CEO Jamie Dimon steers JPMorgan Chase through crisis
NEW YORK -- Five years ago, Jamie Dimon and his three daughters picked up an RV in Wyoming and drove through Yellowstone, Idaho, Nevada and Yosemite, and finally into the Beverly Wilshire hotel in Los Angeles, where his wife was meeting them. Arriving at the wheel of an RV, unshaven and in shorts, he was waved to a stop by the guard, who told him he couldn't park there.
"I got off and said, 'You do valet parking here, don't you?' " says a grinning Dimon, gleefully recounting the exasperated look on the face of the hotel guard. Little did the guard realize, but that scruffy hotel guest at the wheel of the RV would a few months later strike a deal to merge Bank One with JPMorgan Chase jpm, a step on his way to being CEO of one of the oldest blue-chip financial institutions in New York.
The image of Dimon, 53, barreling around the country in an RV is hardly one that matches with Wall Street CEOs, who have in the past year been vilified as greedy financiers who took the country to the brink with their risky appetites.
But RVing has been one of Dimon's favorite ways of vacationing with his kids. In a way, it almost seems an appropriate pastime, given that his acquisition last year of the failed Washington Mutual has catapulted JPMorgan from a primarily New York/Chicago-centric bank to one with a very broad national footprint. As WaMu signs come down, Chase signs are going up on about 2,000 bank branches and 4,500 ATMs that JPMorgan got from the acquisition.
Today, JPMorgan has emerged as a front-runner among the survivors of one of the most harrowing periods in the nation's financial history, which led to the collapse of large investment banks such as Bear Stearns and Lehman Bros. and commercial banks such as Wachovia and Washington Mutual, the largest bank to fail in history, with $307 billion in assets. Of those, JPMorgan acquired Bear for $1.5 billion and WaMu for $1.9 billion.
The largest bank by market capitalization, JPMorgan is the only large financial institution that posted a profit during the financial crisis. This month, it posted its 20th-consecutive quarterly profit: $2.7 billion, a 36% increase from a year earlier, with record revenue of $27.7 billion. Its stock price is up more than 150% from its bear market low in March.
Dimon's reputation as a ruthless negotiator remains intact with his latest acquisitions, and he admits to being a tough manager. But his handling of the firm during the crisis has drawn praise from several quarters, including the highest in the land: President Obama, who commended Dimon "for doing a pretty good job."
"JPMorgan was conservative going into the downturn, and that strong financial position is enabling it to weather the current downturn better, and even be aggressive where required," says Tom Kersting, financial services analyst at Edward Jones.
Indeed, in one closely watched gauge on Wall Street, JPMorgan was No. 1 in investment-banking revenue in the first half of 2009, says Dealogic.
Fortress balance sheet
Among the four largest banks that received $25 billion each from the U.S. Treasury last fall as part of the Troubled Asset Relief Program (TARP), JPMorgan is the only one that has repaid the government. Citigroup and Bank of America went back to the trough, taking an additional $20 billion each, while Wells Fargo still hasn't been cleared to repay.
Dimon says he didn't need the TARP funds and took the taxpayers' money at the behest of former Treasury secretary Henry Paulson. Other former investment banks, such as Goldman Sachs and Morgan Stanley, which each were given $10 billion, also have paid it back.
A key reason behind JPMorgan's reputation for solidity can be attributed to Dimon's obsession with capital and a "fortress balance sheet," a phrase he's been using for almost a decade. That fixation with capital turned out to be prescient when the government stress tests this year focused on capital levels as the crucial gauge for banks' ability to handle a worsening economy.
Dimon likens it to being prepared for war. "If you have the 82nd Airborne, you're able to go to war and handle battle," he says, referring to the U.S. Army's most combat-ready military unit.
JPMorgan's strong capital levels played a key role in the bank's ability to pay back the government before any of its rivals and was why Dimon was able to strike deals such as WaMu and Bear when others couldn't.
Dimon now is trying to make sure that the coming tide of government regulation doesn't squash JPMorgan's chances of thriving, either. He has become one of the most vocal bank CEOs, speaking out against any regulation that he believes will hamper JPMorgan's ability to prosper.
For instance, Dimon says that a provision in the new law on credit card reform that won't allow banks to charge more for some sorts of defaults will force banks to reduce credit and charge more. Ultimately, he says, such laws increase the cost for all consumers. He also dislikes a proposal to require derivatives — complex financial instruments that are structured as agreements between an investment bank and a corporation that hedges risk — to trade on exchanges.
"Corporations around the world hedge their foreign exchange, interest rate and oil risk, and putting everything in an exchange would be cookie-cutter standardization. A lot of people couldn't get what they wanted," he says.
Still, JPMorgan has made mistakes.
One that Dimon regrets most is hiring third-party mortgage brokers. Not wanting to lose out during the real estate boom, the bank aggressively courted business from outside brokers, who originated 30% of all of its home loans. Credit losses in the broker-originated loans were two to three times worse than that of JPMorgan's directly originated business, says Dimon, who has since shuttered the broker business.
Poorly written mortgage loans, including home equity and subprime loans, contributed to loan losses totaling $6.4 billion in the past year. The bank has put aside $30 billion in reserves for future losses, more than double the figure a year ago.
Despite those losses, the potential is huge for JPMorgan when the U.S. emerges from the recession. It acquired WaMu's assets at a bargain-basement price. Just before WaMu failed last year, the bank ran a TV ad blitz showing happy consumers whooshing past the screen in fast cars shouting "woo hoo" from the thrill of having banked there. But the reality was different. In the last 10 days before its demise, its customers withdrew $16.7 billion, the Federal Deposit Insurance Corp. says.
Chase, JPMorgan's retail banking division, by contrast, has a staid image more suited to people looking for a stable place to park their money. Compared with WaMu's narrow line of products, such as free checking accounts and high-rate CDs, Chase hopes to wring more profits by offering more products.
"People need loans, credit and debit cards, or investment products and retirement savings," says Charles Scharf, head of the retail bank and financial services division.
Chase also plans to grow its middle-market business, hoping to swipe market share from regional banks that now are suffering from the weight of massive losses in the commercial real estate sector.
Chase defines its middle-market customers as businesses with annual revenue from $20 million to $1 billion that need services including 401(k) plans for employees and commercial credit cards for customers. Chase's trump card is its mergers-and-acquisitions unit.
"M&As are technically challenging, and for most of these companies, probably the most important transaction that the family will do is an acquisition or sale of the business," says Todd Maclin, head of commercial banking at JPMorgan.
Anger management
Dimon's reputation is hard-won. His grandparents emigrated to the U.S. from Greece and settled in New York, where Dimon was born. Dimon's father, Theodore, or Ted, worked as a stockbroker for years, and still does at Merrill Lynch.
Dimon rose to prominence when he worked closely with his mentor Sanford "Sandy" Weill. He joined Weill at American Express. They both left AmEx in 1986 and moved to Commercial Credit, a small consumer lending operation.
The Weill-Dimon team worked closely to build a financial services giant. Their string of mergers and acquisitions, including insurer Travelers and brokerage Salomon Smith Barney, culminated in what became one of the largest of its time, the merger of Travelers with Citicorp in April 1998.
Soon, Dimon clashed with his boss and in November 1998, he was famously fired. In the months after that, Dimon took up boxing, which he has since given up after tearing both his rotator cuffs. "I was fired, and out of a job. I got in shape and burned off the excess anger and energy," says Dimon.
But in 2000 he landed the top job at Bank One in Chicago and four years later merged with JPMorgan, where he was named CEO in December 2005. Last year, when the government reached out to Dimon to help buy Bear Stearns and avoid a meltdown, many were reminded of the bank's heritage and the role played by its founder, John Pierpont Morgan, the financier who helped rescue the U.S. financial system during the panic of 1907.
"You test someone's mettle in bad times, and how Jamie Dimon has conducted himself during these times would earn him high grades from a conservative financier like J.P. Morgan," says Richard Bove, banking analyst at Rochdale Securities.
This has, indeed, been a breakout year for Dimon. First, Obama. Then, billionaire investor Warren Buffett, whose annual letter to shareholders is one of the most widely read in investing circles worldwide, told the 35,000 shareholders attending Berkshire Hathaway's annual meeting that they needed to read Dimon's letter.
In the letter to his shareholders, Dimon goes beyond the customary two pages penned by other CEOs about the performance of the company. His is a 28-page explainer of the unfolding of the financial crisis, how "the gathering storm arrived with a vengeance" and how JPMorgan faced it.
Dimon, a history buff, quotes Albert Einstein and Abraham Lincoln. He praises the government for acting quickly and boldly, exhorting readers to remind themselves of Theodore Roosevelt, who said people who dare to fight deserve praise even if they fail, for they "shall never be with those cold and timid souls who know neither victory nor defeat."
Despite being at loggerheads with the administration on various issues today, Dimon believes that the government's "bold" steps saved the financial system and the economy from a much worse fate.
It also puts him comfortably in the driver's seat at JPMorgan, where his vision is to build a fortress of a business "for the next 100 years."