Last Man Standing

by Duff McDonald

  On February 12, 2009, Dimon sent a letter to Representative Barney Frank, chairman of the House Services Committee, in which he pledged that JPMorgan Chase was extending the moratorium through March 2009 while the administration worked on its own $50 billion plan for the housing market. At that point, the company claimed to have already prevented 250,000 foreclosures through a borrower-outreach program that had been in effect since late 2007, and said it was seeking to do the same for 400,000 more home owners.

  At a time when nearly everyone in Washington was calling for Wall Streeters’ scalps, Dimon was out ahead of the Beltway crowd, dwarfing its efforts in this area at least. In doing so, he was demonstrating a combination of business skills and public relations savvy that are the required complement of someone looking to run a giant global company.

  • • •

  Whenever the subject of a possible second career for Dimon in politics comes up—the media were practically demanding it in the fall of 2008—those who know him best cite a number of automatic disqualifiers. The first is his mouth (while he no longer uses the f-word quite as much as he did when he was younger, it’s still prominent in his vocabulary). The second is his congenital inability to suffer fools gladly. Those close to him have noticed a mellowing with age, but his temper still flares up. All you have to do is offend his sense of fairness. When the New York Times’s columnist Joe Nocera obtained a pass code, called into an employees-only JPMorgan Chase conference call, and asserted in a subsequent article that the company planned to use the federal government’s $25 billion capital injection to buy weakened competitors, Dimon was irate.

  “First, I don’t think it’s right to sneak onto an internal phone call like that,” he said. “Second, we hadn’t even received the TARP money yet. Third, the person he quoted wasn’t even in a position to know what we were going to do with the money. And fourth, that employee even said something that essentially contradicted Nocera’s point. He said we were going to try to grow our business. Wouldn’t that be lending? Because that’s what business we’re in, the lending business.” JPMorgan Chase complained to the Times about Nocera’s sneakiness.

  Dimon also insisted that the bank was increasing lending, at least certain kinds of lending. The second advertisement in the company’s series “The Way Forward”—which ran on November 20—said, “Our Business Is Lending. And That’s Exactly What We’re Doing.” By late fall, JPMorgan Chase had $60 billion in the interbank loan market, increased its commercial loan balances by 18 percent through the year’s end, and also increased both student loans and credit card loans. He also repeated, whenever given the chance, that in the era after World War II, banks had accounted for 60 percent of lending in the economy, but by the turn of the twenty-first century that portion had fallen to just 20 percent. The rest was provided by Wall Street and the so-called “shadow banking” industry, which includes hedge funds, money market funds, and creators of securitized debt.

  The seizing up of credit that crippled the global economy in 2007 and 2008, in other words, could not be explained simply by saying that a bunch of banks decided to stop lending. According to a study by the consultancy Oliver Wyman, bank lending decreased by $400 billion from 2007 to 2008, while capital markets lending fell by $950 billion. Given that total net bank lending in 2007 was just $850 billion, the study observes, “it is obvious that banks would never be able to make up for the shortfall from capital markets.” In order to understand and learn from the crisis, Dimon argued, it was important to examine all facets of what is now a gigantic and complex organism of credit. What’s more, he continued, if it was lax lending standards that caused the crisis, how could he now be criticized for tightening them? “It’s a total misconception that banks aren’t lending,” he says. “They are—and in huge numbers. Where the bottom fell out was in the shadow lending system, where lending almost disappeared. That said, credit standards at banks have tightened. And for good reason—it was loose lending standards that caused a lot of these problems to begin with.”

  In spring 2009, Dimon met with President Obama and other banking chiefs and referred to TARP funds as “a scarlet letter.” Then, during a conference call in April, he referred to it as “TARP Baby.” The pseudo-inflammatory nature of the remark aside, the public relations considerations surrounding TARP had indeed become complex. Dimon wanted to pay the money back, but he was sensitive to the administration’s concern that in doing so, he might open up a divide between the haves and the have-nots, possibly resulting in a run on banks less healthy than JPMorgan Chase (which was to say most of them). By June, though, Dimon got what he wanted—authorization to pay the money back, along with eight other banks.

  On this point, some critics in the media saw Dimon as being selective with the facts. The government supported JPMorgan Chase in ways other than TARP. Dimon’s bank was the second-largest user of a debt guarantee program sponsored by the FDIC; the company had borrowed $37.1 billion through the program through April 2009, benefiting handsomely from reduced borrowing costs provided by the guarantee. Dimon insisted that this is not as big a deal as it seems. “Look, it barely saves us money,” he says. “And it saves a lot for some other people. We maybe saved a half a percentage point in borrowing costs using the program, while some other people saved two percentage points. So it’s actually asymmetrically not so good for us. In any event, when we went to Washington, they told us they wanted us to take the TARP money and they wanted us to use the guarantee. So that’s what we did.”

  When Secretary of the Treasury Tim Geithner introduced his PPIP initiative—the public-private investment program intended to help investors take bad mortgages off banks’ books with government backing—he inadvertently created a whole new set of problems for Wall Street CEOs. Banks like JPMorgan Chase, critics argued, would now be using TARP money to buy one another’s bad bets at a discount, with government backing. In April 2009, Dimon and his team had decided PPIP was too hot to handle. “I think we will probably want to stay as far away from that as possible,” Dimon said. “We don’t need it. It might give a little upside, but so what? To have our motives called into question wouldn’t be worth it. We don’t need the money.”

  On his quarterly earnings call, he repeated the sentiment. “We’re certainly not going to borrow from the federal government,” he said, “because we’ve learned our lesson about that.” (He has since said he went too far with that statement. Still, while eminently capable of cooperating with government, Dimon is without question a businessman. In a conference call in May 2009, he questioned regulators’ tendency to pinpoint certain issues without an understanding of the occasional futility of it all. “Say the regulators realize that restaurants are selling soda at a 90 percent margin,” he says. “They’ll get all excited and make a push to reduce that margin to 10 or 20 percent. I’ll tell you what the result will be. The restaurant will raise the price of the burger.”)

  If he defies the expectations of his friends and colleagues and becomes a statesman in the next incarnation of his career, Dimon will probably need to work further on his filters. Through April 2009, he had done an effective job of balancing endorsing government officials’ responses to the crises while waiting for the day he could shake them off his back. But his patience was obviously wearing thin, and his provocative remarks—such as the one about the “TARP baby”—have had a “two steps forward, one and a half steps back” effect on his relationship with the administration.

  Despite its general facelessness today, Wall Street was at one point a place where statesmen were forged. But the last “master of the universe” to merit such a description is probably Lazard’s Felix Rohatyn, who earned his own comparisons to John Pierpont Morgan when he helped New York City avoid bankruptcy in 1970. (He was also ambassador to France from 1997 to 2000.) Since then, the results have been more mixed; the Goldman Sachs graduates Bob Rubin and Hank Paulson failed to rise beyond the level of technocrat.

  Could Dimon revive the tradition? Perhaps, but as
a lifelong banker, he does hold certain viewpoints that could easily undermine a political career. Testifying in front of the House Financial Services Committee in February, he insisted that the compensation paid to senior executives at JPMorgan Chase was appropriate. That was just a few weeks after he had awarded $112 million in stock grants to the company’s top 15 executives, including more than $11 million apiece to Steve Black, Bill Winters, and Jes Staley. (Dimon took none, although the Associated Press calculated his 2008 compensation as $35.7 million, based on a $1 million salary, stock awards from previous years, and perks.)

  “There’s a lot of political and social pressure to change compensation, just like there was a lot of economic competitive pressure that drove it up,” Dimon says. “So I think there will be change. There are legitimate complaints about compensation that was not properly paid to people who did terrible jobs in hindsight. And sometimes it wasn’t even in hindsight. But I also think talent will always be well paid, and I don’t think it’s fair to lump us all together. We don’t have supplemental executive retirement plans. We don’t have 401(k) matches for high-paid executives. We’ve gotten rid of all the change of control contracts and golden parachutes here. I do think that if you’re captain of the ship you should pay the price first. But I’m also philosophically opposed to the government being involved in compensation. I think it’s ridiculous. Why don’t they regulate actors and sports stars and small businesses and doctors and entrepreneurs? Why don’t they just tell everyone what we can pay people?”

  By the end of 2008, calls to nationalize the country’s largest banks were in vogue, especially among influential commentators like Paul Krugman of the New York Times. Although it seemed obvious that some banks were insolvent—the stock market knocked Citigroup shares down to $1 a share at one point—Dimon made sure to put space between his bank and the others. “JPMorgan Chase will be fine if everyone stops talking about damn nationalization of banks,” he said. “We’ve got plenty of capital. We’re properly marked.”

  He also kept his focus, refusing to be drawn into venturing opinions on whatever he was asked. When CNBC’s anchor Erin Burnett asked him whether former Federal Reserve chairman Paul Volcker might make a good “car czar,” he replied, “I have no idea.”

  Dimon is no neophyte in Washington. In 1997, he and Judy held a fund-raiser for Senator Chuck Schumer of New York, and in Chicago they held one for Hillary Clinton. (This was before they changed their allegiance to Barack Obama.) During the 1990s, the couple gave $167,000 to the Democratic National Committee and the Democratic Senatorial Campaign Committee, and made more than $45,000 in donations to individual candidates.

  Nor is Dimon naive about how the game is played in Washington, particularly when it comes to campaign contributions and lobbying fees. In 2007 and 2008, in addition to donating to the campaigns of nine Democrats, he also gave to seven Republicans. And JPMorgan Chase’s political action committee’s top three donations went to Republicans. The company paid $5.4 million in lobbying fees in 2008 and $5.5 million in 2007. That was more than Bank of America paid but less than Citigroup did—a fact that is not surprising, given Citigroup’s much greater need for government support.

  He also made no secret of his support for Obama during the presidential race. He was an informal adviser to the candidate in the lead-up to the election, and his wife is close to Secretary of Education Arne Duncan through her work in the Chicago school system. (At one point, Dimon referred to the acquisition of Bear Stearns as a “mission not accomplished,” an unsubtle dig at then-president George Bush and his premature declaration of victory in Iraq.)

  After Obama’s victory, the media and the blogosphere were awash in conjecture as to whether Dimon was on Obama’s short list of candidates for secretary of the treasury. Although the rumor took on a life of its own (and resurfaced in early 2009 when Secretary of the Treasury Tim Geithner came under ceaseless fire), nothing came of it. Dimon didn’t expect a call and wouldn’t have taken the job if he’d gotten one. “There’s no way a Wall Street CEO would have been named secretary of the treasury,” he said in December 2008, after Obama tapped Geithner for the job. “With all the anger at Wall Street, people understandably want someone that they feel is independent of specific influence.” When asked why he didn’t quash the rumors, Dimon looked perplexed. “It’s kind of presumptuous to announce you’re not interested in something that you haven’t been offered, isn’t it?”

  When Obama became president, he singled out Dimon for praise. “There are a lot of banks that are actually pretty well managed—J.P. Morgan being a good example—I don’t think Jamie should be punished for doing a pretty good job managing an enormous portfolio.” At the company’s “investor day” in February 2009, Dimon responded. “President Obama gave J.P. Morgan a shout-out recently,” he said. “So I want to give him one, too. I think he’s doing a pretty good job!” (Obama did it again at the end of April, when he commended JPMorgan Chase for making sacrifices on the terms of its debt in the Chrysler bailout.)

  “It’s clear to me that Obama is quite bright,” says Dimon. “And quite knowledgeable. When you see him privately and publicly, it’s the same thing. It’s not like there are two Obamas. He’s very knowledgeable about the stuff he talks about. He’s clearly ethical, hardworking, and strong. There are many different kinds of strength. He was strong to go through the election. He was strong to state his opinions even though a lot of people hate them. He was strong to shoot drone missiles in Pakistan. He doesn’t have a tremendous amount of real-world experience, but I think he gets stuff. He seems to understand things. And he’s pretty much doing what he said he was going to do whether you like it or not.”

  Dimon and his wife were guests at the inaugural celebrations in November. Judy Dimon, ever the spitfire, cornered one of Representative Barney Frank’s staffers and implored Frank’s staff to stop vilifying banks to score political points. (To go out with the Dimons together is to watch “two balls of hyperenergy colliding,” says their friend Peter Maglathlin. “Whenever we get together with them, the decibel level seems to rise. It’s pretty funny. You know you’re going to have an interesting evening of back-and-forth.”)

  The esteem in which Obama holds Dimon was revealed by the Wall Street Journal’s Monica Langley in a story about a meeting at the White House in mid-March 2009 between Dimon and White House and Treasury officials. “The following day,” she wrote, “… business executives implored Mr. Obama to get credit flowing again. ‘All right,’ the president said, according to a transcript of the meeting. He’d have his people ‘talk to Jamie.’” On another occasion, Dimon presented Secretary of the Treasury Tim Geithner with a fake check for $25 billion—the amount of JPMorgan Chase’s TARP loan. This was an antic you wouldn’t be likely to see from, say, Bank of America’s Ken Lewis, who was stripped of his chairman’s title in April. While humorous, the move also had a cutthroat undertone: the basic challenge of being a bank during a recession aside, Jamie Dimon had far less to worry about than most of his competitors. That was made even clearer during a conference call on May 4, 2009. During a discussion of the impending results of the banks’ stress test, Dimon predicted that the government might “still look” to JPMorgan Chase to “do something” in case another firm teetered on the edge.

  But even Obama isn’t safe from the occasional shot across the bow from Dimon. In March 2008, Dimon lambasted the presidential candidates for their anticorporate populism. “I’m a Democrat,” he said. “The Democrats are the worst.” In his speech at the Chamber of Commerce a year later, Dimon returned to the issue of demonizing companies, saying that the country was acting like a dysfunctional family. Although it was surely appreciated by the audience, the comment elicited scorn from commentators, who mocked Dimon for seemingly feeling sorry for himself and other CEOs. Dimon’s retort: painting everyone with the same brush is counterproductive, especially if you’re accusing someone of breaking the law. “I don’t believe the corporate world is any more corrup
t than anywhere else,” he said. “There are bums everywhere.”

  • • •

  It has been said of the great credit bubble and crash that the trouble started when a number of Wall Street firms sold shares to the public. When that happened, the argument goes, Wall Street chieftains, their bankers, and their traders were effectively gambling with other people’s money. With skewed incentive systems that favored near-term results, who wouldn’t put up the farm on even the riskiest of bets? Few people, it turns out.

  Jamie Dimon has never subscribed to that way of thinking. While he’s not averse to paying himself an extraordinary amount of money, he has also done well by his shareholders. “Jamie has been a very responsible steward of shareholder capital,” says the banking analyst Meredith Whitney. “That’s the best thing anyone can say about a CEO. That’s all that matters.” (This, by the way, is one of the only nice things Whitney said about the entire banking industry between 2006 and 2009.) He certainly has been a responsible steward of his own capital. Dimon’s stake in JPMorgan Chase—shares, options, and restricted stock—is worth about $175 million. And that’s only about half his net worth, so the family is worth a hefty $350 million or so.

  Still, his stewardship would be tested in 2009, as significant exposure to cash-strapped American consumers and businesses meant that the company was due for several more quarters of multibillion-dollar losses and write-downs. “We’re as beaten down as anyone else in this environment,” said the chief financial officer, Mike Cavanagh, in late 2008. “The culture around here is not one of congratulation and puffing ourselves up. It’s ‘tear it apart’ at all times. And there’s certainly plenty to tear apart now.”

  Jamie Dimon cannot understand how anyone could approach a business differently. “For any of our businesses you can get a reporting packet and it will tell you everything that’s going on, including what’s good and what’s bad,” he says. “What we aim for is continuous improvement. It’s not like we think we get to a perfect place.”