December 17, 2018 / 6:34 PM / 3 months ago

Breakingviews - Facebook might be the JPMorgan of the tech world

Facebook CEO Mark Zuckerberg testifies before a joint Senate Judiciary and Commerce Committees hearing regarding the company’s use and protection of user data, on Capitol Hill in Washington, U.S., April 10, 2018. REUTERS/Aaron Bernstein

WASHINGTON (Reuters Breakingviews) - If Facebook can negotiate a difficult year ahead, it may be on its way to becoming Silicon Valley’s version of JPMorgan. A decade ago, financial firms were taking a whipping from politicians, just as tech companies are today. As Jamie Dimon’s bank shows, those who survive the process can end up even stronger.

Mark Zuckerberg’s social network faces a world of pain from Washington in 2019. A new Democratic majority in the U.S. House of Representatives has tougher privacy rules on its agenda. Several Democrats want to see those modeled after Europe’s new data protection law, known as GDPR. Facebook’s stock has tumbled, partly because of the Washington spotlight.

Now think back to the period after the financial crisis, when Congress was drawing up onerous Dodd-Frank legislation designed to make banks safer. JPMorgan was the poster child for bad behaviour. It faced a renewed backlash after a $6 billion trading loss in 2012, and paid $13 billion a year later for misselling mortgage securities. Dimon’s bank had to hire thousands of additional compliance personnel.

Yet now, JPMorgan is back on top. Dimon is head of the Business Roundtable, a Washington group made up of the chief executives of the largest U.S. companies. And its market capitalization of around $370 billion is almost twice its peak before the crisis hit. Meanwhile, community lenders’ share of U.S. commercial banking assets declined at a faster pace after Dodd-Frank was passed in 2010, according to a Harvard study.

Banks have advantages that social networks don’t – governments need them to exist, for starters. Yet there are still parallels with tech. About 60 percent of companies said they plan to spend at least $1 million to comply with GDPR, according to a recent survey by PricewaterhouseCoopers. At around $400 billion in market capitalization, Facebook can keep up far more easily than the average startup.

That’s not to say 2019 will be fun. Facebook’s growth in North America is flat, and lawmakers will insist on grilling Zuckerberg and his peers in public – which is tough because he lacks Dimon’s charisma. Even if a divided Congress can’t pass substantive laws, Europe might. But if doing so puts a moat around companies like Facebook they could come out even tougher.

Breakingviews

Reuters Breakingviews is the world's leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.


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