J.P. Morgan & Co. aims to develop its capital market operations further, but needs another "two to three years" to get to where it wants to be, its chairman said Wednesday.
Speaking at the annual shareholders meeting, Dennis Weatherstone said the bank had lagged behind in developing securities-related activities, mainly as a result of legislation restricting capital markets activities of commercial banks.
He added that the bank considers institutions like Goldman, Sachs & Co., Salomon Brothers Inc., Union Bank of Switzerland, and Bankers Trust Corp., all heavily active in capital markets, as its main competitors.
Lobbying Effort
Mr. Weatherstone said Morgan is continuing to lobby for an easing of Glass-Steagall Act restrictions on banks, which limit corporate debt underwriting and securities-related activities. But he gave no indication that Congress would act soon on the matter.
Morgan has been rapidly expanding its trading and capital market operations since the early 1980s.
A large portion of the growth has occurred outside the United States where the bank is not subject to U.S. regulatory constraints.
It has become a major force in Latin America, arranging corporate mergers and acquisitions, and bringing corporate debt and equity issues to international markets.
Although Morgan can engage in limited corporate debt and equity underwriting in the United States under section 20 of the Glass-Steagall Act of 1933, the extent of business it can do is severely curtailed.
Section 20 limits a commercial bank's revenues from corporate underwriting to 10% of the revenues it earns from total underwriting. The remainder comes mainly from U.S. government securities and other types of so-called eligible securities.
More Means Less
The greater the revenues Morgan earned from corporate underwriting, the less additional business it was permitted to take on, Mr. Weatherstone noted ruefully.
Morgan's net earnings rose only slightly last year to $1.58 billion and fell 20% in the first quarter this year to $345 million, mainly as a result of the downturn in prices on securities markets.
Mr. Weatherstone said that despite the fall in earnings, Morgan's businesses were more diversified and less exposed to risk than five or 10 years ago.
Exposure Called Small
He stressed in particular that Morgan's real, as opposed to national, exposure to controversial derivatives trading was still small.
Although the notional amount of derivative volume at Morgan is $1.7 trillion, the banker said Morgan's actual exposure came to less than 2% of that amount, or under its exposure on straightforward lending.
Mr. Weatherstone also questioned congressional efforts to impose additional constraints on derivatives-related activities and suggested that regulators and others should be wary of "stifling that constructive natural process."
"Innovations like derivatives are the market's way of adapting to change ... in technology, business, and markets around the world," he said.
"The evidence suggests that existing mechanisms for coping with the growth of derivatives are working, from regulatory task forces to voluntary improvements in risk management practices and dealer disclosure," he added.
