Banking is meant to be a boring business. Yet, there is clamour from corporate houses to get a banking license and history is strewn with stories of banks going out of business, some because of fraud but most due to greed. In this context, it is worth understanding the banker at the helm of the world’s largest bank which has avoided many a crises which have swallowed up some of the best known names in the industry – Jamie Dimon, the CEO of JP Morgan for the past 17years.
This is a rather entertaining piece of prose chronicling Jamie Dimon and JP Morgan’s journey so far. The author is an industry insider having worked with Goldman Sachs in the past and currently a private equity professional.
First the sheer size of the bank – USD Four trillion in assets ( and close to three hundred throusand employees:
“JPMorgan’s immensity invites such golly-gee statistics. The $51 billion in profit that the bank generated over the last year is bigger than the gross domestic product of Jordan. Its credit cards, loans, and checking and savings accounts are in nearly half of American households. It has branches in all of the Lower 48 states and an ATM in Hawaii. The company has no physical presence only in Alaska. Its mutual funds still own Alaskan bonds.”
And it is spending $3 billion to build a new global headquarters in Manhattan. But it wasn’t always this dominant despite its long history.
“In 2000, Chase bought J.P. Morgan & Co., which had been shrinking in importance in the nearly eight decades since Pierpont died. The merger was not well received by bankers at J.P. Morgan, the smaller but more glamorous institution. According to Last Man Standing, a 2009 book about Dimon that is still remarkably relevant, 80 of the top 100 people left soon after the deal. I was at Goldman Sachs then, and to us junior analysts in our three-button suits, the combined and rebranded JPMorgan Chase — with its aspirations to become a force in trading and investment banking — was embarrassing, a suburban dad voguing at a wedding.”
Jamie Dimon who worked for Sandy Weill of the then largest bank Citigroup and got fired for being a threat to Weill, took over as the CEO of Bank One in 2000 and turned it around.
“That talent was what Bill Harrison, CEO of JPMorgan Chase, decided was missing in his larger bank. In 2004, Harrison bought Bank One in a merger with some business logic — and to get Jamie Dimon. He agreed to make Dimon CEO in two years. While Citigroup is remembered today as a cautionary tale (with a stock down nearly 90 percent since its peak), Dimon brought to his new job three parts of Weill’s vision. First, to be an acquirer in the future, be a low-cost competitor with a great balance sheet today. Second, done right, you can create value by putting disparate financial services together in one bank. Third, don’t be a snob. As Last Man Standing says about Dimon, “A business doesn’t have to be sexy to get him excited; it just needs to be reliable, profitable, and growing.”
And so Pierpont Morgan to today’s JPMorgan is your immigrant great-great-grandfather who left you your last name: symbolically important but only 6.25 percent of your DNA. JPMorgan, at the moment that Dimon inherited it, had multiple ancestors, cultures, systems, businesses, personalities — and thus no personality. He ended up giving it his own.”
Dimon rose in stature as JP Morgan came out relatively unscathed from the 2008 crisis which wrecked the global financial system:
“Dimon had been CEO for only two years at the start of 2008, the year of the global financial crisis. What everyone now remembers is that JPMorgan did less poorly than its rivals. Squawkers argue that his executives, distracted by the work of coordinating teams from legacy banks, were simply late to the subprime hysteria. And it’s true that they made some bad loans, particularly in credit cards and private-equity buyouts. But JPMorgan sold the most rickety parts of its housing-credit portfolio early and never participated in a big way in the mortgage-securitization mania that killed banks, hurt homeowners, and knocked the economy on its back. From whatever combination of prudence and luck, JPMorgan had spilled its third glass of wine on the carpet. Other banks had driven drunk into a school bus.”
The prudence part is what differentiates the bank from the others:
“…the core of JPMorgan’s differentiation is risk management. This starts with a “fortress balance sheet,” a phrase inherited from Dimon’s Citigroup days. At its most basic, the fortress is built with a decision to hold more capital in reserve than even the regulations require and to use clear-eyed accounting to not disguise hidden liabilities. But risk management goes deeper. As the retired executive explained to me, rigorous risk assessment at the bank came before growth, because in banking you can always grow in ways you shouldn’t by loaning more to people unlikely to pay you back.
The retired executive told me that JPMorgan meetings could be “90 percent negative,” focused on what could go wrong, even regarding businesses where nothing was going wrong. He was not nostalgic for Sunday nights reading 60 pages of numbers. (“Not just reports,” he clarified. “Sixty pages of just numbers.”) He still admires the company and its approach: “Banking is a vanilla business. People who make it more vanilla do better.”
How much better? Even five years ago, the idea of the big-four U.S. banks made sense in a Beatles sort of way. There was JPMorgan and Bank of America, the other giant across investment banking, consumer banking, commercial banking, and wealth management, then Wells Fargo (with little international footprint) and Citigroup (global but with fewer U.S. branches). John and Paul, George and Ringo.
We have moved from the Fab Four to Tom Petty and the Heartbreakers: JPMorgan’s $3.4 trillion in what the Federal Reserve calls “consolidated assets” is almost $1 trillion more than Bank of America, twice the size of Citi and Wells, and equal to the combined total of the next seven banks after that.”
The article goes on to highlight Dimon’s role in the bank’s prudence summed by Dimon’s quote from the 2022 shareholder letter:
“Despite our best efforts, the walls that protect this company are not particularly high — and we face extraordinary competition … We recognize our strengths and vulnerabilities, and we play our hand as best as we can.”
If you want to read our other published material, please visit https://marcellus.in/blog/
Note: The above material is neither investment research, nor financial advice. Marcellus does not seek payment for or business from this publication in any shape or form. The information provided is intended for educational purposes only. Marcellus Investment Managers is regulated by the Securities and Exchange Board of India (SEBI) and is also an FME (Non-Retail) with the International Financial Services Centres Authority (IFSCA) as a provider of Portfolio Management Services. Additionally, Marcellus is also registered with US Securities and Exchange Commission (“US SEC”) as an Investment Advisor.
MORE FROM Dec WEEK 5
MORE FROM Dec WEEK 5
