Friday, August 21, 2009

Chase Bank Veers Into Government Charity Work Again- At Its Peril

Coincidentally, I saw a Wall Street Journal piece noting Chase Bank's role in providing cash to California to back the state's IOUs on the same day that Glenn Beck revealed Chase CEO's special relationship with Wonderboy.

In both cases, I believe we are witnessing a return to the bad old days of Chase Manhattan, when then-CEO David Rockefeller, along with Citibank CEO Walter Wriston, unwisely became the conduits for recycling petrodollars into sovereign loans to South America, without adequately charging a premium for said sovereign lending.

It was a lesson that came home to roost decades later, during my tenure at Chase Manhattan. In the end, Citibank wrote off, if memory serves, $3B in sovereign loans, while Chase chipped in $1B. It may have been one hundred times those amounts. With the passage of some twenty years, I confess to no longer recalling the exact number of zeros. But it was likely the former numbers.

Now, Jamie Dimon is entering similar waters by lending to deadbeat, broke California. Sovereign lending is always special because your counterparty has the power to simply nullify your loan contract and repudiate the debt. And prevent you from suing to recover in the domicile.

Sure, Chase is getting some underwriting business now. But in time, one has to wonder if an out-of-state bank will continue to receive favorable treatment, when Wells Fargo is headquartered in California.

Then we come to another key link between Chase and a governmental entity.

Glenn Beck revealed that Chase has a special "midwestern director" on its board. None other than Chicago mayor Richard Daley's brother and veteran Democratic political operative, Bill Daley. No chance that Daley is somehow in contact with Wonderboy, is there?

No not much. Hah!

Beck apparently discovered that Dimon has a literal direct phone line to the White House, and noted that Wonderboy has publicly referred to Dimon as a model banker.

Then Beck went further, reaching far back into the bank's past, to describe how, under Rockefeller, Chase bent over backwards for ACORN and/or its forerunners to basically pay financial bribes in order to avoid being victimized by the organization.

Whenever companies stoop to this sort of tactic to ingratiate themselves with government, it usually ends badly. Governments change, and, when in trouble, governments have a nasty habit of turning on any and all businesses whose interests then conflict with their own.

If you thought Dimon's Chase was a safe or smart investment, think again. Dimon is playing with fire by courting various governmental entities and not charging for the risk inherent in that game.

It's likely to come back to haunt him and the bank, just as it did in the 1980s, after Rockefeller's dubious sovereign lending binge of the 1970s.

No comments: