10/11/2012 07:58 am ET

The Downside Of Being Too Big To Fail: Seven And A Half Things To Know

Thing One: Too Big To Succeed: Instead of cursing the too-big-to-fail banks like we do, maybe it's time we tried to sympathize with them.

We're not just talking about the near-daily ballads of woe from JPMorgan Chase chief Jamie Dimon, who did some more sobbing yesterday, this time about how he is still waiting for his thank-you note for buying Bear Stearns during the crisis, which Dimon estimates has cost JPMorgan maybe $5 to $10 billion, or one entire London Whale trade, along with the ignominy of being gently sued by the New York Attorney General. But who's counting, and complaining about it constantly? Certainly not Jamie Dimon.

No, I'm talking about real troubles for the TBTF set, money troubles. The New York Fed yesterday released a wide-ranging quarterly report on the health of America's banks, and Eleazer David Melendez of the International Business Times points out that they show the biggest banks in America doing far worse than their smaller peers when it comes to interest income, bad loans, lending activity and more.

Of course, Melendez notes, the six biggest U.S. banks comforted themselves by taking home $63 billion in profit in the first half of 2012, the best first half in six years. But they were forced to do that in the most socially awkward way possible, by squeezing their customers for extra fees and the like. Do you think the big banks enjoy doing that? They are human and they need to be loved. Just like everybody else does.

On Friday we start getting quarterly earnings from the big banks, with JPMorgan Chase and Wells Fargo reporting. Citigroup, Goldman Sachs and Bank of America follow next week. The Wall Street Journal writes that bank regulators are going to be giving an unforgiving stinkeye to the quality of bank earnings, making sure they're not doing it with smoke and mirrors, Jack Welch style, by under-reserving for bad loans.

We continue to talk about breaking these giant banks up for the health of the financial system. Fed Governor Daniel Tarullo yesterday floated the idea of putting a size limit on big banks. Dimon and Vikram Pandit, Dimon's counterpart at Citigroup, the very model of the too-big-to-succeed bank, argue that TBTF banks are national treasures and that shrinking them would be a terrible tragedy, like cutting down the rain forests. But maybe it would be for their own good.

Thing Two: Whale Tail Risks: Speaking of JPMorgan, the repercussions from the bank's big dumb "London Whale" loss in credit derivatives continue. The bank's chief financial officer is stepping down from his post by the end of the year, The New York Times writes, and we still don't know what he is going to do next. Polish Dimon's presidential cufflinks, maybe. More ominously, U.S. officials are using taped conversations to build criminal cases related to the London Whale debacle, the NYT writes, with arrests possibly coming "in the next several months." So, to sum up: Destroy the global financial system with crappy mortgage-backed securities, and you're home free. Cost JPMorgan shareholders $6 billion or so, and you are going right downtown, Charlie Brown.

Thing Three: In Da (PE) Club: Private-equity firms got awful clubby just before the financial crisis, appearing to team up to take down giant targets such as TXU and HCA. That's according to emails cited in a new complaint in a long-running shareholder lawsuit against the firms. The lawsuit claims the firms conspired to keep prices low and profits high, denying billions to shareholders. The emails, made public for the first time yesterday, do seem kind of damning in a way, but Fortune's Dan Primack and The New York Times point out that many deals from that era were the subject of bidding wars, so the case may not be airtight. Also, Bain Capital was involved, which raises the level of public interest, though Mitt Romney wasn't.

Thing Four: Giant Aerospace Deal Can't Get Off Ground: Every day now for the past several weeks (it feels like) there has been news about how a merger between British and European aerospace giants BAE and EADS might or might not be happening. I have not bothered to mention it in this email because I care about protecting you, the reader, from too much boredom. Well, the saga thankfully appears to be over: The deal is dead now, because Britain, France and Germany still hate each other, The New York Times writes.

Thing Five: Spain Appears To Have Money Problems: Crack rating agency Standard & Poor's observed yesterday that Spain may have a spot of money trouble, downgrading the country's credit rating by a notch, though leaving it just above "junk" status. While everyone continues to wait for Spain to ask for an inevitable bailout, Europe's original debt-crisis victim, Greece, continues to struggle. Christine Lagarde, head of the International Monetary Fund, yesterday suggested Greece should have still more time to meet Europe's debt-reduction goals. And a poll of Germans found they'd rather have Greece in the euro zone than out of it, Reuters writes. So that's nice.

Thing Six: PCs KO-ed: Personal computer shipments fell more than 8 percent in the third quarter, their worst drop since at least 2001, the Wall Street Journal writes, and shipments are on track for their first annual decline in 11 years. The industry is getting shellacked "by factors that include cannibalization by tablet computers, sluggish economic conditions and slowing PC sales in emerging countries," the WSJ writes.

Thing Seven: How Much Does It Cost To Ruin The Gulf Of Mexico? BP is close to making a deal to settle civil and criminal charges with the U.S. government over the Deepwater Horizon oil spill in 2010, the Wall Street Journal reports. The company has already set aside nearly $33 billion to cover the legal and other costs of the spill, which seems a small price to pay, for a company that turned nearly $26 billion in profit last year alone. Meanwhile, a mysterious oil slick recently discovered in the Gulf of Mexico appears to be oil from the 2010 spill, the Washington Post writes.

Thing Seven And One Half: Do You Have Change For This Baggins? Oh, New Zealand. Is there no end to your quirkiness? Of course not: Now the nation that brought us "Flight of the Conchords" is making real what could have been a FOTC joke: It is issuing, as legal tender, coins bearing the likenesses of the Hobbit, Gandalf and Gollum, all in honor of the first of what will be 17 (just an estimate) new Hobbit movies by Peter Jackson.

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Calendar Du Jour:

Economic Data:

8:30 a.m. ET: Weekly Jobless Claims for the week of Sept. 29

8:30 a.m. ET: International Trade Balance for August

8:30 a.m. ET: Import and Export Prices for September

Corporate Earnings:




Heard On The Tweets:

@mbrownerhamlin: It's great to know that Wall Street is not alone in total immunity for blatant criminal behavior. The telecoms are too.

@AntDeRosa: So many breathless articles about wrapping content with branded ads, which has been a thing since like the 70s

@sullydish: Moving to New York while blogging an election was probably too large a leap for an excitable chap like myself:

@jbarro: I feel Andrew Sullivan's pain. Do you know how hard it is to find an apt w/ a panic room in New York, let alone a panic room & a dishwasher?

@buzzbissinger: I see. You want my Twitter feeds to change. Fuck yourselves. Thin-skinned? Spend a minute in my shoes. Nobody comes close to what I write.

@TERKELRAGE: .@buzzbissinger: We gotta get coffee or something.

And you can follow me on Twitter, too: @markgongloff



Jamie Dimon Hates On Regulation: A History