JAMIE DIMON:Buying a House on Fire
02/16/2010

JAMIE DIMON:
Buying a House on Fire
By Kip Fry
 
 
Jamie Dimon might be considered a man of surprises. Many people have been stunned and shocked by his behavior in the boardroom and his attitudes about the business world that go against the tide. So it shouldn’t be surprising to find a quote from Albert Einstein, one of the world’s greatest thinkers, in a letter Dimon recently wrote to the stockholders of JPMorgan Chase. 
 
The words? “Make everything as simple as possible, but not simpler.”
 
Dimon, Chase’s dynamic CEO, may have chosen these words as a way of grounding all the numbers, percentages and statistics with the human experience. That way he assured readers that the letter will touch their collective minds and souls, making it much more personal and easier to relate to. Einstein wasn’t the only great thinker cited in the letter. Dimon also pulled thoughts and ideas from Theodore Roosevelt and Abraham Lincoln.

 

Dimon’s words and attitudes have long sparked a wide array of viewpoints, especially in the financial world. People whose perspectives are skewed primarily by personal feelings look at him negatively. To them, he is not always likeable and their own strong language shows that. The positive views are from others who are more likely to look at him strictly for his business practices. Love him or hate him, after all these years in the industry, he still grabs the headlines.

 

The letter he wrote to shareholders early in 2009 is considered by some to be one of the greatest ever written. It is nothing but honest in its assessment of the company’s health in these times of financial distress and Dimon’s role in its current status. He opens by saying that what happened on Wall Street during the preceding year was “largely unprecedented and virtually inconceivable.”

 

He continues, though, by writing: “Although our financial results were weak in absolute terms . . . reflecting terrible market conditions, I believe . . . that this year may have been one of our finest.” It sounds much like Winston Churchill’s “This was their finest hour” speech during the depths of World War II. They both demanded similar language and sentiments.

 

“The way forward will not be easy,” Dimon wrote. “We do not know what the future will bring, but we do know that it will require everyone – the banks, the regulators and the government – to work together and get it right. As we prepare for a very tough 2009, with most signs pointing to continued deterioration of the economy, we still remain long-term optimists about our future and that of our country. Whatever may come, we will meet the challenge.”

 

Dimon states some straight economic data. JPMorgan Chase earned nearly $6 billion in 2008. While that may be impressive for most companies, the figure is down 64 percent from the year before, when the company made $15 billion. “So clearly, this was not a great year financially,” he wrote, adding that the results were troubled by two factors: increasing credit costs and investment bank write-downs of more than $10 billion. The second one was essentially caused by leveraged lending and exposed mortgages.

 

Dimon had to share some unhappy news, such as a net loss of $700 million in private equity, a drop from a $4 billion gain in 2007. “We love the private equity business, but as we indicated in prior years, private equity returns are by their nature lumpy, and we did not expect the stellar 2007 results to be repeated in 2008. We will remain patient and still expect this business to deliver in excess of 20 percent return on equity for us over time.”

 

As for the well-documented purchase of Bear Stearns in 2008, he admits that the final price ($1.5 billion) was far less than it would have been had the circumstances been normal. “We were not buying a house – we were buying a house on fire,” he writes. Despite these concerns, Dimon expects the purchase to eventually add $1 billion to the company’s ledgers.

A similar situation arose a few months later when the FDIC seized the assets of Washington Mutual and Chase was able to acquire that company as well. Dimon expects profits of $2 billion in 2009 from that sale alone.

 

So how did Chase evade the ferocity of the economic crisis? Dimon writes that Chase reduced its subprime expenditures, and that it never pursued the idea of adding to its structured finance business. It also did not leverage its capital and maintained a high level of liquidity. Dimon supports the government’s bailout of Wall Street corporations and Chase’s receipt of its TARP money. Although Chase was financially sound at the time, Dimon decided that it was best to take the money because the company did not want other institutions to think that they were being tainted by accepting it. It did not want to “be parochial or selfish and stand in the way of actions (by) the government” had they not taken the money.

 

“We think the government acted boldly in a very tough situation, the outcome of which could have possibly been far worse had it not taken such steps,” he writes.

 

All in all, it is a sterling example of what can be done with what would normally be a boring and mundane document. Dimon even turns to an elegant quote from Teddy Roosevelt: “The credit belongs to the man who is actually in the arena, whose face is marred by dust and sweat and blood; who strives valiantly; who errs, who comes short again and again, because there is no effort without error and shortcoming; but who does actually strive to do the deeds; who knows great enthusiasms, the great devotions; who spends himself in a worthy cause; who at the best knows in the end the triumph of high achievement, and . . . if he fails, at least fails while daring greatly, so that his place shall never be with those cold and timid souls who neither know victory nor defeat.”
 
*     *     *

 

Dimon, of course, is considered the mastermind of the JPMorgan Chase takeover of Bear Stearns earlier this year. As chief executive officer of the corporation, he was in charge during the period when the financial crisis almost knocked down the wall on Wall Street.

 

He also serves as director of the Federal Reserve Bank of New York. In that role, he influences monetary policy in the country by setting discount rates and electing its chairman.

 

Dimon’s stockholder letter of April 2009 paints the picture of a company that, despite the recent crisis, should be seen as being incredibly successful. Somewhere, within the midst of the turmoil that spelled doom for so many Wall Street companies, JPMorgan Chase managed to keep its head well above the murky waters. As a matter of fact, even if the company had not received its hefty $25 billion bailout from the federal government, it would have gained nearly 9 percent in its Tier 1 capital.

Much of this success can be rightfully attributed directly to Dimon. Although he is not known as a marketer per se, his skill in mergers and acquisitions has kept Chase at the top of the heap. In fact, it could be stated that the move was, in its own way, a marketing maneuver.

 

Whatever the reason, Dimon has earned many accolades over the years. He has been called “a straightforward, unpretentious workaholic” and “enormously ambitious” (Leah Nathans Spiro, BusinessWeek), “one of the very brightest guys in finance in that (graduating) class” (Jay O. Light, Harvard University) as well as a man with a “ferocious ego” with a penchant for “sweating the details” and an “impetuous hothead” (Mara Der Hovanesian, BusinessWeek). His “brash, iconoclastic manner has made Dimon the most watched, most discussed, most loved, and most feared banker in the world today,” writes Shawn Tully of Fortune.

 

He also has been placed on a lot of lists, such as Time’s 100 Most Influential People and Crain’s New Influentials, no small accomplishment.

 

Questions also abound about him. A headline in BusinessWeek recently asked its readers if he was good or just lucky.

 

There is also no shortage of quotes directly from his mouth. At the most recent Davos meeting in Switzerland, he stated, “We gave them (customers) weapons of mass destruction to borrow too much.”

Then, in February of this year, he stated that “JPMorgan would be fine if we stopped talking about the damn nationalization of banks. We’ve got plenty of capital. To policymakers, I say where were they? . . . They approved all these banks. Now they’re beating up everyone, saying look at all these mistakes, and we’re going to come and fix it.”

 

Dimon is not known for his tact in the boardroom. As a young executive on his way up the corporate ladder, he once interrupted a meeting to erase a list of names from a whiteboard, including the name of a supervisor and then placed them under his own name, indicating that he was more fit for the job. The other supervisor soon resigned.

 

His renown is not for his management or marketing capacities. Instead, he has the uncanny ability to oversee mergers and acquisitions at JPMorgan Chase. Bear Stearns is a recent example. In 1985, he and his mentor Sandy Weill joined forces to take over Commercial Credit, which eventually became Citigroup. Eight years later came the merger of Shearson and Smith Barney (under Weill). He also benefited from the 2004 union between Chase and Bank One. Dimon had been CEO at the Chicago-based Bank One for several years and promptly moved to a similar position at Chase. He considers this M&A activity so second nature that he calls it elephant hunting.

 

But enough about what people have said about Jamie Dimon and what he has offered in his own words. What are his accomplishments, other than alienating and invigorating his employees all at the same time?

 

For one thing, while at Smith Barney, he prodded the company to become the first brokerage to sell no-load mutual funds. At the time, the move broke industry tradition. He also set the trend of using the computer program Quicken in the office. But as Spiro noted in a 1997 article, “Many bankers, wooed by hefty contracts and ambitious plans, left embittered and blame Dimon for broken promises, mismanagement, and treating them with disdain.”

 

That leads to stories of rude and maybe even mean behavior. Like the time he told someone in a meeting that an idea that was just announced was one of the stupidest things he had ever heard, prompting an underling at the meeting to complain anonymously that Dimon needed to lighten up.

 

So how did Dimon come to this point in his life? Several generations ago, there were no Dimons. Instead, the family name was Papademetriou, a sign of their Turkish ancestry. Born James L. Dimon in 1956, Jamie’s father, Theodore, sold stocks for a living, as did his grandfather. So he was raised with the notions of enterprise deep in his blood.While still a youngster, the Dimons moved from Queens to Manhattan and was enrolled in the elite Browning School on the East Side and afterward, Tufts University in Massachusetts.

 

What followed then is now an oft-told story. While looking for work several years later, he stopped in to see Weill, an old family friend who then worked at American Express. It was an encounter that would change his life. Weill would mentor him for a number of years, allowing them to work on the formation of Citigroup. But the relationship would eventually suffer a falling out, another turning point in Dimon’s life.

 

The two had set up shop at the Citigroup office with Dimon acting as Weill’s associate. But Dimon soon discovered that Weill’s daughter, Jessica Bibiowicz, was under his management umbrella, and when he opted not to give her a promotion, Weill got upset and fired him.

 

“Everyone has their ups and downs,” Dimon recently told The Economic Times. “Tell me one person you admire, not just in business, but in life, and you’ll find they had their share. Nelson Mandela walked out of prison after 27 years, magnanimous to his captors. You have to get up, brush yourself and move on.”

 

He tells the story of how his firing affected his family, especially his three young daughters. The youngest one wanted to know if they would have to sleep on the streets, while the second was concerned about going to college. But the oldest girl, 12 at the time, asked if she could use his cell phone, now that he wouldn’t be needing it anymore.

From there, he took over at Bank One in Chicago. He then put his merger skills to the test and acquired JPMorgan, where he eventually became CEO. Once there, he decided that the company would not offer subprime loans. It was a rare move at the time among industry leaders. When the crisis hit, his company was the only one with enough spending power to purchase both Bear Stearns and Washington Mutual. The government asked Dimon to intervene and he readily agreed.

 

Several biographies have been written about Jamie Dimon (by Duff McDonald and Patricia Crisafulli, for instance) and are filled with many more stories. Today, Jamie Dimon’s star has not lost any of its luster. When Barack Obama was elected president, Dimon’s name even surfaced for the Secretary of the Treasury position (eventually offered to Timothy Geithner). Despite that, Dimon has remained an outspoken supporter of the president, especially his economic bailout. In fact, Dimon remains on Obama’s call list whenever the president wants to talk economics.

Obama once proclaimed that “there are a lot of banks that are actually pretty well managed, JPMorgan being a good example. Jamie Dimon, the CEO there, I don’t think he should be punished for doing a pretty good job managing an enormous portfolio.”

 

That does not mean he has all the answers. At Davos last spring, he stated, “I haven’t yet seen people get all the right people in a room, close the damn door and come out with a solution.”

 

So where does JPMorgan Chase stand in the future of banking? Quite likely, it will stand tall. During the first quarter of 2009, for instance, Chase lent $150 billion to some 4.5 million customers, certainly a good sign amid a crisis. With all the mergers and acquisitions that Jamie Dimon has participated in over the years, the company may have a totally different look before too long. But wherever Dimon will be at that time, it will be a place near the top.
 

Kip Fry is Editorial Director of The Journal of Financial Advertising & Marketing and a freelance writer. He can be contacted at kipfry@yahoo.com.