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Is Jamie Dimon the Next to Fall?
Carol T. Powers/Bloomberg News/Landov
JPMorgan’s CEO successfully ruled his company to become the new king of Wall Street. But Charlie Gasparino says his reign may soon be over.
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.
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Charles Gasparino is CNBC's on-air editor and appears as a daily member of CNBC's ensemble. He is a columnist for The Daily Beast and a frequent contributor to the New York Post, Forbes, and other publications. His new book about the financial crisis, The Sellout, was published by HarperBusiness.
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kchan212
Another reason to hate and distrust Wall Street. They still don't see the different outcomes of Short Term and Long Term investment. The quarter-to-quarter share price obsession is at the root of what brought us to this financial brink. So Dimon has said that time were cruel, the next few may be as brutal -- including at his own firm, but we all already know that the market is broken. It's time to stop playing this hands with cards we wish we had -- the mistakes were made -- let's fix this. Keep Dimon -- him doing well while Sam Weill will probably go down in posterity as one of the biggest financial Jackels. He assassinated and gutted The Street, bailing at a good time -- if he was still heading Citibank -- he would surely be the Andy Mozilo of Banking. If we all want blood and schedenfreud....let's drag Sammy out of his gold plated room in hell and let him be the first to explain how CDS and derivertives work in general.
magicman
CDS and Derivative Markets don't work at all. They never have and they never will. The problem with these 'theoretical markets' is that they lack cash and trading activity which leave investors perpetually stranded trying to get out of either losing positions or winning positions, which then become losing positions simply because the markets are illiquid. These are markets much like the larger Real Estate Market which also fell vulnerable to it's illiquidity problems. In Real Estate, a House is only worth what any one individual is willing to pay. The same is true in these 'theoretical' markets where Capital and interest in them has always been illiquid and tight.
Basically what happened here was that a bunch of idiot nerds invented 'make pretend' markets which they sought to pawn off on Investment Managers who then called their bluff on both the safety and security of those markets. Now, the damage of their 'make pretend' losses in 'make pretend' markets are now ricocheting all over the Financial System destroying real cash assets, reducing spending and earnings power, and jobs, in a widening sweep each time a new dominoe falls. Until such time as the SEC actually requires that Financial Products have liquid markets, this process will repeat itself over and over again, from generation to generation, as each new generation fails to understand the lessons learned by past generations. At least that is their hope.
This system of Finance is no where near ready for export or inclusion in trade with other Nations simply because it does not function. It will only result in losses to Investors, it will cause hurt feeelings from those investors who have invested in good faith, and will cause WARS between Nations simply because someone has beeen deliberately cheated by someone else from another Nation.
This is also the reason why we are having problems in the MIddle East where Wars on Terror are created by the inhabitants of Oil Rich Nations who are using War as a financial instrument to cause Oil Prices to rocket higher. If you haven't been to the Middle East, I recommend that you go see it. There is nothing there. The 'locusts' (people) have eaten everything in sight and the enormity of their desperation drives them to do anything for their own survival. You will not find soil, or arable land, or Trees, or flowers, or animals anywhere in the MIddle East. It has simply all been consumed. Now what?
coachgss
Why doesn't Charlie correctly point out that the first firm to ask BOTH AIG and Lehman for collateral was GOLDMAN...Dimon is an incredibly honest, savy banker. (probably should have been Treasury Secretary) He is SOOO much better than the rest. Charlie just wants to take down another democrat. On wall Street jealousy always is the major component.
carouzer
Kchan212--FYI It was Sandy Weill,not Sammy Weill who headed Citi and handed it over to Charles O. Prince, II, undoubtedly one of the least talented and most officious CEOs ever to destroy a major American Company.
I once worked at Citi and watched Jamie Dimon in action. He's extraordinarily smart, honest and definitely not prone to don rose colored glasses. His candor and his knowledge of his business was encyclopedic. He says what he thinks and he doesn't candy coat it And he takes responsibility--something other CEOs in financial services find it imossible to do.
If JPM's Board decides to dump him because of a bad fourth quarter it will be as short-sighted and stupid as Citi's Board when Robert Ruben, et. al watched as Citi, under Prince's inspired "leadership" circled the drain.
Davidpaul
I am not an investor and can not speak as accurately as some on the issues' but it long ago occured to me that judging one's competence by performance in a single quarter is exactly why we find ourselves in the current mess as these geniuses sweep the dirt away from the balance sheets so that they can garner extraordinary bonuses. That is why some board members are afraid of Dimon's True Speak.
TotalRecall9
You got to like Dimon's blunt honesty. All investment firms should be telling this kind of truth or suffer severe fines from the SEC. Dimon told the truth about the 4th quarter, but his employees (or should I say stockholders) wanted him to water down the truth to prevent a sell-off. Watered-down statements is not truth; it's lying!!
As for the bonuses, no employee getting millions of dollars should EVER get bonuses! Companies don't give bonuses to blue-collar workers doing a good job, so why should executives get bonuses? But in truth, NO EMPLOYEE deserves to be making more than $400,000 in salary, compensation, and benefits!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! The millions of dollars that these executives make is the main reason why the world is in a financial mess while the poor and the middle-class are getting poorer!
proofofincome4u
I think all bank executives crowns has been tarnishes a bit!
birdstop55
It couldn't have happened to a nicer guy. JPM Chase is not really Chase - it's Bank One in disguise. When Jamie took over, he proceeded to get rid of everyone at Chase, and did it with a vengeance; I know, I was one of the recipients of his business "acumen" decisions.
Too bad he's not unemployed and broke, like the rest of us in the mortgage industry.
hammer
I saw the CNBC interview in which Dimon basically admitted the 4th quarter failure of JPM to the salivating Erin Burnett. I found this to be shocking because I thought he would have been limited by his board and the SEC to comment on a firm's results. This shocker was at the end of a patsy interview where the host practically had an orgasm while fawning over the "successes" JPM had. This was despite huge consumer losses and huge loan loss provisions to come. This more or less shows CNBC is part of the problem with the meltdown. It no longer reports objectively with clowns like Joe Kernan and Mark Haines ranting and raving their two-bit opinions while the market is falling apart. Their job is to provide objective news and not to scare investors or make their off the cuff opinions.
Will Dimon be let go? Of course not, but then would you expect the perpetual "fire-in-the-theater" yeller Gasparino to act any different?
JeffreyDrummond
The best CEO on Wall St. must stay, of course, and continue his leadership to fix the current economic disasters. Dimon provides prescience, stability, honesty, and great credibility. His recent comments are different from how Wall St. used to act: thank the Lord! Change is necessary, and transparency is best.
Mr. Gasparino, do you have a Dimon critic 'source' who'll support a fictional controversy, and in the future will get favorable publicity from you?
Jeffrey Drummond
W3Research
JPM/WAMUQ: Wall Street Journal Washington Mutual Media Coverage! ...
http://online.wsj.com/article/SB123111375729952451.html?mod=googlenews_ wsj
WAMUQ: Washington Mutual - WaMu Investors Demand Hearing, Investigation & Reversal of Washington Mutual Seizure ...
WAMUQ: Shareholder Information ...
http://www.wamu-shareholders-resources.com
http://www.wamurape.org
Excellent Video on What Really Happened ...
WaMu Truth: JP Morgan and FDIC Collusion Behind WaMu Seizure ...
http://revelationsmedia.com/wamu-truth-jp-morgan-and-fdic-collusion-beh ind-wamu-seizure
rustyshackleford
first ever fund of fund of funds to be launched:
http://thereformedbroker.com/2009/01/05/interview-with-johnny-upside-fu nd-of-fund-of-funds/
tee hee
Zeke-S
hammer you nailed it.
The ignorance displayed by Gasparino who uses, "Ya know" 23 times in one spoken paragraph is reason enough to dismiss him as inconsequential. No Charlie, I really don't know; and quite obviously, neither do you!
Learn to speak the language. "Ya know" is a sure sign of being inarticulate. We have enough talking heads on CNBC, ya know.
playscape
Whatever modicum of credibility Gasparino had is lost with this nonsense. This is the worst kind of online journalism -- hot air masquerading as a scoop. The journalist trying to make news. Shameful and shameless.
The only way Dimon leaves JP Morgan in the next 5 years is if the govt. combines Citi w/ BofA and asks him to run it.
e-anthony58
So is it time to bail on Citi stock and buy in the middle of summer? I'm sure Dimon will be around till next year. That of course if Citi has multiple quarter losses.
Hammer, CNBC does report objectively. That's why they make off the cuff remarks. Who cares whether the investor gets scared or not. As long as the reporting is truth....or close to it.
Thank you.
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