Wells Fargo & Co (NYSE:WFC) has a much simpler business model; avoiding risky investments and complex derivatives, the bank is simply focused on doing what it does well, loaning its money to deserving clients. This provided the financial soundness to stay mostly out of trouble during the credit crisis, and Wells Fargo even seized the chance to acquire Wachovia at an opportunistic price back in 2008.
Wells Fargo is now the undisputed leader in mortgage originations with more than $109 billion in home loans during the last quarter, way above JPMorgan´s share. Wells is also more profitable, with return on assets of 1.46% and return on equity at 13.45%.
This comparison is particularly interesting because Wells Fargo doesn’t separate the CEO and Chairman position either, John Stumpf is the CEO since 2007 and became Chairman in January 2010, yet the bank is exemplary when it comes to risk management and overall performance over the last years.
However it´s not an apples to apples comparison, Wells Fargo could hardly lose $6.2 billion in a complex derivatives trade like JP Morgan did with the London Whale scandal since it has a much simpler business model. I still wouldn´t mind seeing the CEO and Chairman positions split in Wells Fargo, if only for transparency and oversight reasons, but it´s a far more important issue when it comes to JPMorgan, especially considering that the London Whale episode happened under Dimon´s watch.
Dimon was rumored to be thinking about leaving the bank if he was stripped from this Chairman role, and this may have been a big factor behind his victory in the voting. There is no good candidate for succession at JPMorgan, so investors have valid reasons to be concerned about this potential problem.
One of the jobs of the Chairman is to make sure there is a solid succession plan should the CEO leave for any reason, but Dimon didn´t fulfill that responsibility. Ironically, by scaring shareholders when making them realize how indispensable he is for the company as a CEO, he also proved he is a lousy chairman.
Bottom line
As a general principle, it´s better to have and independent Chairman so the CEO can be adequately controlled and evaluated, especially in a big and complex organization like JPMorgan. Dimon may be a good CEO, but he is quite a mediocre chairman, so it looks like he won and investors lost when it was decided that he is keeping both positions.
The article Dimon Is a Good CEO and a Lousy Chairman originally appeared on Fool.com and is written by Andrés Cardenal.
Andrés is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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