Bastion of Wall Street says no chance of another Lehman Brothers
Jamie Dimon’s prudence led JP Morgan out of the crash to top the global ranks. Could he bring the same vision to politcs?
Jamie Dimon, chief executive of JP Morgan at the bank’s new Irish headquarters on Sir John Rogerson’s Quay,Dublin. Photograph: Tom Honan
The frisson in the air is palpable as JP Morgan chief executive and Wall Street grandee, Jamie Dimon, wanders around the banking giant’s new Irish headquarters with his entourage in search of a suitable spot for photographs.
They land upon a floor of the eight-storey building in Dublin’s south docklands, offering floor-to-ceiling glazed views over the river Liffey and nearby construction work. After The Irish Times’ photographer positions Dimon on the corner of a desk in front of rows of staff at screens, Dimon turns to his living backdrop.
“Don’t screw it up, folks,” he says, to guffaws all around.
America’s most prominent banker – a third-generation financier of Greek heritage who turned 63 on Wednesday – may have a reputation for being sometimes brash, combative and unwaveringly confident but his stewardship of JP Morgan through the financial crisis to become the biggest winner among US banks over the past decade is the product of an innate caution and fear of what could be lurking around corners.
Bad things happen. Credit cycles are there. You just have to be prepared
“Believe it or not, I’ve always been very conservative,” says Dimon in an interview with The Irish Times on the opening this week of the new Dublin office. “When I got to JP Morgan, I started them going through much more severe stress tests [for unexpected loan and investment losses] than they did – far more severe, literally four or five times worse. People said: ‘That’ll never happen.’ I said: ‘I don’t care if it happens. I just want to be able to survive it.’”
Dimon got his first taste of the capriciousness of markets when he bought shares in his late teens just before the 1973-74 stock market crash, when the Dow Jones Industrial Average lost 45 per cent of its value. He remembers when he graduated in 1982 from Harvard Business School – where he met his wife, Judith – that inflation was running at 12 per cent and the interest banks were charging their best customers was over 20 per cent.
“Bad things happen. Credit cycles are there. You just have to be prepared,” says Dimon. “If you survive these storms, you can grow in ways other people can’t. You can invest when other people aren’t. You might be able to buy something cheap.”
Relative prudence allowed JP Morgan to avoid the worst of the US subprime mortgage meltdown. It helped the group become the clear winner from the crash: being able to lend when rivals were paralysed; and becoming the US government’s go-to in 2008 when it was looking for rescue suitors for investment bank Bear Stearns and mortgage lender Washington Mutual (WaMu).
JP Morgan’s balance sheet has grown by about two-thirds to $2.6 trillion and its share price has soared almost 140 per cent – against 12 per cent for the wider US financial sector – since the end of 2007, as it grabbed market share in most of the businesses in which it competes.
While it ranks behind four Chinese banking giants and Japan’s Mitsubishi UFJ Financial Group in balance sheet size, its $340 billion market value tops the global charts.
In Ireland, JP Morgan’s decision two years ago to buy a 130,000sq ft (12,077sq m) office block under construction counts among one of the boldest moves by an overseas financial firm in Dublin since UK voters decided to quit the European Union. The newly-occupied building has the capacity to double its local workforce to 1,100 over time.
The Irish subsidiary – which can trace its roots to 1926 – is mainly focused on back-office support services to international funds and treasury, and cash management services to companies. While it is expected initially to receive little by way of a “Brexit dividend” as JP Morgan moves hundreds of roles from Britain to other European locations, Dublin is increasingly becoming a technology hotbed for the company.
Financial firms are managing to get away with shifting far fewer jobs than feared out of London in order to retain access to the EU single market in the immediate aftermath of Brexit. But Dimon believes that the number will be far higher over time.
While we paid $1 billion for Bear Stearns and it had a book value of $12 billion, it cost us $11 billion to unwind and manage it
“As it turns out, it was easier for banks to set up [a European subsidiary] so that they could face off against European companies. But what happens after a soft or hard Brexit is a far more important question for the financial services industry. How many of those jobs will move over time?”
The passage of time, meanwhile, has allowed for some perspective on JP Morgan’s shotgun takeovers at the height of the financial crisis. Dimon doesn’t hesitate when asked if he’d do them again.
“I would do WaMu but not Bear Stearns,” he says. “While we paid $1 billion for Bear Stearns and it had a book value of $12 billion, it cost us $11 billion to unwind and manage it. It cost us another several billion because markets were terrible.” JP Morgan also stomached as much as $7 billion of Bear Stearns-related fines for its pre-crisis sins, he adds.
JP Morgan was also hit by fines related to WaMu activities before the crash. However, that deal gave it an additional network of branches in attractive states from California to Florida and delivered returns that the group’s retail head Gordon Smith said last year amounts to “many times” the cost of the takeover and penalties.
Dimon’s rise in the world of finance is the stuff of Wall Street folklore. Persuaded by family friend Sandy Weill after graduating from business school to turn down offers from investment banks such as Goldman Sachs and Morgan Stanley, Dimon joined the legendary dealmaker as his personal assistant at American Express in 1982.
When Weill left the credit card company in 1985 to lead Minneapolis-based Commercial Credit, his protege followed. The duo would build the humble lender, through a series of roll-up deals, including Primerica, the owner of storied brokerage firm Smith Barney, and Travelers Insurance, before merging the group – then renamed Travelers – with Citicorp in 1998 to create Citigroup.
While Dimon was named president of the financial giant after the $70 billion merger went through, mounting tension between the two – as Weill continued to consider Dimon Robin to his Batman – soon resulted in his ousting of the younger man.
After nearly a year and a half out of the game, Dimon became chairman and chief executive of embattled Chicago lender Bank One in early 2000. Within four years, he sold a turned-around company to JP Morgan Chase for $58 billion – a deal that would ultimately lead him to become group chief executive at the end of 2005.
The mile-a-minute-speaking New Yorker – whose paternal grandfather, Panos Papademetriou, arrived in the US from Greece in 1921 and promptly changed his name to Dimon, reportedly in order to get work – became Wall Street’s point man in the wake of the financial crash as the industry resisted increased regulation.
He’s rarely afraid to put his two cents in. Dimon’s annual letters to shareholders go well beyond the rudimentary rundown of financial performance that most chief executives offer. Last year, he used his tome to offer views on education and healthcare reform, immigration policy, and America’s role in the world.
However, Dimon’s reputation was dented in 2012 as it emerged that the bank’s chief investment office in London – which, despite its high-octane name, was supposed to hedge credit exposures and manage surplus deposits – suffered massive losses as a result of a series of ill-fated derivative transactions.
While Dimon initially claimed that reports about the risks in the trading positions amounted to a “tempest in a teapot”, the so-called “London Whale” scandal would ultimately cost the bank $6.2 billion.
“The London Whale was one of the stupidest things I’ve ever been involved in. It was a bad strategy, badly executed, badly done, but you’re going to make mistakes in life,” says Dimon. “And I knew that was going to be a hard thing for our reputation but it didn’t affect customers, it didn’t affect the company long term.”
Was that episode his biggest regret? No, apparently. “The biggest mistakes I have made are usually bad people decisions.” He doesn’t elaborate.
While a raft of economic data in recent times has pointed towards slowing US and global growth, Dimon says there’s little fear of the world’s largest economy dipping into recession.
“The economy is unlikely to be derailed in the short run by all the complexities around the world,” he says, noting US-China trade tensions and Brexit as examples. “Obviously, one day we’ll have a recession. I don’t know what the cause of that will be, but it’s not in the numbers you see today.”
While there are growing concerns about risks in the financial system, such as the global $1.8 trillion leveraged-loans market that funds corporate buyouts and debt refinancing, Dimon says he doesn’t think it’s “a systemic issue”.
He’s also confident that the Lehman Brothers problem has been fixed.
“Lehman wouldn’t go bankrupt today because it would have three-four times as much equity, two-three times as much liquidity, and three or four times as much ‘bail-in-able debt,’” he says, referring to debt that could be turned into equity in the event of a crisis.
“Even if it went bankrupt, at the moment of bankruptcy, the bail-in-able debt would make it the most overcapitalised bank in the world, and regulators could legally take it over and have an orderly unwind and derivatives contracts wouldn’t be triggered.”
Dimon sometimes rues his penchant for making off-the-cuff remarks. Last September, he told those assembled at an event at his bank’s New York headquarters that he could beat Donald Trump in an election, saying: “Because I’m as tough as he is, I’m smarter than he is.”
Within an hour, he was rowing back, saying his comments “prove I wouldn’t make a good politician”. Nevertheless, Trump took to Twitter, saying the banker “doesn’t have the aptitude” or necessary “smarts”.
I try to be very careful about what I say about politics. It may surprise you but when you hear some very left-leaning politicians talk about issues, I kind of agree with a lot of them. There’s too much income inequality
Dimon is watching his words on Trump in Dublin.
“With the current US president, there are a lot of things he says that I don’t agree with,” he allows himself, when asked about Trump’s performance. “On the other hand, it doesn’t make everything he says wrong.”
He has much to thank Trump for. The Republican, after all, has presided over corporate-enriching tax reforms and a rolling back of banking regulations passed in response to the crisis.
While Dimon – who described himself to broadcaster CNBC in Davos in January as a Democrat at heart, even if his “brain is kind of Republican” – has repeatedly ruled himself out himself out of contention to run for the presidency in 2020, is there a part of him that’s tempted?
“No,” he insists.
“I try to be very careful about what I say about politics. It may surprise you but when you hear some very left-leaning politicians talk about issues, I kind of agree with a lot of them. There’s too much income inequality. Kids aren’t getting educated. Infrastructure needs to be built. All Americans need some kind of access to medical care. I agree with all of that. But slogans aren’t policy.”
Is it not rich for one of the wealthiest bankers in the world – worth $1.3 billion, according to Forbes – who saw his remuneration, or compensation, reach $31 million last year, to be complaining about income gaps.
“I understand the focus on executive comp. But if you took all the comp of all the CEOs of all the Fortune 500s in America and gave it to the average Americans, you would increase their income by something like $100 a year. That isn’t a solution. I understand the anger. But that isn’t going to fix the problem.”
So what’s going to narrow the divide?
“What’s going to fix the problem is a growth agenda. We don’t graduate half our people in inner-city schools. Is the reason for that because CEOs make more money? Of course not. The reason is that the school system has been failing. I think we need to do more to fix it.
“People blame technology and immigration and trade for all these problems. Not true. A lot of these problems existed way before all that stuff. I urge policymakers to look at the facts, look at the detail.
“Why are we failing to build infrastructure in America? Is it because of CEO comp? Why is the tax system so screwed up? Why is the health system costing 18.5 per cent of GDP? I can go on and on about our own shortcomings. We should look at our own problems and come up with solutions.”
Still, he concedes, the wealthy will have to stump up more to help.
“And they should pay gratefully if it’s actually used to fix those things,” says the man who plans remain in charge of JP Morgan until 2023.
Just before 2024 US election.