May 21, 2010 / 3:43 PM / in 9 years

JP Morgan in dilemma over costly London skyscraper

LONDON (Reuters) - JP Morgan (JPM.N) chief Jamie Dimon faces an unenviable choice - splash out $3 billion on much-needed but lavish new London headquarters or cull the twin skyscrapers in a nod to the war on banking extravagance.

The U.S. bank is dragging its heels on the glamorous plan, fearing it could rile regulators determined to bring mega-banks considered “too big to fail” under tighter control, sources in the banking and property industries said.

“It is a massive dilemma for them. They need new space to grow but they don’t want to make a hasty decision,” said one property industry source.

“The reasons for doing this or not doing this are becoming less and less about real estate and more and more about politics,” the source said.

The 3 million square foot complex comprises two towers of 28 and 34 floors overlooking the river Thames, linked by a lower-rise office containing three trading floors, the website of architects Adamson Associates shows.

The decision rests squarely on the shoulders of Dimon, who steered his bank away from the big sub-prime losses of many rivals, picking up failed banks Washington Mutual, Wachovia and Bear Stearns at knock-down prices on the way.

Cost considerations will play an overriding role in the decision. But the sources said the lender may also decide to axe or scale down the plan to sweeten regulators.

JPMorgan has already repaid the $25 billion of taxpayer rescue funds it received during the crisis, but the shock fraud probe on powerhouse Goldman Sachs has shown even the strongest banks are not immune from regulatory attack.

“It looks like it will be a political decision — can you really spend almost 2 billion pounds ($2.87 billion) with everything else that’s going on?,” another source in the property industry said.

JP Morgan declined to comment.

SCHEME

JPMorgan signed a deal with Canary Wharf Group (CWG), the operators of the eponymous business district, in late 2008, part of a long-held ambition to consolidate its scattered London workforce in one corporate-branded complex.

The bank bought the site of the prospective new offices at Canary Wharf Riverside for 237 million pounds and appointed CWG as development and construction manager.

JPMorgan has agreed to cover the costs for completed infrastructure, design and planning works and pay CWG 76 million pounds representing a portion of developer profits on the scheme if it postpones or scraps the development altogether.

“We continue to work on the design, planning, piling, raft construction and further infrastructure works for Riverside South... Advanced construction is pending a decision by JP Morgan,” a CWG spokesman said.

With politicians on a mission to show voters they are getting tough on banks, industry sources suggest the public profile of the bank could suffer if the building goes ahead.

Dimon faced a double bind at the bank’s shareholder meeting this week from homeowners whose properties Chase is foreclosing, and investors who want dividends raised.

Sources described the bank’s former European investment banking head Bill Winters as a key champion of the Canary Wharf move, but say enthusiasm has waned since he left.

Property market sources said JPMorgan may be tempted to swap the massive attention-grabbing spend on the Riverside South building for a cheaper letting deal at one of several office developments planned in or close to the City of London.

“It’s not inconceivable that they stay in the City ... one property source said. “CWG could be willing to cut a deal if it becomes clear the Riverside South plan is incompatible with a crackdown on banks.”

($1=.6959 Pound)

(Additional reporting by Douwe Miedema; Editing by David Cowell)

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