Power, risk and Jamie Dimon
There wasn’t a hint of the trouble JPMorgan Chase Chairman and CEO Jamie Dimon now faces when he addressed Harvard Business School graduates in the summer of 2009. This was Dimon at his very height, a banker who had steered his firm away from the perils of the financial storm that wrecked the competition. He was a star Harvard MBA grad returning as Crimson conquering hero.
“I wanna do a great job for this company,” Dimon told students and their families, smacking the podium as he spoke. “I bleed JPMorgan blood.”
The bleeding, of course, came later, most famously in the form of the $6.2 billion loss by a trader known as the London Whale. Regulators have been bearing down on other JPMorgan businesses, including a federal investigation into the bank’s energy trading.
This turn of events has built momentum for the greatest test of Dimon’s leadership. Tuesday, shareholders weigh in on a non-binding proposal to remove him as chairman. Under fire is a bit of an unusual place for the 57-year-old CEO. Comprehending how he lost his post-crisis glow essentially requires understanding two things: risk and power.
Dimon’s rise began in 1982. Fresh out of Harvard Business School, he had several offers from top Wall Street firms. He turned them down, making the surprising choice to join American Express and work for Sandy Weill, even though the Goldman Sachs job would have paid far more. Weill offered a whole different kind of possibility.
“The opportunity with Sandy was to actually build something,” says Duff McDonald, author of the Dimon biography “Last Man Standing.” “He saw a mentor who he loved working with, who said, ‘Stick with me kid and we’ll go places.’ And they did.”
Working for Weill was an uncertain path, a risk for a shot at power. They weren’t at AmEx long, moving on to gobble up companies to build what’s now Citigroup, a megabank that inspired the phrase “too big to fail.”
By 1998, though, Dimon fell out with Weill and was fired. Bankers still talk about why the breakup happened, analyzing it the way tabloids pour over Tom Cruise and Katie Holmes. But basically, Dimon wanted more power.
“If you want Dimon as CEO, you have to give him some freedom to run the ship the way he sees fit,” says Morningstar bank analyst Jim Sinegal.
Dimon waited a year and a half to find a ship that offered that power. He became CEO at Chicago’s Bank One and did well enough to gain the notice of JPMorgan, which bought his bank in 2004. Dimon rose to become JPMorgan’s CEO the next year, and also its chairman the year after.
Fast-forward to the financial crisis. Many top bank execs knew nothing of the exotic gambling their people were doing. But Dimon dug into details and grilled his execs.
“Oftentimes, Dimon will know more about the risks and what’s going on in their area of the firm then they do,” Sinegal explains.
Dimon’s skilled risk management increased his power as JPMorgan swallowed up failed banks Bear Stearns and Washington Mutual at cut rates. Dimon’s image was glimmering. His name was floated as a possible successor to Treasury Secretary Timothy Geithner.
But the glow didn’t last. If Dimon had a time travel fantasy, it would be something like “Star Trek 4,” when Captain Kirk and crew visit the past to save the universe. They were looking for whales.
But there was no chance to reverse the mistakes of the London Whale. Dimon had failed at his greatest strength, managing risk. He also drew fire for publicly fighting new banking rules. Critics pounced.
“It looks like JPMorgan Chase has become too big, too complex, too opaque, even for Jamie Dimon to manage,” says Simon Johnson, the former International Monetary Fund chief economist, now at the Peterson Institute.
Notice that critics don’t deny Dimon’s superior management skills. Supporters, and there are many, point out the bank has racked up record profits.
Dimon is unapologetic lately, and has reportedly threatened to leave the company entirely if shareholders vote to strip him of the chairmanship. Observers predict a sudden loss of Dimon’s leadership would hurt JPMorgan’s share price.
“The market value would decline by $20 billion, a little more than 10 percent stock decline,” says CLSA bank analyst Mike Mayo.
At that energetic speech to Harvard business students, Dimon slowed down at the end and mused about how he wanted to be remembered.
“I hope people say, ‘We’re gonna miss the SOB, and the world is a better place for him having been here,’” Dimon concluded.
He will certainly be remembered, because taking and managing risk brought him great power. In Tuesday’s vote, the risk is losing power.
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