JPMorgan CEO Jamie Dimon Calls Frank Acquisition a ‘Big Mistake’

• Dimon was put on the spot about the university’s help page during an earnings call Friday.
• Research analyst Mike Mayo asked what the agreement says about the bank’s “financial discipline”.
• The debacle will reignite the debate surrounding Dimon’s aggressive spending to compete with fintechs.

One of the fiercest critics of JPMorgan’s heavy spending came out swinging on Friday, demanding to know who is responsible for the bank’s murky acquisition of financial advice website Frank — and whether it’s a sign of more trouble to come.

“Who’s responsible when an investment doesn’t go right, like the Frank deal or any other deal or any of the other $81 billion you expect to spend this year?” Mike Mayo, a bank research analyst at Wells Fargo, asked the JPMorgan CEO. Jamie Dimon during the bank’s earnings call for the fourth quarter on Friday.

As Insider has reported, JPMorgan sued Frank last month, accusing founder Charlie Javice and chief growth officer Olivier Amar of creating a fake list of clients to convince the bank to buy it. JPMorgan alleges that Frank executives greatly overstated access to students seeking financial aid advice by artificially creating a record of nearly 4 million customer accounts. It closed the website on Wednesday.

Frank has denied the allegations, and Javice has sued JPMorgan, claiming she was wrongfully terminated.

On Friday, Alex Spiro, Javice’s attorney, told Insider that Dimon was “personally involved” in the Frank acquisition. A spokesperson for JPMorgan declined to comment on the allegation.

During the conference call, Wells Fargo’s Mayo also questioned JPMorgan’s spending: “I realize you’re evolving your business model and you’re spending money to make more money, and your track record last decade was strong there,” Mayo said. “I just wonder what that says about the financial discipline of the 15 deals you pursued?” he said, referring to JPMorgan’s fintech acquisition.

In response, Dimon said JPMorgan has been “very disciplined” in its acquisition strategy, but added that the Frank acquisition was “in some ways a big mistake.”

JPMorgan’s legal battle with Frank, for which it paid $175 million, shines a new spotlight on Dimon’s attempt to compete with payment apps and other fintechs by aggressively acquiring startups. According to Insider’s own analysis, JPMorgan has acquired approximately 15 fintechs since 2020, across areas such as payments, crypto and enterprise software. Mayo has previously been critical of JPMorgan’s spending plans, which also became a flashpoint for some JPMorgan investors in the run-up to the bank’s investor day last May.

Dimon ended up putting investors’ minds at ease during last year’s investor day. But the Frank debacle, combined with falling investment banking revenue, will revive those concerns and force Dimon to once again defend his strategy, which he attempted to do on Friday.

“When you come up to bat 300 times a year, you’re going to have mistakes. We don’t want our company to be terrified of mistakes that we don’t do anything about,” Dimon said. “We’re very disciplined, and you see that in a lot of different ways.”

“We’ll tell you the lesson we learned here once this case is out of litigation. But we’re pretty comfortable,” Dimon said of the bank’s acquisition due diligence.

Using money to make money

Dimon sidestepped Mayo’s question about which executives at the bank are in charge of Frank — as well as other fintech acquisitions, should they run into similar problems.

“The acquisitions are done by the businesses, but there’s also a centralized team that does extensive due diligence,” Dimon said. “The company does it. The centralized team does it. They report back. We expect people when they talk to all of us, [to tell us] the good, the bad, the ugly. We’re never looking for how great everything was.”

In an emailed statement, JPMorgan spokesman Pablo Rodriguez said that “Our legal claims against Javice and Mr. Amar are detailed in our complaint, along with key facts. Any dispute will be resolved through the legal process.”

A press release issued by the bank in September 2021 announcing the purchase of Frank quoted Jennifer Piepszak, co-CEO of Chase, which includes JPMorgan’s consumer and community banking businesses.

But JPMorgan’s aggressive approach to investing in startups hasn’t been limited to its consumer banking efforts. In 2020, Insider described how JPMorgan developed a “rapid proof-of-concept” model to accelerate startup investments within its corporate and investment banking division. That team was led by Michael Elanjian, who now heads digital investment banking at JPMorgan, according to his LinkedIn.

In a separate question unrelated to JPMorgan’s purchase of Frank, Wells Fargo’s Mayo also asked Dimon where responsibility lies for the bank’s “organic,” non-acquisition investments that can cross divisions, in areas such as payments technology.

Dimon cited Piepszak and Marianne Lake, the other co-CEO of Chase, as well as Takis Georgakopoulos, the global payments head of corporate and investment banking, as part of a payments task force that reports directly to JPMorgan COO Daniel Pinto and, ultimately, to Dimon.

Mayo’s questioning Friday followed a memo released by Wells Fargo analysts this week that raised questions about both the quality of JPMorgan’s due diligence process in acquiring Frank, as well as the bank’s broader strategy to spend heavily on acquisitions to compete with fintech rivals and consolidate market share.

“The ongoing question is to what extent these transactions are part of an effective grand plan that brings together historic investments and other spending to strengthen leadership for the next decade; or, as conveyed to us by some investors, whether this is a new type of empire building that involves too much waste for expansion,” Mayo wrote as part of the memo.

JPMorgan’s fourth-quarter earnings report released Friday showed net income at the bank rose 6% compared to the same period in 2021, to $11 billion.

While JPMorgan was far from immune to the decline in M&A and underwriting that rocked the industry last year — investment banking fees at the bank fell 58% year over year — rising interest rates drove net interest income to a record $20.2 billion in the fourth quarter.

Do you work for JPMorgan? Or are you a shareholder with concerns about the bank’s spending? Contact this reporter by email at [email protected], Signal (646-376-6028) or direct message on Twitter @hcarterjohnson.