Jamie Dimon on Building JP Morgan Chase, the Fortress Balance Sheet, and Not Blowing Up

Jamie Dimon

Sounds great. Thank you.

Jamie Dimon

It wasn't quite a model in the traditional sense. If you look at what we did — Commercial Credit, then Primerica, then Travelers — we were a financial conglomerate. We bought lots of companies in lots of different businesses, fixed them up, turned them around, made money. Then we merged with Citibank, which was obviously a huge bank. My view was that we should slim it down, shed the parts that weren't strategically important, and keep the things that belonged together. That was one of my small disagreements with Sandy about the future of the company. But it was big, it was making a lot of money, it was quite successful at the time. And then I got fired.

Jamie Dimon

My wife is here tonight. I was hosting 100 people — recruiting kids — in my apartment in New York City, the same apartment I have now. They called me to a management meeting on a Sunday at 4:00 p.m. Sandy and John Reed called and said, "Can you come a little early? We've got a bunch of stuff to talk about." I was president and chief operating officer. I drove up there. I sat down with Sandy and John and they said they wanted to make a few changes. Three of them.

The first was putting someone else in charge of a particular area — didn't make sense to me. The second was putting someone in charge of the global investment bank, which I was running — another decision I thought was wrong. And the third was: they wanted me to resign. I said, "Okay." Because at that moment, I knew it was all arranged. The board had voted. The press release was written. The management team was coming up. So I waited for the management team to come up, wished them the best, said, "You guys have a chance to build one of the great companies."

I went home. My daughters were 12, 14, and 10. I walk in the front door and tell them I was fired. The youngest says, "Daddy, do we have to sleep on the streets?" I said, "No, we're okay." The middle one, always obsessed with college: "Can I still go to college?" I said, "Yes." The oldest — who's here tonight — said, "Great. Since you don't need your cell phone..." That night, about 50 people came over, all the same people I'd just met, bringing whiskey. It was like having your own wake.

I tell people: it was my net worth, not my self-worth that was involved.

Jamie Dimon

It took me a while to exit — they were kind of mean about it. Then I took a long vacation. When I got back in September, about six months later, I went to work — nothing to do, but I went from 2:00 to 9:00 to 5:00 and started calling people and thinking about what I'd do next. I was in the Seagram's Building, so I could go to the Four Seasons for lunch downstairs every day. I explored everything. I could have started my own merchant bank, retired, just invested. But I was 42.

I went to visit Jeff Bezos, who was looking for a president at the time. He and I hit it off; we've been friends ever since. He's an exceptional human being. But it was a bridge too far — I kept thinking, I'll never wear a suit again, I'm going to live in a houseboat. What an alternate universe that would have been.

I got serious and was offered jobs running other big global investment banks. Hank Greenberg called me about AIG. I was thinking: I'm going to go from Sandy Weill to you? I'd have my head examined. And then I got a phone call from a headhunter about Bank One.

Jamie Dimon

I didn't worry about the size difference. In life, you make things what they are. I don't like complaining about spilt milk — you put on your pants, get going, and see what you can make of it. I had opportunities to stay in New York to run bigger, more glamorous things. But Bank One was my habitat. I was used to financial services and banking. It was a troubled bank, and that was a chance to do something.

It was hard on my family — we had to move kids who were 14, 12, and 10. But we got a nice brownstone, and we ended up loving Chicago. It's a wonderful city. I put half my net worth into the stock on day one. I made it clear to everyone that I was there permanently. If you work at a company and the new CEO comes in from out of town, you want to know he's in 100%. Lock, stock, and barrel. I was going to go down with the ship, or go up with the ship.

Jamie Dimon

There had been an analyst report — one of the great lines was: "Even Hercules couldn't fix it." Bank One was an amalgamation of Bank One, First Chicago, and National Bank of Detroit. They'd never put the companies together, so they had multiple statement systems, processing systems, payment systems, SAP systems. Different brands, services breaking down, losing accounts, closing branches. It was a mess across systems, people, and operations.

I met the management team. There were 21 board members from the multiple merged acquisitions — 11 hated the other 10. They were tribal. I knew that going in because I'd spoken to a lot of people and done research beforehand. Even today, people want to be handed something perfect. It's not perfect. I met six directors, shook all their hands, and told them: I'll do the best I can. I'm going to tell the truth — the good, the bad, the ugly. We're going to try to build a great company and I'm going to need your help.

Then they left. So now I'm on the executive floor and I don't even know where to go. I knocked on someone's door — the head of HR — and said, "I need an office, and I really need an assistant." They were going to give me the chairman's corner office. I said no: I want to be right in the middle so I can see people when I stick my head out.

Then I went to meet the management team in a conference room with nice white plush carpets. I walked in with a cup of coffee and they said, "Jamie, we don't drink coffee here." I looked at them. I had the coffee. I said, "You do now." And then I just started meeting with all of them. The company was losing money. The systems were terrible. The credit card business had collapsed. But that didn't matter to me — I was going to try to fix it.

Jamie Dimon

I've always been very risk-conscious — and risk-conscious does not mean getting rid of risk. It means properly pricing it and understanding the potential outcomes. When I got to Bank One and started meeting people and going through the books, I quickly realised they had more US corporate credit risk than Citibank did. And the way they accounted for it was unbelievably aggressive. Less capital, less reserves — they were calling these things profitable when they were basically losing money.

Once I found that out, I panicked a little. I went through every single loan in the books, marked them all down, put up more reserves, told the board, and then focused on earning more revenue per dollar of risk. In the middle market business, for every loan, we had 80 cents of net interest income and 20 cents of other revenue like payments. By the time we merged with JP Morgan, it was 40% NII from the loan and 60% non-interest revenue from things like payments. In one case, you're being paid properly for the risk; in the other, you're being paid almost nothing.

I hired a woman called Linda Bammann and gave her authority to sell loans and hedge loans with up to $10 billion. We probably reduced the balance sheet by $50 billion. Then we did have a recession, and we were okay — except for one big one, United Airlines, which went bankrupt and we effectively owned for a short period.

Jamie Dimon

Around risk, there's always this ecosystem — you always hear it: everyone's doing it, everyone's okay, this time is different. But history teaches you a lot. My dad was a stockbroker. I bought my first stock at 14. In 1972, the market hit a thousand; by 1974, it was down 45%. All the limousines on Wall Street were gone. Restaurants were closing. Then we had recessions in 1980 and 1982 — by 1982, the market was lower than it had been in 1968. In 1987, the market was down 25% in a single day. In 1990, JP Morgan, Citi, Chase, and Chemical were all taken to their knees by real estate losses. Then the 1997 real estate problems, the 2000 internet bubble, and then the great financial crisis.

History rhymes. Too much leverage, too much risk, everyone thinks it's going to be great, no one thinks it's going to fall hard. The 1929 stock market went down 20% one year, 30% the next, 20% the next — at one point it was down 90%. These things happen.

Jamie Dimon

When I look at risk and do stress testing, I always ask: what is the worst that has ever happened? When I got to JP Morgan and went through the risk books, their stress test for high-yield was that credit spreads would move 40% — from 400 basis points to 560. And they said: that'll never happen again, the market's more sophisticated. In 2008, it hit 20%, and you couldn't have sold a bond. There was no market.

The point isn't to guess when the bad thing happens. The point is to make sure you can handle it, so you continue to build your business. I always look at what I call the fat tails — and manage so that we can handle all of them. Not just the stress tests the Fed gives us, but all of them: markets down 50%, interest rates up to 8%, credit spreads back to worst-ever. Of course your results will be worse, but you're still there.

In financial services, leverage kills you. Aggressive accounting can kill you. And if you lose money as a financial company, people read the headlines and reconsider whether to trust you with their money. That causes runs on banks — and we saw some recently. So, the one constant: be there.

Jamie Dimon

Yes, a little bit. If you look at banks up until 2007, a lot were earning 30% on equity. Most of them went bankrupt. We never did that. But in 2008 and 2009, we were fine and they weren't. What you want is a real strong company with real margins, real clients, conservative accounting — not relying on leverage. It's very easy to use leverage to jack up returns in any business, but in banking it can be particularly dangerous.

Jamie Dimon

I've been talking about it since Primerica — probably the 1990s. The fortress balance sheet means you run a company serving clients well, with good margins, good liquidity, good capital, and accounting as conservative as you can find. I don't front-load profits when I can spread them over time. Accountants hate it when I say this, but you can drive a truck through accounting rules. Certain things are called expenses but are really investments for the future. And revenues — if I make bad loans, they look like good revenues for a while, but they'll kill you eventually.

The first question is always: who are you doing business with? How are you doing business? And are your compensation plans paying people for things that are stupid or unethical? You always have to review those, because they change.

Jamie Dimon

There were cracks out there in 2006. The quants started having problems in late 2006. We definitely saw subprime getting bad, and I pulled back on subprime. We also had — I'll say — maybe a third of the leverage of the big investment banks, and a lot more liquidity. In 2006, I started stockpiling liquidity because I was quite worried.

If you remember, because of accounting rules and Basel I, investment banks went from 12 times leverage to 35 times leverage. In 2007, the bridge-loan book of Wall Street was $450 billion. Today it's $40 billion — and JP Morgan alone could take on the whole $40 billion. They were much more leveraged deals and a lot of them collapsed. And that was before the collapse in the mortgage markets that took down so many of these banks.

Jamie Dimon

If you work for me, I would tell you: I don't care what the incentive is — don't do the wrong thing. Don't do the wrong thing to a client. Treat the client as you'd want to be treated yourself.

I changed the incentive programmes. At other big investment banks, senior bankers were doing side deals — private deals, three-year deals, five-year deals — paid on particular transactions. I got rid of almost all of that. Today at JP Morgan Chase, there are no winks, no nods, no side deals, almost no one paid on a single transaction in isolation. Because if you're paid on a particular thing, you can do the wrong thing — and meanwhile, you're not helping the company manage its overall risk.

A lot of the blow-ups were about leverage. If you have 30 times leverage and you get 20% of the profits, you'll go to 40 times leverage — it'll literally add 25% to your bonus. I got rid of the 20% profit-pool model and the leverage incentive along with it. I lost some people in the meantime.

Jamie Dimon

I was at Avra on 47th Street with my parents at their favourite restaurant — my whole family was there. It happened to be my birthday. Alan Schwartz, who was CEO of Bear Stearns, called and said, "Jamie, I need $30 billion tonight before Asia opens." To which I said, "I don't know how to get $30 billion for you. Have you called Paulson? Have you called Tim Geithner?" So we all called. I went back to the office. Probably 100 people came in that night — they all got dressed and went back to work. It's an emergency.

Bear Stearns was going to go bankrupt. We spoke to the Fed: let's just get them to the weekend. We needed Saturday and Sunday. We concocted this loan: we couldn't lend them the $30 billion directly, and the Fed technically couldn't either, but the Fed could lend to us and I could technically use Bear Stearns' collateral. So we got a literally one-day loan.

The next day we had thousands of people come in and do due diligence — every loan, every asset, every balance sheet, all the derivatives, all the lawsuits, all the HR policies. Real due diligence in a two-to-three-day period. And then we bought the company at $2 a share that night. Hank Paulson was saying, "Why are you paying anything for it?" I said, "I do have to get shareholder votes." It was a public deal. And the worst part: I knew I was going to get sued by the Bear holders. But we couldn't let it go bankrupt. It wasn't like an industrial company where you can buy it in bankruptcy. It would have been gone, and the crisis would have unfolded immediately.

Jamie Dimon

Bear's collapse would have caused the same panic that Lehman's uncontrolled failure did — money locked up everywhere, people pulling money out of everything. Buying Bear stopped that and gave other firms time to clean up their act. So I would have thought, six months later, some of those firms had more liquidity, more capital, more preparation.

But we already had enormous stress in the system. It was going to mount; it wasn't going to go away. There were tremendous losses coming. In hindsight, buying Bear helped but didn't stop the crisis from unfolding.

We paid about $1 billion for a company that had been worth $20 billion recently. The Bear Stearns building alone was on their balance sheet at $1 billion — we got it for zero. We wrote off the entire $12 billion tangible book value in the process: we had to liquidate loans, hedge positions, pay severance and lawsuit costs. We got some good people and some good businesses, but it was an extremely painful process. Estimates suggest that in the fullness of time, dealing with everything there cost us $15 to $20 billion.

And then the government sued us on the mortgages, which I was quite offended by. We saved the system and bailed a lot of people out, and they made us pay $5 billion on bad mortgages that Bear Stearns had done — not JP Morgan Chase. That's what made me say I wouldn't do it again in the same way. I wouldn't trust the government in the same way. If a new administration doesn't feel obligated to what the prior one agreed to — even when literal contracts were involved — that's a structural problem.

I went to see Eric Holder to settle all the mortgage litigation. He expected me to come pounding my chest. Instead I said: "Eric, I am here to surrender. I cannot fight and I cannot win against the federal government. A criminal indictment can sink my company. I will not do that to my company or my country. Before I surrender, I want you to understand the circumstances by which we bought WaMu and Bear Stearns, because 80% of what you're asking for relates to those acquisitions, not to JP Morgan Chase itself." He said he'd take it into consideration. It was painful, but you get to move on.

Jamie Dimon

Yes. We bought WaMu a week after Lehman went bankrupt — and most boards wouldn't have touched it at all because the whole system was in trouble. But WaMu put us in California, Nevada, Georgia, and Florida, which we weren't in. These were really healthy states. They had 2,300 branches.

They had huge mortgage problems, but we had looked at those books over and over. We bought the company for $30 billion, discounted to tangible book value because they had debt — and we left the debt behind. That $30 billion was approximately equal to the expected mortgage losses. So we bought the company clean. The books were clean.

Then we did something almost unheard of: two days later, I went into the market and raised another $11 billion of equity. I didn't strictly need it, but my conservatism said: this could get even worse and I don't want to be short on capital or liquidity. So our balance sheet after WaMu was just as strong as before WaMu.

Jamie Dimon

People trust you. You earn trust over time with shareholders. We explained the situation in a quick presentation. A lot of shareholders stepped up and said this is great. They also knew we could execute — behind Bear Stearns, the very next day you had 50,000 people consolidating 5,000 applications, branches, compensation programmes, payment systems. It's a lot of work. But we had the capability. We finished the WaMu consolidation in nine months — everything on the same systems, which let us start doing a much better job on customer service.

Jamie Dimon

Both Silicon Valley Bank and First Republic had something unique — I'd call it concentrated deposits, not simply uninsured ones. A lot of venture capital funds, probably hundreds of them, told their portfolio companies — who all banked at SVB and First Republic — that the banks weren't safe, and to get out. And they all removed their deposits. SVB had something like $200 billion in deposits; $100 billion left in a single day.

They also had other problems. They didn't have proper liquidity. They hadn't posted collateral at the Fed. And they had taken too much interest rate exposure, hidden by accounting — "held to maturity" accounting, where you don't have to mark even treasuries to market. I always hated held to maturity. When rates went from 3% to 5%, those 3% mortgages were worth sixty cents on the dollar. If you marked just that one thing to market, a bank showing tangible book value of $100 was suddenly showing $50. And once the mark drops to forty or thirty cents on the dollar, you panic. And so did depositors.

Both banks knew about the interest rate exposure, and so did the regulators. It was unfixable once rates moved.

I called Janet Yellen and said one or two banks are in trouble, and if you want, we'll take a look. They waited a little too long — it was a melting ice cube. But the day we bought First Republic, you never heard about it again. We hedged all their exposures in a couple of days, merged everything, wrote everything down. We got some good people too. We looked at what they did well — how they dealt with clients. They did a great job with high-net-worth clients: single point of contact, concierge services. Now, if you walk down Madison Avenue, you see JP Morgan Financial Centres — that's based on that model. We know your small business, your mortgage, your consumer banking. We can get you travel. We can do a whole range of services. We have twenty of them now. If it works, in twenty years we'll have three hundred.

Jamie Dimon

We skipped over strategy a little, and it's important. What we do is the same thing a community bank does — except we also do global investment banking. If you walk into a small community bank, they know your business account and your consumer account. They have a trust company. Their CRM is in their heads. We do all of that, plus global investment banking. And those businesses fit together — they feed each other. A lot of our middle-market clients use investment banking products. A lot of our consumer clients use foreign exchange products. All of our businesses feed each other.

There's no extraneous. We got rid of everything that didn't fit the strategy. Citi had consumer finance that didn't fit, life insurance that didn't fit, property and casualty that didn't fit. Sandy just wanted to do more of those things — he bought American General, which did truck leasing. Once you get involved in businesses like that, it's hard for people to understand the risk in each one. All of ours fit. I don't like hobbies. We've made plenty of mistakes — you have to try and test things — but the strategy is the constant.

And we're always investing for the future. That investment is always in people, branches, and technology. Not overreacting to the market. Markets are like accordions. If you're strong when others aren't, you have a chance to buy what you want to buy. Always look at the world from the point of view of the consumer: what do you want, how do you want it, can we provide it in a way that makes sense for us too?

Jamie Dimon

It's continuously investing and gaining business at the margin, and not stopping and starting. The thing about margins too: we have that margin while still investing a lot. We could cut billions of dollars of marketing tomorrow, stop opening branches, and save a billion dollars next year. Your margins go up; your growth goes down; your long-term margins probably get worse. So we look through the cycle and at the actual economics of what we do.

There's also some secret sauce I'm not going to share. But it's built over time. Great people, great products, consistency, curiosity, heart — branch by branch, product by product. Always doing that, knowing you're going to make mistakes, but building the culture that just keeps going.

I use sports as an analogy. If you have a team with a bunch of real jerks on it, will they be a great team? Almost never. If team members aren't giving their best every day in practice, how are you going to have a great team? In business, you can tell stories and make up narratives, but it compounds either way — excellence or mediocrity. Companies have a sauce that works. You've seen it in lots of different companies, not just JP Morgan Chase.

Jamie Dimon

I want to thank my wife, who is here and who has suffered through all of this with me. I don't think I could have done it without her. My grandparents were all Greek immigrants who didn't finish high school. There's a Greek ethic — you learn it from your parents from the ground up — which is: have a purpose. It could be art, science, military, business, being a great parent, a great teacher. Have a purpose and then do the best you can. Give it your all. Don't be one of those people who complain all the time. And treat everyone properly. Everyone.

In my hierarchy of life, the most important thing is my family. The second is my country — because I think this country is the indispensable nation that brought freedom of speech, freedom of religion, and freedom of enterprise. And we have to teach everywhere we go how important that is, because I don't think people always fully understand it. And then my purpose — through this company, I can help cities, states, schools, companies, and employees. I get the biggest kick out of that.

My daughter said, "Dad, you need some hobbies." I said, "I do: hanging out with family, travel, barbecuing, wine, and now whiskey. History — I think history is the greatest teacher of all time. Hiking." This gives me purpose beyond family and beyond country. Plus, I think this helps the country. I get to do things from this job that I think are quite meaningful. When I'm done, I'll teach and write. But I'm not going to twiddle my thumbs.

Jamie Dimon

Right now, yeah.

Jamie Dimon

These guys are great. Thank you.