Breaking Up is Hard to Do: Goldman Sachs Wants JPMorgan in 4 Pieces

Goldman Sachs

By TLB Contributor: Susanne Posel

JPMorgan Chase & Co (JPM) is paying out a $100 million settlement to keep details about an antitrust lawsuit filed 2 years ago out of the court system and public record.

JPM is one of 12 mega-banks named in the suit while they were particularly named for the price manipulation on foreign exchanges markets using digital communications and social media.

Several investors including hedge funds, public pension funds, the Philadelphia city and other market investors filed a complaint accusing 12 banks of manipulating WM/Reuters rates through chat rooms, e-mail and instant messaging since Jan 2003.

• JPMorgan
• Bank of America
• Goldman Sachs
• Morgan Stanley
• Citigroup
• Credit Suisse
• Barclays
• The Royal Bank of Scotland
• Deutsche Bank

According to court documents, “the banks’ manipulation of WM/Reuters rates impacted the value of financial transactions in the U.S., including foreign exchange trade. Further, the plaintiffs claimed that these also negatively affected the pension and savings accounts that are dependent on global foreign exchange rates.”

During the Stock Market Crash of 2008 and beyond, it has become obvious that JPM has been involved in more than its fair share of yuppie-of-Wall-Street deals that have given the financial giant an incredible value.

Goldman Sachs released a report citing that JPM should be broken up into 4 parts, each culminating in an increase of 25% worth over the total corporate assets.

The report stated: “The biggest of the pieces would include the bank’s branch network, which could be worth over $100 billion on its own. JPMorgan’s investment bank would be nearly as large, followed by its commercial bank and an asset management company.”

Richard Ramsden, analyst for Goldman Sachs and author of the report explained: “even splitting JPMorgan in two—dividing the investment bank from the traditional bank, returning the company roughly to what was allowed before the Glass Steagall Act was repealed in the early 2000s—would boost the overall value of the current bank by 16%. Our analysis indicates that even accounting for lost synergies, a JPM breakup would be accretive to shareholders in most scenarios.”

Sandy Weill, former CEO of Citigroup commented: “[JPM] became the first of the nation’s modern mega-banks. Breaking up the large banks makes sense.”

Ramsden asserts “the new capital requirements for big banks proposed by the Federal Reserve in early December make now a good time to consider such a split.”

The Federal Reserve Bank (FRB) opened the door for banks to securitize risky derivatives with the announcement to “extend the deadline for banks to sell off stakes in hedge funds and private- equity funds” until 2017.

Journalist David Weidner explained : “Now, the ‘push-out’ rule is gone, so we’re in the same position again. And the Fed has delayed a potential roadblock to a taxpayer bailout. In essence, the Federal Deposit Insurance Corp. and the Fed are implicitly suggesting that losses from hedge funds and private equity won’t hold up government support.”

Weidner continued: “Ultimately, let’s be honest, the delay isn’t just a delay, it’s to buy time so the bank lobby can eliminate the Volcker Rule altogether. These investments produced risky, but potentially big, returns. Why is it that the bankers are the only ones with good memories?”

This was part of the official delay of the Volker Rule, which would ban risky betting with derivatives by banks, approved in 2010.

Because of this announcement, Ramsden said: “A break up makes more sense for JPMorgan because, unlike some of its rivals, its individual businesses are strong enough to stand on their own. The bank is partly a victim of its own success.”

TLB Note: This story is far form over … actually this is just the beginning. Please check back for future, important and pertinent updates as they become available.

Susanne Posel is the Chief Editor of Occupy Corporatism | The US Independent


TLB recommends you visit Susanne at Occupy Corporatism for more pertinent articles and information.

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