fargo resembles the Bailey Building and Loan, Wells Fargo’s emphasis on fewer, more traditional products and the disciplined management of them has proven to be a better model in the current era in which complexity and risk-taking are under fire.
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