This weekend the New York Times reported that regulators were going to investigate JPM’s whale trade. (Fine, but ony if the regulators want to learn something, learn how a bank trades rather than embarking on a witch hunt seeking a scapegoat, a way to criminalize risk taking.) Dick Bove, the outspoken Rochdale Securities sent out this note over the Memorial Day weekend, criticizing the Wall Street Journal over its coverage of the whale trade.
Bove writes: “Rupert Murdoch’s Wall Street Journal believes it knows how to invest JPMorgan Chase’s venture capital funds better than JPMorgan does. Plus, the newspaper is totally against big banks providing funds to new companies or to innovation in the U.S. economy in general.
“In this view, it is consistent with the United States government and banking regulators who also believe that providing funds to new, small, and innovative companies or troubled companies should be penalized. It should be noted that there are only five companies in the United States that make more money than JPMorgan Chase. Plus, if the SNL Research numbers are correct no bank in the world makes more money than JPMorgan Chase.
“Conversely, Rupert Murdoch’s Wall Street Journal is not among the top earners nor is News Corp (NWSA/$19.38/NR), Rupert Murdoch’s flagship company. No matter, Mr. Murdoch’s paper believes it can better assess JPMorgan’s investing and lending activities than JPMorgan can. Therefore, the paper published a lead article today [May 25] criticizing the bank’s CIO venture capital investments.
“Since venture capital by its nature is investing in ‘risky,’ small, and innovative companies, the paper is basically objecting to this type of investment. Presumably, it believes that the bank should only invest in large companies like News Corp, for example. The Journal article objects strongly to the bank investing in challenged companies using the Volcker Rule as a basis for the objection. This view is seconded by an academic, again, someone from a business (higher education) that is bankrupting America’s youth. [Emphasis added.]
“At the heart of these objections is whether banks should make funds available to smaller and/or challenged companies. It is argued that the government through the Volcker Rule does not want this to be done. The risk weightings applied to loans to these companies under the Basel Rules confirms this view – i.e., banks should not support innovation nor should they seek to aid troubled companies. If they do their capital requirements should be raised according to the rules. These capital requirements are lowered if banks invest in the U.S. government, an insolvent entity. [Emphasis added.]
“The view that the paper, the academics, and the regulators take is to let troubled companies fail and let their employees collect unemployment insurance or seek jobs with large companies (who employ workers overseas). The concept that in America risk taking is key to the success of American companies is not a view that these naysayers accept. They want to shut off bank funds to the innovators and risk-takers. This is another example of the mindless attacks on this bank and banking in general.
“The idea is to attack for the sake of attacking itself. There is no thought as to what the meaning of these attacks might be – i.e., closing off funds to the innovators in this instance. It is thoroughly discouraging. If this bank did not know what it was doing it would be making less money than News Corp. It is not; it makes more money. At some point, someone should consider how much money JPMorgan actually makes and why it makes this much money before suggesting that they could do better.”