JPMorgan’s Embrace Squeezed American Century Revenues: News Analysis

JPMorgan's behavior, according to the panel's findings, was both overbearing and undercutting. The firm owned a 41% stake in American Century (down from 45% ownership when the firms first wed in 1998). While it is not uncommon for smaller firms to seek partnership with a larger, more resourceful firm, this case makes clear that a larger firm, if it does not act with integrity, can push its weight around in a manner that is contrary to the junior partner's interests.

If JPMorgan was seeking to weaken its junior partner to acquire it later more cheaply, it did so by breaching the responsibilities owed to American Century via their joint venture agreement and the additional fiduciary duty Morgan had as a member of American Century's board of directors (as reported by the Business Journal).

Unfair trade practices usually involve  the creation of market structures, such as a monopoly, aimed at driving competitors out of business. But as this case shows, the dominant party can achieve a similar result through a bear-hug embrace.

Another clear-cut issue is deceit. To the extent that Morgan misrepresented the qualities of American Century's funds, the firm engaged in unethical competitive behavior. (This is in contrast to selling one's own funds on the basis of their superior qualities, without trashing competing funds.)

And to the extent that Morgan gives incentives to its sales force to sell proprietary funds rather than best-in-class funds, its customers have reason to question whose interests come first: the bank's or their own.