Is Jamie Dimon the Next to Fall?
Jamie Dimon is in the hot seat. You wouldn’t know from the endless glowing press accounts he’s received for steering JPMorgan Chase fairly clear of the subprime debt crisis that has already taken out two firms—Bear Stearns and Lehman Brothers—and forced the federal government to bail out the once mighty Citigroup with billions in aid and other measures.
But Dimon is feeling that heat, nonetheless, from analysts, who believe his firm will post a loss this quarter, the first since he became CEO in 2006; from fellow CEOs, who believe he took advantage of competitors during the height of the financial crisis in mid-September; and now even from some of his own board members, who believe their straight-talking CEO spoke a little too straight in a recent CNBC interview when he described in graphic terms the problems facing JPMorgan and the rest of the financial business. Following Dimon’s remarks, which he then repeated in a speech, the Dow Jones Industrial Average fell nearly 200 points, and shares of JPMorgan were among the biggest losers, tanking nearly 10 percent.
“Some people don’t know how to take Jamie because in the middle of the day, he’ll call you up and break your balls asking you a million questions about your business.”
If you’re wondering why you haven’t read about Jamie Dimon in this way it’s because the media picks winners and losers. At least for now, Dimon has been certified a winner—and for good reason. He’s been the best CEO on Wall Street at a time when the street needed a great CEO. As the entire financial services business began to crumble, JPMorgan was a source of stability.
The reason is Dimon. JPMorgan’s management team is among the most competent group of people you’re going to meet on Wall Street; they’re not household names on Main Street, but people like Steve Black, the co-head of investment banking, Charlie Scharf, head of retail banking, Frank Bisignano, chief administrative officer, and CFO Mike Cavanagh are Wall Street rock stars. That’s why the feds basically directed the firm to take over Bear Stearns when it imploded earlier in the year.
But the main reason JPMorgan is on top is Dimon. He had shunned holding onto bonds backed by subprime debt and had been calling on his managers to build a “fortress-like balance sheet” long before the financial crisis grew to massive proportions in mid-2007. He calls himself a “nerd” because he reads balance sheets and understands just about every nook and cranny of the investment business.
And maybe most of all, he’s a ball buster. “Some people don’t know how to take Jamie because in the middle of the day, he’ll call you up and break your balls asking you a million questions about your business,” said one former Dimon manager. “And it works. You get to know your business better and where the bodies are buried. And if you don’t like it, you can leave, and he’ll get someone else who does.”
Yet for all of his acclaim, skill, and accomplishment, Jamie Dimon is set for a fall. Not a fall on the scale of Lehman Brothers’ Dick Fuld or Bear Stearns’ Jimmy Cayne, but a fall that will put in question his current status as the king of Wall Street.
People close to Dimon tell me he’s well aware of the fact that his image is about to take a major hit along with the financial performance of the bank—and he’s preparing for the worst. He’s now turning down just about every interview request (including one with The Daily Beast; he declined to comment for this story). Company executives in background interviews are quick to point out that they weren’t as smart as the glowing press accounts indicate, and they made unwise investments, as well, though they have yet to fully materialize. The firm, for instance, has problems in the credit card debt areas, and tough times are ahead. It’s also why Dimon has privately told JPMorgan’s board that despite all the good he’s done for the company this year, he won’t take a 2008 bonus. (The official announcement could be made this week.). It’s also the reason he made a strategic decision to speak on television in pretty harsh terms— “November itself has been a terrible trading month...December so far is still pretty terrible…It will be a tough quarter” —about the challenges facing JPMorgan and its pending fourth-quarter results, these people tell me.
The plan, as I understand it, was to use the CNBC platform to correct the public record about JPMorgan’s financial health and to suggest to the world that Morgan could very well post a sizable loss for the fourth quarter. A few weeks earlier, at a conference sponsored by Merrill Lynch, Dimon was a bit more positive about the future; but since then, things had gotten worse, largely the result of the firm’s exposure to souring credit card business and other toxic stuff on the bank’s balance sheet. Dimon wanted to give Wall Street guidance in a perfectly legal way so investors didn’t have to wait until later in January, when the firm is scheduled to announce earnings that will show it is now, like everyone else, losing money—or pretty close to it.
Most analysts I speak to say if JPMorgan does record a loss, it probably won’t be at the levels of Goldman Sachs and Morgan Stanley, which recently announced gargantuan losses of more than $2 billion for the fourth quarter. People close to the firm tell me that’s why some analysts, investors, and his own board members believe that Dimon’s comments to CNBC were over the top. “He could have said the same thing without being so aggressive,” said one person close to the firm who is a Dimon fan. “Jamie is great, the best on the street, but he got way ahead of himself. All that he had to say was that the fourth quarter will be difficult and move on.”
Already I hear the schadenfreude picking up: When I asked one Wall Street CEO to assess Dimon’s performance, he pointed to the nearly 40 percent drop in JPMorgan shares since the beginning of the fourth quarter. This executive believes JPMorgan will now join other banks and experience problems beyond the fourth quarter and well into next year as credit card debt, student loans, and other debt on the bank’s balance sheet begin to falter. “The market is telling you something is wrong,” the executive said. “The stock market is saying one thing, and his image in the press is saying something else.”
Meanwhile, more than a few Wall Street executives I speak to can’t wait for Dimon to be brought down to earth because they believe he has taken glee in the misery of his competitors, particularly during those treacherous weeks in September when Wall Street appeared on its deathbed. Morgan Stanley’s John Mack actually called over to JPMorgan questioning whether Dimon was badmouthing his firm to steal business from Morgan Stanley. Officials at JPMorgan denied that and Dimon himself has told people that he sent out a memo warning that spreading rumors to win client money is a fireable offense.
And several Wall Street executives still attach some blame to Dimon and JPMorgan for demanding that both Lehman Brothers and Merrill Lynch post billions of dollars in collateral the week before both firms ceased being independent companies, and in the case of Lehman, wiped off the map altogether.
Officials at JPMorgan, of course, deny all this. Dimon himself has heard the criticism and told people who raised it with him that the firm was merely protecting clients that had lent both firms money. These clients, he has said, were worried about getting their money back given the shaky finances of Merrill and Lehman at the time, and JPMorgan was willing to work with both firms to get the collateral in a reasonable amount of time. All of this, of course, is a plausible defense, but the mere fact that this story lingers and that Dimon is still defending himself says something about how many people on the street can’t wait for the king to fall. And how happy they will be when and if he does.
Charles Gasparino appears as a daily member of CNBC's ensemble. Gasparino, in his role as on-air editor, provides reports based on his reporting throughout the day and has broken some of the biggest stories affecting the financial markets in recent months. He is also a columnist for Trader Monthly Magazine and a freelance writer for the New York Post, Forbes, and other publications.