(Bloomberg Gadfly) -- Snubbing JPMorgan Chase & Co. investment bankers may soon become the norm in one pocket of Corporate America. But the bigger picture justifies the sacrifice.
The largest U.S. lender said on Tuesday that it's teaming up with Berkshire Hathaway Inc. and Amazon.com Inc. to lower the cost of U.S. employee health-care coverage . The move sent a shock wave through stocks of pharmacy benefit managers and health-care insurers, many of whom have turned to JPMorgan for advice over the years.
The disruptive venture creates a conflict that may be hard to ignore for key executives at companies like UnitedHealth Group Inc., Humana Inc. and Express Scripts Holding Co., who may ice out JPMorgan's bankers when it comes to seeking future transaction or capital markets advice. After all, why pad the profits of a firm whose actions have the ability to potentially shave billions of dollars from respective market values?
While it may not be deliberate and perhaps even manageable, it's a possible setback for the Jamie Dimon-led firm, which has been among the two biggest investment-banking fee earners in the sector over the past four years, according to Freeman Consulting Services. Now, it risks losing bankers with longtime client relationships to any number of rivals who aren't launching into a side hustle designed to shake up the industry.
Regardless, JPMorgan's investment-banking business -- led by one of its recently-named co-presidents -- should be able to withstand the blow. The bank has advised on U.S.-related health-care services M&A transactions worth a combined $186 billion dating back to 2000, according to data compiled by Bloomberg. While that's a huge number, it represents less than 3 percent of the bank's $6.3 trillion in U.S. M&A volume over that period, so any lost fees should be relatively easy to replace.
It's commendable that the bank and its partners seem to be prioritizing the greater good in what my colleague Max Nisen describes as an ambitious effort that could indeed trouble incumbents. If all goes to plan, they'll likely lower related expenses in the long run and there's potential even to turn a profit if they decide to outsource their technology and services to other U.S. companies. Dimon himself in Tuesday's news release said the solution should benefit the bank's U.S. employees, their families and "potentially, all Americans." As for JPMorgan's business? To the extent the venture costs some advisory and capital markets work, the trade-off may be well worth it.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
Gillian Tan is a Bloomberg Gadfly columnist covering deals and private equity. She previously was a reporter for the Wall Street Journal. She is a qualified chartered accountant.
To contact the editor responsible for this story: Beth Williams at bewilliams@bloomberg.net.
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