Everyone now knows that Jamie Dimon is the king of Wall Street. Girls at hedge funds have crushes on him. He’s been on the cover of New York magazine, towering over the city. They’re calling him “King James.”
For the most part, the ascendency of Dimon has been due to the fact that JP Morgan successfully avoided falling into the chasm of subprime mortgages into which so many of his fellow chief executives drove their banks and brokerages. Fortune’s has a long profile that describes Dimon’s management style, and precisely how he pulled JP Morgan back from the subprime brink.
Dimon favors boisterous meetings that delve into detailed analysis of his bank’s business. Fortune’s Shawn Tully reports that people describe these variously as “Italian family dinners” and “the Roman forum.” There not a lot of kow-towing to the big man, apparently. Ideas are debated vigorously and sometimes Dimon backs down. He wanted to get JP Morgan to go “open source” with the financial products it sold, selling clients on products developed by competitors. But one of his lieutenants eventually talked him out of it, convincing Dimon that JP Morgan’s homegrown products were performing as well as anyone else’s.
The subprime call–literally, a call to the head of structured products who was on vacation–came from Dimon after a meeting discussing the performance of the retail bank. In October 2006, the mortgage servicing business was reporting that late payments on subprime mortgages were rising at an alarming rate. Dimon and his team concluded that quality control had slipped at the originator level and decided to slash its holdings of subprime debt. It was this leap from the granular details to the bigger picture that enabled JP Morgan to make the right call on subprime while so many others were still rushing headlong into what was one of the hottest businesses on Wall Street.
We can’t help but wonder if there are, in the Dimon and subprime story, the seeds of an even greater story defending the efficacy of the mega-bank. After all, it was the fact from a retail business that tipped Dimon off to a strategic change at the investment level. A smaller brokerage or investment bank would not have had access to this data. Maybe its not the model of mega-banks that’s broken, after all.
Jamie Dimon’s swat team [Fortune]
James Dimon
What was it that prompted JP Morgan cheif Jamie Dimon to call Citigroup’s Vikram Pandit a jerk? Apparently Pandit was asking how the deal to buy Bear Stearns would affect the risk to Bear’s trading partners on certain long-term contracts. This was a crucial issue because many of Bear’s counter-parties had been unwinding contracts for fear the investment bank might collapse. As part of the deal, JP Morgan had put in place a durable guarantee that it hoped send a very strong signal that would stop the run on Bear.
But for some reason the Pandit’s question irked Mr. Dimon. “Stop being such a jerk,” he told Pandit. A little over a week later, JP Morgan would attempt to get out of the guarantee and unnamed sources started saying that JP Morgan never meant to enter into it to begin with.
Probably our favorite part of yesterday’s final installment of the Wall Street Journal’s three-part series on the destruction of Bear Stearns is an exchange that takes place between JP Morgan Chase CEO Jamie Dimon and Citigroup CEO Vikram Pandit.
As you probably know, Dimon was the heir apparent to ascend to the top of Citigroup after serving for years as the right-hand man of banking empire building Sandy Weil. At the last moment, however, he was forced out of the bank and the top spot was handed to Citigroup’s lawyer. Fast forward a few years and Dimon gets to run Citigroup’s rival, JP Morgan, and that uppity lawyer is forced to resign in disgrace. Pandit is summoned up to take over Citi.
And, after the jump, here’s Dimon hazing the new kid on the Wall Street CEO block.
On Tuesday, March 11, Federal Reserve Chairman Ben S. Bernanke lunched with what Bloomberg is describing as a “Who’s Who of Wall Street leaders.” Attendees JPMorgan Chase ‘s Jamie Dimon, Goldman Sachs’s top dog Lloyd Blankfein, Lehman Brothers boss Richard Fuld, Morgan Stanley President James Gorman, Citigroup’s consigliore Robert Rubin, Blackstone Group’s little big man Stephen Schwarzman and Merrill Lynch’s John Thain.
Guess who wasn’t at the lunch? If you answered “anyone from Bear Stearns” you’d be absolutely right. Now some are speculating that Bear Stearns may have been purposefully excluded because its fate was one of the topics of discussion.
“It doesn’t seem credible that just about every major financial institution in the United States, except Bear Stearns, had a meeting about the most pressing issue of the day, bank liquidity, and the subject wasn’t about Bear Stearns, who had rumors swirling about them since Monday,” Eric Salzman at the Monkey Business blog says.
What was discussed at the luncheon has not been revealed. Bloomberg News obtained Bernanke’s schedule and the list of attendees in response to a request under the Freedom of Information Act. But the timing seems is jarring. Rumors of liquidity troubles at Bear had prompted the bank to issue a denial the day before for the lunch. On the preceding Friday, one bank (which has not been identified) refused to make a short term loan of $2 billion to Bear. The meeting came hours after Bernanke announced plans to lend $200 billion of Treasuries in exchange for debt including mortgage-backed securities. Hours after the meeting every bank on Wall Street reportedly began refusing to issue credit protection on the debt of Bear. Two days later Bear Stearns chief executive Alan Schwarz would be forced to call Dimon to seek $30 billion in emergency funding.
Update: Was Bear left out because its top two men were out of town? If we recall correctly, Schwarz was down at the Bear Stearns Media Conference in Palm Beach around this time, and chairman Jimmy Cayne was flying out for a bridge tournament in the midwest.
Bernanke Lunched With Dimon, Rubin Before Bear Rescue [Bloomberg]
The results of yesterday’s “Which bank has the dirtiest working conditions” poll are in. Some of the results may surprise you, some may not. If you actually read what we wrote about Bear Stearns’s in-house cafeteria and its 42 health-code points violations, for instance, you won’t (or shouldn’t) be surprised to learn that it landed in the top three (and if you read the part about contaminated food and inadequate levels of personal cleanliness and are still stunned, don’t invite us over to your home any time soon). If you didn’t know, though, that the 85 Broad is basically one step away from a gas station restroom on the Garden State Parkway (going South), you might be a bit caught off guard to learn that the Kingdom also landed at the top of the list of shame (all that glitters is not gold, indeed). Let’s examine the cold hard (dirty, disgusting, scatological) facts now.
“Firing Jamie Dimon was the worst thing Sandy ever did,” the investment banker said. It was a glorious Friday afternoon. The weather had performed an April summersault, turning over from winter to what felt like summer almost overnight. It was the kind of weather that inspires people—okay, us—to leave work early and starting drinking with friends. Which is how we found ourselves looking out onto a narrow street in the East Village drinking pints and talking about Jamie Dimon, Sandy Weill, Citigroup and JP Morgan Chase.
“It was over something completely trivial,” the banker said. He definitely had our attention with this remark. Lots of people believe that Citigroup has suffered since Jamie Dimon was let go by his longtime mentor Sandy Weill. And a lot of people have theories about why this friendship soured. But we love hearing all of them. He took the head-off his pilsner while we waited for him to expand. This is an old interviewers trick—using silence to elicit elaboration. His counter-strategy of drinking more was testing the limits of his patience.
He took the bottom off his beer and looked to the bartender for another round. We broke. “Okay, okay. What was it? What was it that got him canned?” we asked.
The next round arrived. We placed a bill on the bar but kept our hand on it. The message in the motions: keep talking and this round is on DealBreaker.
“It was something involving his daughter. Sandy’s daughter,” he said. Our hand came off the bill. This round was definitely on us. What had happened between Dimon and little miss Weill that could get Dimon thrown out of Citigroup?
“Completely trivial. I think Weill wanted his daughter to get a job, some promotion. Dimon didn’t want to give it to her. Thought she was under-qualified,” he said. “The guy I work for was in the room one day when they had a fight over it. When the fight was over, apparently so was the relationship. It was very strange because Sandy and Jamie had this whole father-son thing going on. This was Sandy choosing blood over his more or less adopted child, Jamie. Like Hamlet in reverse. The step-father kills the kid. Or maybe King Lear, with Dimon as the daughter who won’t suck up to daddy Lear.”
We aren’t even going to call Dimon’s office to authenticate this. And certainly not Weill. They probably wouldn’t comment. And if they did comment, it would just be a denial. We’d actually heard this theory before but this was the first time we’d heard it from someone claiming to have anything this close to first hand knowledge of the dispute. It was second-hand knowledge but that’s as close as anyone has ever got to this story.
The next round was on us also. Not as a reward for that story. It was, after all, an old and often told story. But as an enticement for the next one, the one about Dimon’s plans for acquisitions and his meeting with Bear Stearns executives. But that will have to wait for another post.
Last night we made a brief appearance on one of our favorite CNBC shows, On The Money, and spent a bit of time talking about the Big Idea of spinning off Goldman’s trading and hedge fund business.
In the first part of the segment host Melissa Francis asked CNBC’s Charlie Gasparino about possible big bank deals in light of the stellar performance of JP Morgan Chase. You know how these things work. A company reports numbers like the one’s the JP Morgan Chase did this week and the investment bankers come out of the woodwork with pitchbooks at the ready. There will be pressure to do deals, to start making acquisitions. The question is whether chief executive Jamie Dimon will give in to the seduction of the dealmakers or whether he’ll continue to abstain.
Gasparino’s convinced that Dimon won’t start building JP Morgan Chase into an empire of acquisitions. The most talked about deal on the street, an acquisition of Bear Stearns, would be too expensive, Gasparino says. We agreed, mostly because we think will be hard for the bank to find a bank or financial services company that is beating JP Morgan Chase in an area that the bank is interested in growing. (Although we’re ready to hear from you if you’ve got likely targets. Leave a comment or send an email to tips@dealbreaker.com.)
At the end of the segment we turned to the Big Idea. Since we first published the Big Idea, we’ve talked to investment bankers who think that spinning off the hedge fund and trading business might be a good way for Goldman Sachs to realize the value of the business it built up. Goldman doesn’t seem to get full credit on Wall Street for its hedge fund and trading operations, in part because Goldman’s disclosures about these groups is somewhat opaque. A serious danger faced by Goldman is that its top traders might look elsewhere for a big payday.
And that’s where the Vikram Pandit factor comes in. When he was at Morgan Stanley, Vikram made decent coin but nothing that would make headlines or build multi-generational empires of wealth. He left to found his own hedge fund, and one year later sold it to Citigroup for a rumored $600 million. That has to have a lot of people, not just at Goldman Sachs, scratching their heads and doing some quick math about the risks and rewards of striking out on their own. We’re hearing from investment bankers who have talked to people insider the firm that Goldman could face pressure to spin-off its trading and hedge fund business in order to realize the value of the business before its guys start to defect or strike out on their own.
Perhaps the strongest case against this idea rests on four factors. First, breaking-up and spinning-off runs contrary to the current orthodoxy on Wall Street, where the banks have been acquiring hedge funds and building private equity businesses. There’s the value of the Goldman Sachs name, which communicates an undiminished elite status. There’s the knowledge within Goldman that the larger firms needs its trading business, and it will be loathe to let it go under any circumstances. And, perhaps most importantly, there’s Goldman’s share price, which is now trading at its 52-week high. Everyone with equity has been getting a raise for the past several weeks. That’s no doubt dampening the urge to split.
Banking on Big [CNBC]
Well, that was kind of anticlimactic. After a big buildup this week—and rumors that JPMorgan Chase CEO Jamie Dimon might announce a big acquisition and talke of a possible merger with Bear Stearns—the big news out of yesterday’s meeting with shareholders was that there is no big news. Organic growth. More investment bankers. More traders, especially energy traders. Regional acquisitions in BRIC-type countries, especially Russia and Brazil. Yadda, yadda, yadda, as they used to say.
J.P. Morgan Shuns Dealmaking for Growth, for Now [DealBook]JPMorgan Will Expand Investment Bank, Hire Traders [Bloomberg]
JPMorgan chairman says ‘acquisition capable’ [Reuters]
Can you feel the electricity in the air? No? Neither can we. But if you were a major investor in JP Morgan Chase, you might at least feel twinges of anticipation for tomorrow’s big event: Jamie Dimon confronts the shareholders.
From today’s “Heard on the Street” column:
James Dimon will start a new phase of his career at J.P. Morgan Chase & Co. when he stands before a roomful of shareholders tomorrow. After 2½ years of slashing costs and plowing money into key businesses, J.P. Morgan’s top executive must convince investors that those efforts can pump up revenue growth and profitability in everything from retail branches to bond trading. Investors are also likely to question him on the possibility of acquisitions, an issue Mr. Dimon, 50 years old, addressed at the end of January.
Mr. Dimon is well aware of the longstanding criticism that the bank hasn’t shown consistent internal growth. The pressure to do so comes amid tougher conditions this year in the banking industry, where profits are likely to be hurt by weakening credit quality, fierce competition for deposits and loans and a difficult interest-rate environment.
Tomorrow, Mr. Dimon and the top bosses of the bank’s key businesses are expected to provide some fresh details about how they plan to fatten the bank’s bottom line. They might fine-tune some targets for the bank’s operations but aren’t expected to disclose any big new strategies for the bank.
It will be J.P. Morgan’s first daylong meeting with investors since Mr. Dimon, who was named chief executive officer of J.P. Morgan last year, also became chairman after the recent retirement of William Harrison.
Questions most likely to be asked: what’s up with all this talk of a big new acquisition? Are you really going to buy Bear Stearns?
Question unlikely to be asked: how pumped are you to see all this trouble at Citigroup? Sex scandals? High level resignations? Corporate intrigue and executive reshuffling? Is this the bestest time ever or what?
New Stage Awaits J.P. Morgan’s Dimon [Wall Street Journal]
It’s widely known that Jamie Dimon’s been jonesing for a big acquisition for some time and, according to our semi-credible sources’ quasi-credible sources, Bear Stearns might just be the fix. While there’s been some whispering on the Street that Dimon could be eyeing Washington Mutual Inc., we’re told that Bear’s issued a firm-wide hiring freeze as a result of Dimon’s imminent shopping spree and Bear’s overtures. Know something we don’t? You can find us in our usual haunts. On a related note, Carney and I watched Heathers three times this weekend. (His idea).
Has there been a news story about JP Morgan CEO Jamie Dimon in the last year that hasn’t mentioned his famous falling out with his mentor Sanford Weill? Dimon gets the CEO slot, and it’s all about getting fired by Weill. Dimon is “expected” to get the chairman of the board seat? Yep, more about Sandy. Now the members are voting him onto the board of directors at the the Federal Reserve, and sure enough it’s mostly about the famous break-up.
How is Dimon ever expected to move on if everyone keeps bringing up his ex?
Jamie Dimon may end up succeeding Sanford Weill after all — at the New York Federal Reserve.
Eight years after Weill fired Dimon, his heir-apparent at Citigroup Inc., Dimon is slated to replace his former mentor as a director at the Fed’s New York branch. Dimon, 50, is now chief executive officer of rival JPMorgan Chase & Co. Weill, 73, retired in April as chairman of Citigroup, the biggest U.S. bank. His term as a Fed director ends Dec. 31.
The Fed’s members began casting their votes yesterday for Dimon and PepsiCo Inc. CEO Indra Nooyi, who’s seeking reelection. Citigroup and JPMorgan, the third-biggest U.S. lender by assets, are members of the New York Fed, which helps supervise the industry and set monetary policy.
Dimon worked alongside Weill for 16 years, beginning as his assistant at American Express Co. The two native New Yorkers shared a knack for making profitable acquisitions and slashing expenses. Their working relationship ended when Weill ousted Dimon following a series of personal and policy disputes.
JPMorgan’s Jamie Dimon Nominated to Replace Weill at NY Fed [Bloomberg]
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