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J.P.Morgan And Other Banks Plan To Cut Bloomberg Terminals

JPMorgan is contemplating the replacement of 1,000 to 2,000 terminals, according to a New York Post report, citing unnamed sources.

The consolidation of de-facto power on Wall Street is a nuanced topic, one that is difficult to document or get on the record comments. One of the relatively independent voices on Wall Street, Bloomberg, an elite information provider that has uncovered is share of sensitive and often tradable news behind the scenes, is at risk of losing as much as $2.25 billion of revenue annually as big banks could reduce terminal expenses by 25% over the next three years. The private company is reported to have near $9 billion in revenue and thepolitically active Michael Bloomberg is reported to have a net worth of $39.3 billion, the vast majority of such abundance generated through terminal sales since the firm’s founding on October 1, 1981.

If sourced news reports are accurate, taking the lead in administrating such punishment on a leading news provider is JPMorgan Chase, led by Jamie Dimon. JPMorgan and Bloomberg have a history together, and Bloomberg just might be discovering that speaking out, reporting the news, has its rewards and punishment. Either that, or the move by JPMorgan and other banks to pull the plug on Bloomberg, sharply reducing terminal expenses, is a cost cutting measure aimed at providing stimulus to the big bank’s relatively modest stock performance since Dimon took over on December 31, 2006. The real question should be: Will big bank cost cutting extend to the historic level of regulatory and U.S. Department of Justice fines they have agreed to pay?

JPMorgan out front in cutting its Bloomberg terminals

JPMorgan is contemplating the replacement of 1,000 to 2,000 terminals, according to a New York Post report, citing unnamed sources. Dimon will either extract a fantastic deal from Bloomberg, paying significantly less than the list price $21,000 per year license fee, or they will switch to Reuters, who similarly has a deep news and private intelligence network that provides terminal users unique insight into the markets.

JPMorgan currently pays for 10,000 of the total 327,000 terminals and pays Bloomberg somewhere between $18 million and $36 million per year, the Post report said.

The unnamed source said that JPMorgan would not “force” anyone to give their terminal, assuming that such an extravagance was “absolutely needed,” indicating that a strong defense might be required to keep a Bloomberg terminal. The cuts are expected hit non-essential Bloomberg users first but might not impact the investment banking or asset management, the source told the Post’s Kevin Dugan.

JPMorgan “tensions” reported as “simmering” as news reporting on the bank is causation for concern

JPMorgan and Bloomberg have seen “tensions” simmer between the organizations, much of it coming as a result of news coverage. Most recently Bloomberg exclusively reported on the “London Whale” trade, when the bank, whose trading miscues are guaranteed by the U.S. government to a degree, lost $6.2 billion in marked-to-the-market on a derivatives bet.

The Bloomberg article, reported by Stephanie Rule, Mary Childs and Bradley Keoun, came in the wake of highly scrutinized bank derivatives bets in 2008 that some say was a significant component of causation for the financial crisis. When the article was reported it materially impacted the stock value as well as roiling politicians, and ultimately drew sharp criticism from JPMorgan and certain bank analysts. The acrimony over Bloomberg reporting came after Bloomberg reporters were accused of unfair reporting and using exclusive features on the terminal to access information regarding bank executives.

Six decades after U.S.-led forces ousted the Nazis from Cassino, a new generation is grappling with the fallout from the debts of postwar rebuilding — borrowings that grew because of a derivative that backfired. Soaring costs forced Cassino, 80 miles southeast of Rome, to settle an interest-rate swap with JPMorgan Chase & Co. in 2009, leaving the town unable to pay for daycare for 60 infants and services for the poor.

In perhaps the most widely used examples of unfair reporting, a December, 2011 Bloomberg report on JPMorgan drew correlation between an interest rate swap that destroyed the economic fabric of an Italian municipality and destruction caused during World War II and the fight between allied forces and the Nazis. The article said:

While the New York-based bank led by Chief Executive Officer Jamie Dimon has no retail branches in Italy, it didn’t hesitate to sell complex swaps to municipalities over the past decade. In Milan, JPMorgan and its employees are on trial, along with Frankfurt-based Deutsche Bank AG, Germany’s Depfa Bank Plc and Switzerland’s UBS AG, for allegedly tricking the city into buying the contracts in 2005. The banks deny any wrongdoing.

Swaps derivatives contracts designed by the large banks have come under fire in numerous media andindependent analysis, with U.S. municipalities sometimes falling prey to contracts that have, to various degrees, resulted in financial despair for those they claimed to help.

Big bank cost cutting comes as bank revenues are forecast to grow

Big bank expense cutting comes as stock prices have generally limped ahead on a relative basis. With JPMorgan stock trading at $40.02 at the start of 2006, it’s near 45% rise in value to trade near $58 today, just under-pacing the performance of the general stock market by close to 5%, as measured by the SPY, but displaying at times odd correlation to the general index.

The large banks had been warning regarding cost cutting, which is coming at a time of rising interest rates and increased revenue for the banks. The banks have been investing in technology that could displace the Bloomberg messaging application, viewed as a key driver of the company’s success. The major banks announced last fall, as hints about cost cutting were being laid, that it would invest in Symphony Communications Services. Those who closely follow the success of the Bloomberg terminal have noted that the exclusive “club” created by the messaging application has driven a component of the terminal’s success.The Wall Street Journal recently announced that it would be offered on the Symphony platform.

While JPMorgan could save as much as $36 million on their Bloomberg costs, there is a line item that is significantly larger: fines the banks have paid for various offenses such as market rigging, misleading customers and other infractions policed by regulators and the U.S. Department of Justice.  JPMorgan Chase alone has payed up to $23 billion in fines in recent years, Bloomberg reported. Based on published reports, it is unclear if the bank includes its fines from regulatory organizations and DoJ as part of its cost cutting plans.

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Mark may hold positions in one or more of the companies mentioned in this article.

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Jacob Lowinsky is the founder and CEO of Value Walk.  His news coverage has been cited by major news sources including; The New York Times, The Wall Street Journal, NPR, Market Watch, Forbes, CNBC, Yahoo Finance, and The Business Insider.  Access his insights on WallStMavens.

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