GE/JPMorgan: legends of the fall

On Wednesday, Jamie Dimon's letter to shareholders once again defended JPMorgan's universal banking model. That defence took on new interest when shares in another legendary US company, General Electric, rallied a tenth on Friday on news that it would largely exit financial services. The first step is a $26bn property sale to a Blackstone-led consortium.

Since the financial crisis, GE's long-time chief Jeffrey Immelt has worked to reduce GE Capital's proportion of the group's earnings to a quarter. That proportion now will fall to a tenth.

From 2000 and 2008, GE Capital's gross asset base swelled from $371bn to nearly $700bn. At one point it contributed over half of GE's earnings. But the crisis exposed a weakness: a wholesale funding model dependent on borrowings, rather than deposits.

In 2013 GE Capital was designated as a systemically important financial institution, subjecting it to greater oversight and capital requirements. The 9:1 leverage ratio that once juiced its returns has fallen by two-thirds.

At the same time, GE's industrial businesses have suffered from weak global economies and, recently, the slump in energy prices. GE shares traded at $40 in 2007. They have not risen above $30 since.

GE's divestment process - simply getting out of finance - does not provide a template for financial supermarket JPMorgan. But a January report from Goldman Sachs said the bank could boost its value a quarter if it split its commercial, investment, and consumer units. Mr. Dimon thinks that even if JPMorgan's price performance "has not been particularly good" and its price to book ratio is only 1, its parts are complementary.

It is easier to justify glueing various financial businesses together than welding a credit hedge fund attached to a manufacturer. But Mr. Immelt's misadventures should show Mr. Dimon that investors, not the boss, will make the final decision.

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