Citigroup and JPMorgan Will See Big Changes Next Year
JPMorgan's bench will suit up.
Chairman and CEO Jamie Dimon spent the better part of 2012 realigning his executive ranks following a bad trade that lost the bank more than $6 billion. Nearly a dozen executives left or changed roles in the last year, and the upcoming year will see newcomers groomed further for senior roles. Look for a steady stream of departures from loyalists to outgoing CFO Doug Braunstein and investment bank chairman Jes Staley. Expect a lot of face time — both with investors and media — for Mike Cavanagh, recently installed as co-CEO of the investment bank, and the not-so-dark horse favored to succeed Dimon.
Investment banks will change face.
As the five-year anniversary of the financial crisis approaches, questions will remain over whether combining investment banks and commercial banks makes institutions "too big to fail." Barclays under new CEO Antony Jenkins will spin off the corporate bank, built off the North American business it acquired from Lehman Brothers. Citigroup under new CEO Mike Corbat will shrink its investment bank dramatically, keeping top traders as deal makers but halving the junior ranks. Bank of America will keep Merrill Lynch for two reasons: It's one of the only parts of the bank that makes money, and it would require a lot of regulatory capital to back it up. JP Morgan will wait to see what happens to the stock of the first movers.
Citigroup will say goodbye to its "bad bank."
Citi Holdings—the repository for all the bank's least-wanted assets—will enter the year with $171 billion in assets, representing 9 percent of the company. While a relatively small amount—and an amount that has been declining—one major criticism of former CEO Vikram Pandit was that he didn't exit the businesses fast enough. No surprise, then, that the board's choice for CEO, Michael Corbat, was once the chief of the bad bank and knows it in and out. Corbat will move swiftly to get Holdings off the bank's books altogether.
Battles will brew over Volcker and derivatives rules.
More than two years after regulators started writing Dodd-Frank legislation, the two most important elements for banks have yet to be resolved. The Volcker Rule—which defines proprietary trading and market-making, and strips banks of certain trading privileges—will crystallize in the first quarter of 2013. Additionally, the regulation of the trillion-dollar derivatives market—and whether banks will be able to place bespoke but diurnal hedges for clients—will come to the fore as well. If the crafting of these rules challenges banks' operational freedom abroad, expect lawsuits.
While some small strides in regulating overdraft fees have been introduced, the game hardly has changed – yet. The practices of at least nine banks are the focus of a wide-ranging investigation at the Consumer Financial Protection Bureau, where a decision on reforming the practice is expected in early 2013, according to industry executives. Banks brought in $31.5 billion in overdraft fees for the 12 months ended June 30 according to Moebs Services, so any decision could result in a revenue blow.