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The House of Dimon: How JPMorgan's Jamie Dimon Rose to the Top of the Financial World
The House of Dimon: How JPMorgan's Jamie Dimon Rose to the Top of the Financial World
The House of Dimon: How JPMorgan's Jamie Dimon Rose to the Top of the Financial World
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The House of Dimon: How JPMorgan's Jamie Dimon Rose to the Top of the Financial World

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A behind-the-scenes look at Wall Street's top banker

Following the eleventh-hour rescue of Bear Stearns by JP Morgan, Jamie Dimon's profile reached stratospheric levels. And while the deals and decisions he's made have usually turned out to be the right ones, his journey to the top of the financial world has been anything but easy.

Now, in The House of Dimon, former business journalist Patricia Crisafulli goes behind the scenes to recount the amazing events that have shaped Dimon's career, from his rise to prominence as Sandy Weill's protŽgŽ at Citigroup to the drama surrounding his purchase of Bear Stearns and Washington Mutual. Each step of the way, this engaging book provides insider accounts of how Dimon successfully acquired and integrated companies, created efficiencies, and grew bottom-line results as the consummate hands-on manager.

  • Includes interviews with Dimon himself, Sandy Weill, and colleagues who've known Dimon over the course of his career
  • Shows how Dimon's management style and talent for taking calculated risks have allowed him to excel where many others have failed
  • Places Dimon in the context of contemporary Wall Street, an environment that has destroyed several top CEOs

During one of the most difficult and tumultuous periods in Wall Street history, Jamie Dimon has survived and thrived. The House of Dimon reveals how he's done it and explores what lies ahead for Dimon, as he attempts to grow JPMorgan in the face of the unrelenting pressures of Wall Street.

LanguageEnglish
PublisherWiley
Release dateMar 23, 2009
ISBN9780470483732
The House of Dimon: How JPMorgan's Jamie Dimon Rose to the Top of the Financial World
Author

Patricia Crisafulli

Patricia Crisafulli is the award-winning author of several books, including Inspired Every Day, a collection of short stories and essays. The founder of Faith Hope & Fiction, an online literary magazine, she received the grand prize for fiction from TallGrass Writers Guild/Outrider Press and was nominated for a Pushcart Prize for her story "Loon Magic and Other Night Sounds." She received an MFA from Northwestern University, where she received the Distinguished Thesis Award in Creative Writing.

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    Honesty hard working down to earth genius faithful loving family man
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The House of Dimon - Patricia Crisafulli

Introduction to the Paperback Edition

Two years later, so much was different. When I first interviewed Jamie Dimon in October 2008, the financial world was unraveling and no one knew for sure where it would all end. Now, on this hot summer day in July 2010, the world was in a much more stable place and, sitting in the very same conference room where we spoke previously, JPMorgan Chase CEO Jamie Dimon had far fewer worries. Yes, the slow-growing U.S. economy was threatening to slip back into recession and the impact of the recently enacted financial reform on JPMorgan Chase and the financial industry was going to be mixed, at best. But compared to 2008 when the financial crisis threatened the very existence of major institutions, July 2010 was not bad at all. Relaxed and jovial, Dimon’s demeanor was far different from our initial meeting, when he had appeared tense and somewhat distracted at first, and with good reason. A few weeks earlier, the financial world had been rocked by Lehman Brothers’ tumultuous bankruptcy. Just days before, Washington Mutual became the largest bank failure in U.S. history and was subsequently acquired by JPMorgan from the government. And that very day of our conversation, the Dow Jones Industrial Average dropped another 700 points.

I am surprised I met with you at all, Dimon said, with a shake of his head. I had canceled so many things. I was here 12 to 15 hours a day.

My first impression of Dimon in October 2008 had been just how tired he looked, like someone who had gotten very little sleep, who went to bed with worries on his mind and woke up to find that those concerns had multiplied overnight. I was scared, Dimon admitted, recalling when the entire financial system looked vulnerable and the U.S. economy plummeted into recession. But I always slept, he added. I was never up all night like some people through the crisis. I would actually lie down and try to get a little sleep. I used to tell people, ‘Just feel free to call anytime.’ So I was awakened many times.

One of those wake-up calls came during a business trip to the Middle East in late summer 2008. Henry Hank Paulson, who was then Treasury secretary, called Dimon at a hotel in Saudi Arabia one night with news that stock prices for many financial institutions were collapsing. When Dimon got up a few hours later, he knew he had to cut his trip short and immediately return to New York. I said, ‘This is just getting worse,’ so I rushed back.

Dimon is sleeping better these days. He is no longer involved day to day in what he described as constant firefighting. During the worst of the crisis, JPMorgan, one of the strongest of the Wall Street institutions, fought blazes in its own portfolio, while at the same time helping to keep the financial system from being torched by a deadly conflagration of bad debt, shrinking asset values, and panic. Now, enough time has passed to declare the worst of the crisis over, although things are far from back to normal and the effects will no doubt be felt and financed for years, if not decades, to come.

Looking ahead, Dimon declined to share any specific economic predictions, such as the possibility of inflation skyrocketing in the future, which some economists see as the inevitable result of the government’s spending for bailouts and economic stimulus. No one knows the future. Our job is to be prepared for the future, not to spend all our time guessing, he added. Preparing for the future, of course, involves making economic projections, such as JPMorgan did when buying Washington Mutual. In that transaction, it laid out specific scenarios for increasingly bad conditions, including severe drops in housing values and rising unemployment (see Chapter 9). No doubt in its internal analyses and projections today, JPMorgan is plotting the likely future course of the economy with several variations for conditions that improve or worsen from here. Whatever those scenarios might be, Dimon did not give any hints.

What Dimon did share, however, was a fairly optimistic view of the current economy, which seems all the more significant given his bias toward caution. There is no question that things are far better than they were when we last met. A lot of underlying things in America are actually okay; they’re getting better, stronger. . . . Employment is going up a little bit, but obviously not enough to reduce the unemployment rate significantly. Businesses are healthier; banks are healthier. So yes, things are getting better, Dimon observed. We see it in consumers, middle-market companies, order books anecdotally, consumer delinquencies, home prices—everything is better. It doesn’t mean that things can’t get worse, but there has been real improvement.

Considering how bad things were in 2008, during the worst crisis since the Great Depression, current conditions can’t help but appear better—including for JPMorgan, which has had a string of strong quarterly earnings performances. Most significant of all, today Dimon and his team are no longer at battle stations, as they were during much of 2008 and into 2009, often working seven days a week and sometimes through the night. On some of these floors you could walk around and there was leftover pizza in that room, leftover Chinese in that room, people sleeping on couches. It was surreal, Dimon recalled.

The magnitude of the crisis required an all-out response that focused almost exclusively on identifying problems and dealing with them. That’s the other thing. I remember seeing some other people [at other firms] and for them it was like business as usual. Not me. I tethered myself to the desk. I was at my desk prepared. He clasped his hands on the conference room table with a gesture that mimicked his readiness to handle whatever came his way, whether a problem that needed to be addressed internally or a call from the government. In the crisis, you’ve got to be relentlessly focused on the crisis—nothing else. That is the only thing you’ve got to do. Everything else pales by comparison. . . . I cut out everything extraneous.

Risk meetings that were normally held once a week were happening three times a day, seven days a week, for months, starting with the near collapse of Bear Stearns and its subsequent purchase by JPMorgan Chase (as related in Chapters 1 and 2) in March 2008. The meetings extended beyond the 15 people on the JPMorgan risk committee. It wasn’t unusual to have 50 people in the room to discuss, say, mortgages, and 50 more waiting outside for their chance to present problems and provide updates in another area. You might have said, ‘We’ve got a problem with this huge client.’ That would be on the list. We’d go through the risk; we’d go through the people [involved]; we’d go through clients. Everyone would be in the room to discuss what we needed to do and the risks that were systemic, Dimon explained.

At the center of the meeting was Dimon, directing most of the discussions for the sake of expediency. It was, ‘What d’you got? What d’you got? What d’you got?’ Dimon pointed around the empty chairs at the conference table. Even as he reenacted the scene briefly, his intensity could be felt.

We didn’t allow the normal ‘Well, I didn’t really think that you’d ask me a question about that.’ It was ‘Okay, leave the room, get the answer, and come back. Be succinct because we don’t have time.’ Or, ‘We’ll do it at twelve. You’ve got five hours,’ he added.

The acquisition of Bear Stearns was a risky proposition right from the start, Dimon commented, and that was before we knew how bad the world was going to get. Although he has said repeatedly that Bear Stearns will be a net plus for the company as it generates profits in the future, JPMorgan had to deal with a crisis-induced combination of enormous uncertainty and horrible market conditions. Having gone through the experience of buying Bear Stearns, mitigating the worst risks in its portfolio and integrating operations, would JPMorgan do it again? Dimon gave a qualified answer of both yes and no.

So would we do it today? Yes. The businesses we’ve got today are actually worth the money we spent, he observed. But add in the amount of risk that JPMorgan had to deal with, the level of fear and panic in the marketplace, and the timing of the transaction as the financial system appeared headed toward collapse, and Dimon offered a different response. No, we wouldn’t have done it if we weren’t asked by the government. And based on everything I know today, that would still be true.

The three-a-day risk meetings that began with Bear Stearns lasted through early summer of 2008, when things appeared to be getting better. By late summer, however, things had taken a decided turn for the worse, and the intense risk sessions resumed from late summer 2008 through the winter of 2009. The worst time of all was late September 2008 when Lehman Brothers failed. This time, unlike the Bear Stearns rescue, the government did not intervene. As Wall Street braced for the impact as assets were dumped onto an already weak market, Dimon rallied his troops. I called everyone Friday night and said, ‘Get to the office at seven tomorrow.’ I told them why, Dimon recalled. We had a hundred work streams going at one time.

At one point JPMorgan lent $100 billion to Lehman in its bankruptcy at the request of the government. Think about that for a second—a hundred billion. We financed Lehman in its bankruptcy because the government wanted us to. And our exposures to Lehman were huge, Dimon said. We tried to protect ourselves, while also trying to do the right thing.

JPMorgan also acted as the counterparty, or a middleman, for banks including Lehman Brothers in what is known as tri-party repo, in which an institution such as JPMorgan holds securities for its clients and then lends out those securities to other parties. When Lehman’s financial condition worsened, JPMorgan asked for more collateral since 90 percent of the loans made through tri-party repo involved client money and assets, which JPMorgan needed to protect. An alleged demand for $8.6 billion in additional collateral from Lehman Brothers is at the heart of a lawsuit against JPMorgan brought by the Lehman bankruptcy estate. JPMorgan has called the suit without merit.

As liquidity seized up during the crisis out of fear of who could fail next, JPMorgan stepped up its lending in the interbank market, at one point lending $70 billion a day at the worst time, Dimon recalled. We did it because they [the other banks] needed it. We were trying to do everything we could do that was right for the system.

When West Coast–based Washington Mutual failed in September 2008 and was taken over by the Federal Deposit Insurance Corporation (FDIC), the process was far more orderly. JPMorgan then stepped in to buy the institution for $1.9 billion. The transaction (as described later in the book) was seamless, showing how the system of government takeover and disposition of assets is supposed to work. For JPMorgan, the deal was a great opportunity. We were dying to get into California and Florida, two markets in which Washington Mutual had an extensive presence, Dimon explained. We actually visited most of these branches—not all 2,300 but more than you think. We knew that it made great economic sense. Although JPMorgan has had to write off $40 billion in Washington Mutual assets—mostly subprime loans—and could potentially write off another $10 billion or even $20 billion more in a worst-case scenario, it will still be a home run for a hundred years, Dimon declared.

It’s All about the Team

JPMorgan Chase has been criticized for picking off valuable assets during the crisis at bargain-basement prices. That was possible only because of what Dimon has frequently described as the bank’s fortress balance sheet, meaning financial strength and reserves that are more than enough to withstand cyclical downturns and risks that could materialize should conditions change suddenly or worsen. Because of the company’s prudent, conservative approach, Dimon has received many accolades and awards, the most recent being the Executives’ Club of Chicago’s 2010 International Executive of the Year. He is largely credited for protecting JPMorgan from the worst of the systemic risks and leading the firm through the crisis relatively unscathed.

Yet when asked about his personal leadership abilities, Dimon shrugged off the question with an eye roll and a laugh, showing his public aversion to taking credit and always deferring to his team. If you don’t have a good team, it doesn’t work, he said. So the first thing is that a leader needs to be able to assemble and have a disciplined team. That discipline supports the whole team. It’s the work ethic; it’s the constant facts and analysis, constantly delving into it.

Also crucial is creating an environment in which it is safe to disclose mistakes and address them as quickly as possible. If a company culture is one in which problems are hidden for fear of reprisal or because management would prefer not to know, then what is a relatively minor issue today can easily escalate into something much more serious. Businesses make lots of mistakes, so part of the point of business is to analyze them, to correct them, to have some sense of urgency about it; to have a management environment where it’s okay to acknowledge mistakes—that way you can fix them, Dimon added.

What has distinguished JPMorgan from other organizations, most notably the ones that failed, such as Lehman Brothers and Bear Stearns, or those that have struggled, such as Citigroup, is the fact that the team was already prepared and disciplined long before the crisis hit. You can’t start a war and then say, ‘We need the 82nd Airborne.’ The training to do that takes decades; it didn’t take two minutes. You can’t replicate these things overnight—the discipline, the risk reporting, analyzing your business, Dimon said.

You’ve got to be prepared before the crisis. It doesn’t help to wait for a crisis and then get prepared. That means your people are already prepared and trained, the place is disciplined, the reports are mostly there, the facts are already being disclosed. When we were going through these problems [at the height of the financial crisis] there were companies that had no idea what their capital calls were going to be. We always knew.

Two years before the financial crisis, JPMorgan Chase had started to increase its capital reserves. By the time the crisis hit, the bank already had strong levels of operating capital that allowed it to weather the storm without incident. When it came time for the government-mandated stress tests in early 2009 to determine which banks were well capitalized, JPMorgan Chase passed with flying colors.

I always said capital and conservative accounting are protection. So it’s the preparation beforehand: capital, reporting, and liquidity, Dimon added.

Dimon’s leadership has been developed and tested over the years, from his days at Citigroup, to taking over as CEO of Bank One, which was in need of a turnaround, and then at JPMorgan Chase after it acquired Bank One. Although Dimon is known for bringing his brand of discipline and accountability to JPMorgan Chase, where he came in as president and later became CEO, he was quick to credit the management and the team that was already in place. As he described it, the company already had high-quality people throughout. It had an intellectual honesty that was palpable. So when I first got here and went to meetings. . . . people wanted to tell you everything. They had analyzed it. They wanted to share the results of the analysis. So it wasn’t like pulling teeth; it was more like ‘Are we making the right decisions?’ You already had the integrity, work ethic, and global perspective.

When it comes to leading and executing, one of Dimon’s most effective tools is a piece of white paper—an ordinary unlined 8 1/2-by-11 sheet on which he keeps track of everything. Hearing that this sheet of paper has elicited numerous queries after The House of Dimon was first published, Dimon brought it into our meeting.

These are the calls I’ve got to make. These are the dates. This is stuff I have to do or think about, Dimon said, showing the paper on which there were columns of brief notations. When a task is completed, it is crossed off the list.

Dimon smiled mischievously as he drew attention to F/U written on the page in his large and somewhat sloppy handwriting. That’s ‘follow up.’ After a weekend of reading, the F/U column quickly fills up with items for the operating committee.

Every third or fourth day Dimon starts with a fresh piece of paper. There might be 20 or 30 items remaining on the old sheet, which he evaluates to determine whether they still need to be addressed. If so, they are noted on the new sheet, along with any additional tasks and priorities, with notes so cryptic that the paper could be lost (and sometimes is) without compromising any proprietary or confidential information.

The sheet of paper not only is a highly effective organizing tool, but it also symbolizes Dimon’s leadership as a detail-oriented executive with a hands-on approach. He keeps track of myriad details, which is impressive in any organization, let alone a gigantic one like JPMorgan, to make sure information is shared broadly and problems are uncovered and thoroughly discussed.

We’ve acquired companies where nothing happens. The information doesn’t flow, Dimon explained. The people in the corporate headquarters don’t know what the salesman does. The people who run the systems never talk to people who run the business. Companies have to have everyone at the table, from the lawyers to the systems to sales to marketing to risk.

When information doesn’t flow, bureaucracy builds and departments become siloed. Stagnation is the inevitable result. Bigger companies are always slowing down. Bureaucracy is always growing. Corporate headquarters becomes too self-important, Dimon says. What you’ve got to do is always have a sense of urgency; always kill the bureaucracy. Make sure that everyone in corporate headquarters knows that they’re there because there is a banker in front of a client. . . . We should always be responsive to that.

Dimon related a story that obviously irked him about someone who had talked about operations as if they were simplistic. I said, ‘If you went to a mortgage operation center and we had to train you on how to do mortgages or defaults, you’d be shocked at how hard it was for you to learn, and when you are under pressure with an angry client, how hard it is to deal with that. You’ve got to respect that. You can’t act like that’s the simplistic part.’ We’ve got 15,000 people doing that, and we all better support that process.

After the Crisis and Financial Reform

In the aftermath of the financial crisis, there are dozens of lessons learned, which Dimon has documented in his chairman’s letters in the most recent JPMorgan Chase annual reports. Many also appear in the upcoming chapters of this book, from the dangers of high-risk mortgage lending to the derivatives created to capitalize on them. Among the lessons is the faulty thinking behind too big to fail, which Dimon has called a bad idea. Too big to fail sets up the possibility of oversized risks to be taken on by institutions that can rely on the cushion of government intervention. Were some of these companies bailed out? Yes. Did they need to be bailed out to stop the system from getting far worse? Probably, Dimon remarked.

Bailing out troubled institutions is not the only solution. Dimon prefers allowing troubled financial institutions, large or small, to die a peaceful death that doesn’t damage the economy if you set it up that way. . . . Think of it as bankruptcy that doesn’t damage the whole world—a specialized bankruptcy that is a little different than for normal companies.

In a November 2009 editorial in the Washington Post, Dimon laid out his ideas for the orderly failure of large financial institutions, which requires that regulators be given the authority to facilitate failures when they occur. As Dimon wrote, Under such a system, a failed bank’s shareholders should lose their value; unsecured creditors should be at risk and, if necessary, wiped out. A regulator should be able to terminate management and boards and liquidate assets. Those who benefited from mismanaging risks or taking on inappropriate risk should feel the pain.¹

If regulators had those tools for investment banks and large financial institutions, such as the FDIC has for banks, Dimon said in our conversation, the Lehman bankruptcy and the need to bail out American International Group (AIG) would have proceeded differently and more effectively. At the time, however, regulators just didn’t have them in effect for nonbanks.

At the time of our most recent conversation, Congress was haggling over the details of financial reform, which, despite all the debate along party lines, appeared certain to pass in one form or another. Dimon has written and spoken publicly of his support in general for financial reform, particularly the creation of a single bank regulator and strong capital and liquidity requirements across the board for financial institutions. Increasing systemic risk oversight is also a positive.

Nonetheless, Dimon noted there were a lot of things in the bill that have nothing to do with the crisis and that will have adverse consequences on clients, customers, and credit. Just what that impact will be, however, is difficult to determine, given the scope of the legislation and the uncertainty of how the hundreds of rules will be written.

JPMorgan has devoted hundreds of work streams on the analysis and implementation of regulation. Even before financial reform became law, JPMorgan noted that its revenues and earnings are predominantly generated by client-focused businesses, and not by in-house proprietary trading businesses, which would be subject to stricter regulations. In addition, the company has a clear separation between fiduciary and trading businesses, maintains a conservative balance sheet and strong capital levels, and pursues strong fundamentals and a diversified earnings base.

Dimon has regarded financial reform as the inevitable result of a crisis of such magnitude, even though there are clearly parts of the bill that he finds objectionable. We’ll be fine, he assured me. We just want to work through it, do the right thing for the company, do the right thing for clients. It is what it is. This is how a democracy works, and that’s life. I do think there are some things there that were not thoughtfully done—not coordinated, not consistent, that had nothing to do with the crisis. There will be unintended consequences. If we are sitting here two years from now, I’ll be able to tell you what they were. It is almost impossible to figure out today.

No Shakespearean Tragedy Successions

Our conversation wound down to the final topic of discussion: succession planning. It is the job of every top executive to make sure there are people in place who are trained and given a variety of in-depth experiences in preparation for a move up through the ranks, including into the top job. In his most recent chairman’s letter to shareholders, Dimon described efforts to ensure that we have people in the pipeline who are capable of assuming senior levels of responsibility three, five, or even seven years out or right away if necessary (the ‘hit by a truck’ emergency scenario). This is true for my job as well.

Asked if succession planning has intensified at JPMorgan, Dimon said no. Nonetheless, I couldn’t help imagining that, just maybe, Dimon, who turned 54 in March 2010, has been trying to plant the idea that he is not JPMorgan Chase; that the place will continue to do just fine without him when he eventually steps down.

If you look at a lot of these companies, the main cause of their problems is bad succession planning. It’s like Shakespearean tragedies. . . . It’s just who is around when King Lear dies, and that’s not how you should do succession planning. King Lear should have been removed and there should have been a pipeline [of possible replacement candidates] and so forth. The fact is, succession planning should be done well, Dimon observed. And the fact is, if you look at the best companies in the world, that is simply part of what they do well and why they have sustained long-term performance. They are always developing great people who are then applying skills to run businesses. . . . It’s not a Shakespearean tragedy. It’s a thoughtful process, and when the time comes, people are put in new jobs and given new challenges, and constantly being trained and prepared.

At JPMorgan there has been a bit of shuffling in the senior leadership team. In June 2010, the company announced that Heidi Miller, head of Treasury & Securities Services, was named president of International; Michael Cavanagh, chief financial officer, succeeded Miller as CEO of Treasury & Securities, and Doug Braunstein, head of investment banking, Americas, took over from Cavanagh as CFO. That’s going to create people with broader experience, and it also gets people prepared for other jobs, Dimon said.

Dimon also expanded the concept of succession planning to people throughout the organization to build their knowledge and leadership experiences at all levels. This is an area, Dimon admitted, in which JPMorgan could improve. The old JPMorgan and I think Chase, too, and Bank One—they all had these great training programs. You came to the company, you were trained, they moved you around, including around the world, and you became part of the core of that company, Dimon explained.

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