Jamie Dimon: How J.P. Morgan Became the Most Dominant Bank in America

“When I look at stress tests for high yield, I remember getting to J.P. Morgan and going through the risk books. Their stress test was that high yield would move 40%, the credit spread at 400 to 560. I said, no. Our stress test is going to be worst ever. Worst ever was 17%. They said, that'll never happen again. The market's more sophisticated. Well, in 2008, it hit 20% and you couldn't have sold a bond. There was no market. The point isn't that you're trying to guess them.”— Jamie Dimon

Strategy & Decision Making · Economics & Markets · Operations & Execution

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Stress test for worst ever not worst likely

“Bank One had more US corporate credit risk than Citibank did. The way they accounted for it was unbelievably aggressive. They had less capital, less reserves. They were calling these things profitable, but they were basically losing money. Once I found out that, I panicked a little bit. I went through every single loan in the books, I marked them all down, put up more reserves, told the board about it, and then wanted to earn more revenues per dollar of risk.”— Jamie Dimon

Operations & Execution · Strategy & Decision Making · Economics & Markets

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Shift revenue mix from risk to fees

“If you look at the history of banks from up until 2007, a lot of banks were earning 30% return on equity. Most of them went bankrupt. We never did that much. But in 2008 and 2009, we were fine and they weren't. You want to build a real strong company with real margins, real clients, conservative accounting, where you're not relying on leverage. It's very easy to use leverage to jack up returns in any business, but in banking it could be particularly dangerous.”— Jamie Dimon

Strategy & Decision Making · Economics & Markets · Business & Entrepreneurship

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Lower ROE during boom, survival during bust

“If you have 30 times leverage and you're getting 20% of the profits, you'll go to 40 times leverage. It literally will add 25% to your bonus. So I got rid of the profit pool 20% and the leverage. I lost some people too in the meantime.”— Jamie Dimon

Psychology & Behavior · Leadership & Management · Strategy & Decision Making

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Leverage incentives drive leverage abuse

“The interest rate exposure was hidden by accounting. It was called held to maturity, where you don't have to mark even treasuries to market. I always hated held to maturity, but it gives you better regulatory returns. When that held to maturity, if you said what's the tangible book value of one of these banks, and you said it was 100, well all of a sudden it was 50 if you just marked that one thing to market. Now you're into judgment land.”— Jamie Dimon

Economics & Markets · Strategy & Decision Making

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Held to maturity accounting hides risk

“What we do is the same thing that a community bank does other than global investment banking. If you walk into a small community bank, they know your business account, they know your consumer account, and they usually have a trust company. They manage your private affairs, they set up a trust for you. Their CRM is up here. They don't need a Salesforce CRM because they know everyone in town. The strategy, those businesses fit together, they feed each other, and so does investment banking.”— Jamie Dimon

Strategy & Decision Making · Business & Entrepreneurship

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Community bank model scaled to global

“The fortress balance sheet is you run a company serving clients well. You have good margins, good liquidity, good capital. I'm as conservative an accountant you can find. I don't upfront profits when I can spread them over time. You can drive a truck through accounting rules. Revenues, if I make bad loans, they are bad revenues. They will kill you. But for a while they look pretty good. It's all those things: margins, clients.”— Jamie Dimon

Strategy & Decision Making · Operations & Execution · Business & Entrepreneurship

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Fortress balance sheet components defined

“I put half my money in Bank One stock at the time. I was going to be the captain of the ship. I was going to go down with the ship. I made it clear to everyone I was here permanently. If you work at a company and the new CEO comes in from out of town, and you have a lot of shareholders, I wanted them to know I was in 100% lock, stock, and barrel. There was no question. I would never sell that stock. I was making decisions for the long-term health of the company, not for short-term gains.”— Jamie Dimon

Leadership & Management · Strategy & Decision Making · Psychology & Behavior

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Signal commitment via personal capital at risk

“The thing about margins is that we have that margin while investing a lot. It's much easier to have that margin if we can cut billions of dollars of marketing out tomorrow. We can stop opening branches and save a billion dollars next year. We could do a lot of things. Your margins will go up, your growth will go down. Your long-term margins will probably get worse. So we look right through the cycle and we look at the actual economics that we do, not the accounting of what we do.”— Jamie Dimon

Strategy & Decision Making · Economics & Markets · Operations & Execution

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Accept lower margins to invest through cycle

“I always stress-tested, and I showed the board that if we have a recession, how much money we'd lose in credit. I hired Linda Bammann who said, okay, if you're going to let me do credit, you're going to let me sell loans? I said, yes. Are you going to let me hedge loans? Yes. Can I do $10 billion? I said, yes. We probably reduced the balance sheet by $50 billion. Then we did have a recession, but we were okay by then.”— Jamie Dimon

Strategy & Decision Making · Operations & Execution · Leadership & Management

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Give risk manager full authority to act

“I got rid of almost all side deals, private deals, three year deals, five year deals. Today at J.P. Morgan Chase, we all know about it. There are no winks. There are no nods. There are no side deals. There's almost no one paid on a particular thing, because if you're paid on a particular thing, you can do the wrong thing, meanwhile not helping the company manage its risk. I'm quite conscious about incentive programs that they don't create misbehavior.”— Jamie Dimon

Leadership & Management · Strategy & Decision Making · Psychology & Behavior

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Eliminate individual product incentives

“I went to see Eric Holder trying to settle this mortgage stuff. I brought my lead director. He expected me to come pounding my chest. I went in and said, Eric, I am here to surrender. I cannot fight and I cannot win against the federal government. You know that a criminal indictment can sink my company. I will not do that to my company or my country. I'm here to surrender.”— Jamie Dimon

Strategy & Decision Making · Leadership & Management · Psychology & Behavior

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Strategic surrender to protect company

“WaMu put us in California, parts of Nevada, Georgia, Florida, which we weren't in. They had 2300 branches. They had huge mortgage problems, but we had looked at it over and over. We knew their mortgage books. We bought it for $30 billion discount to tangible book value, because they had debt and we left the debt behind. That $30 billion was approximately what the mortgage loss was going to be. We bought the company clean, we wrote off all that stuff. The books were clean.”— Jamie Dimon

Strategy & Decision Making · Business & Entrepreneurship · Operations & Execution

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Raised unneeded capital for extra safety

“If you look at history, there are tons of these things. In 1972, the stock market hit a thousand. By 1974, it was down 45%. All the limousines in Wall Street were gone. Markets move violently. Then in 1987, the market was down 25% in one day. In 1990, all these banks were taken to their knees by real estate losses. Then you had the 1997 crisis, the 2000 internet bubble, then the great financial crisis. If you go through history, shit happens.”— Jamie Dimon

History & Geopolitics · Economics & Markets · Strategy & Decision Making

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History teaches: markets crash repeatedly

“You're always investing for the future. That investment is always people, branches, and technology. That's true whether investment banking people or consumer bank people or opening consumer branches. Doug Petno and Troy Rohrbaugh, who run the Global Investment Bank, they've opened commercial banking branches all over Europe. And it's going great and it's feeding all other parts of the company. So just sticking to your knitting, constantly investing, not overreacting to the market.”— Jamie Dimon

Strategy & Decision Making · Business & Entrepreneurship · Leadership & Management

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Invest continuously regardless of cycles

“Behind the Bear Stearns acquisition, people forget the work is the next day you got 50,000 people consolidating 5000 applications, branches, compensation programs, settlement programs, payment systems. It's a lot of work. But we obviously have the capability to do that. I think we finished the WaMu consolidations in nine months, all of them. That was nine months that we're all in the same systems, which allows you to start doing a better job in customer service.”— Jamie Dimon

Operations & Execution · Business & Entrepreneurship · Leadership & Management

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Integration speed as competitive edge

“Silicon Valley Bank and First Republic both had something unique that we didn't know at the time: concentrated deposits. A lot of venture capital. What happened is some of these large venture capital companies told their constituent clients that they invested in, who all banked at Silicon Valley Bank and First Republic, the banks aren't safe, get out, and they all removed their deposits. Silicon Valley Bank had $200 billion deposits, $100 billion left in one day. That caused the problem.”— Jamie Dimon

Economics & Markets · History & Geopolitics · Strategy & Decision Making

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Concentrated deposits enable coordinated runs

“Markets down 50%, interest rates up to 8%, credit spreads back to worst ever. Of course, your results will be worse, but you're there. The thing about financial services, leverage kills you. Aggressive accounting can kill you, which a lot of companies do. Also, confidence. If you lose money as a financial company, the headlines are people read that. If they're a line on putting their money with you, they look at that difference. They lose trust, and that's what's caused runs on banks.”— Jamie Dimon

Economics & Markets · Psychology & Behavior · Strategy & Decision Making

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Financial services uniquely confidence-dependent

“We bought Bear Stearns for what looked like a billion dollars for a company that had been worth $20 billion recently. The building we're in now was worth a billion dollars on the balance sheet for zero. We got some very good people and some good businesses, but it was an extremely painful process. Then the government sued us on the mortgages, which I was quite offended by. They made us pay $5 billion on the bad mortgages that Bear Stearns had done.”— Jamie Dimon

Strategy & Decision Making · History & Geopolitics · Business & Entrepreneurship

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Government broke deal after emergency help

“In 2007, the bridge book of Wall Street was $450 billion. Today it's $40 billion. J.P. Morgan can handle the whole $40 billion today though we're not the whole $40 billion, and they were much more leveraged deals. A lot of them fell apart, collapsed. That was before you had the collapse in the mortgage market, which really took down a lot of these banks.”— Jamie Dimon

History & Geopolitics · Economics & Markets

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Bridge loan buildup as crisis signal