JPMorgan should at least study a possible breakup

Published Wed, May 18 20161:16 PM EDT

Breakingviews

Antony Currie

JPMorgan investors are shoving their heads in the sand. At the bank's annual meeting on Tuesday, only 2.5 percent of shareholders backed a proposal that the board study the possible benefits of a breakup. There's less reason to dismember JPMorgan than Citigroup , whose owners dismissed a similar idea last month. The bank run by Jamie Dimon has, after all, consistently performed far better than its rival. But a rigorous examination of the issue would be a useful exercise. A high-level study would help shareholders determine whether they are better off owning JPMorgan – and by extension any other too-big-too-fail institution – as it currently exists, or in some smaller form. The research would also allow board members to make a public showing of fulfilling their duty to put shareholder interests first. It would have the added benefit of assuring regulators that the directors take the breakup debate seriously. A study wouldn't cost much or significantly distract the board and management. They already have vast amounts of research produced for the Federal Reserve's annual stress tests and the resolution plans – or living wills – that all large banks must submit to regulators. More from Breakingviews : Nokia phone demise a warning for all tech giants What's more, there's no guarantee the results would support an argument for carving up the banks – as much as Bartlett Naylor, who proposed the JPMorgan resolution, may want to return to the days of the Glass-Steagall Act, when commercial and investment banks were separate firms. In fact, Chief Financial Officer Marianne Lake outlined at last year's investor day how splitting up JPMorgan would actually lead to lower overall returns. Building on that analysis could help the bank fend off breakup proponents, be they activist shareholders or regulators like Minneapolis Fed President Neel Kashkari. Any study would, of course, have to be fair to both sides. Fear of bias could be one reason JPMorgan investors rejected the proposal on Tuesday. Or maybe they were persuaded by Lake's presentation last year. In any event, with outside calls for breakups rising, wholesale rejection of a mere research project looks overly defensive. For more independent commentary and analysisfrom Reuters Breakingviews, visit breakingviews.com

J.P. Morgan Chase CEO Jamie Dimon

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There's less reason to dismember JPMorgan than Citigroup, whose owners dismissed a similar idea last month. The bank run by Jamie Dimon has, after all, consistently performed far better than its rival. But a rigorous examination of the issue would be a useful exercise.