Back in 2004, way before the mortgage bust and before Americans thought of banks as four-letter words, Jamie Dimon took charge of JPMorgan Chase & Company. Known as a tough, hands-on manager, Dimon was supposed to avert the sort of foolish risks that tempted so many of his peers. And sure enough, he was different.Instead of reviewing brief summaries of the bankâ??s operations, as his predecessor had, Dimon demanded to see the raw data â?? hundreds of pages detailing J. P. Morganâ??s businesses every month. Instead of simply trusting his traders, Dimon put himself through a tutorial, so that he would understand the complex trades the bank was exposed to. And rather than run its mortgage machine at full throttle for as long as possible, Dimon reined in lending earlier than did others and warned his shareholders of looming trouble.
Prudent as they were, his precautions were not enough. Over the last two years, JPMorgan Chase suffered an astonishing $51 billion in faulty mortgages, unpaid credit cards and other bad loans. And Dimon has landed dead center in the controversies that have caused many Americans to lose faith in banking. Chase issued too many faulty mortgages, it was embarrassed by high overdraft fees on debit cards and recently it has admitted to cutting corners in processing home foreclosures. Americans are angry at bankers for helping to bring the financial system to its knees; they are especially angry at those like Dimon whose banks accepted taxpayer investment.
The popular animus has come as a shock to Dimon. Recently, while entertaining a roomful of corporate clients over a tenderloin dinner, he felt the need to assert his and his industryâ??s worthiness. â??I am not embarrassed to be a banker,â? he noted. â??I am not embarrassed to be in business.â? In truth, Dimon has plenty not to be embarrassed about. He fulfilled a bankerâ??s first obligation: he made sure his bank survived. This was thanks to his strategy of maintaining a healthy cushion of capital for a rainy day. When markets melted down and the economy plunged into recession, J. P. Morgan remained not only solvent but profitable every quarter. When other banks were refusing to lend, Dimonâ??s continued to offer credit to customers ranging from homeowners to Pfizer to the State of California. And when the United States needed a strong institution to bail out a failing bank, it turned â?? twice â?? to JPMorgan Chase.
Dimon sees himself as a patriotic citizen who helped his country in a time of crisis. Now the most visible face of Wall Street, he thinks banks and bankers have a role not only in rebuilding the economy but in coming up with remedies for the financial system. Critics say that, as a part â?? even a solvent part â?? of a failed system, he should be grateful for the governmentâ??s assistance rather than stridently critical, as he has been, of some of its reforms. Dimon, they note, took advantage of the crisis to acquire Bear Stearns and Washington Mutual, and J. P. Morgan emerged from the crisis as a vastly larger institution. That is a cause for alarm to 33 U.S. senators, who voted this spring for an amendment that would have forced big banks to dismantle. The country is deeply divided over the proper role, and the size, of banks, and nothing epitomizes these tensions quite like the narrative of Jamie Dimon.
Over the past few months, Dimon allowed me into his inner sanctum, giving me an insiderâ??s view of how he thinks about banking and how he runs the bank. The executive I encountered was on a mission to reclaim a respected place for his industry, even as he admits that it committed serious mistakes. He was adamant that government officials â?? he seemed to include President Obama â?? have been unfairly tarring all bankers indiscriminately. â??Itâ??s harmful, itâ??s unfair and it leads to bad policy,â? he told me again and again. Itâ??s a subject that makes him boil, because Dimonâ??s career has been all about being discriminating â?? about weighing this or that particular risk, sifting through the merits of this or that loan. Dimon has always been unusually blunt, and he told me that not only are big banks like J. P. Morgan (it has $2 trillion in assets) not too big, but that they should be allowed to grow bigger. This will come as an affront to critics in the Tea Party as well as in Cambridge lecture halls. Americaâ??s five biggest banks, including Dimonâ??s, now control 46 percent of all deposits, up from a mere 12 percent in the early â??90s. Since the financial crisis, a sort of Jacksonian animosity toward big financial institutions has overtaken the public â?? witness that, in the recent election, no fewer than 200 candidates spent money on ads attacking Wall Street. â??Big banks donâ??t have a lot of friends right now,â? says Nancy Bush, an analyst with NAB Research. â??Europe loves its big banks. America hates them.â?
JPMorgan Chase is a true colossus, the kind that progressives like Louis Brandeis inveighed against early in the previous century. It is Americaâ??s biggest credit-card company, the third-ranking mortgage issuer and the biggest in auto loans. In investment banking, it is neck and neck with Goldman Sachs. But neither Goldman nor any other firm can match J. P. Morganâ??s breadth or overall strength.
Perhaps a simpler way to think of Dimonâ??s bank is that it provides diverse forms of financing to people as well as to corporations and also manages their investments. In all, it moves more than a trillion dollars in cash and securities through the system every day. Simon Johnson, a liberal economist at M.I.T., who favors busting up the biggest banks, takes aim at Dimon for â??defiantly affirm[ing] that JPMorgan Chase should be allowed to grow bigger.â? Set aside, for the moment, fears about â??too big to failâ?: Johnson writes that behemoths like J. P. Morgan offer no compensating benefits for the added risk of their size; indeed, he sees â??no evidence for economies of scale or scope â?? or other social benefits.â?
Dimon not only believes that view is â??completely wrong,â? but he is pursuing a strategy predicated on the benefits of synergies and economies of scale. â??Walk into a Chase branch and we can give you so much quicker, better and faster,â? Dimon says, referring to the bankâ??s array of loans, credit cards and investment products. â??Like Wal-Mart. â? It is an intriguing comparison; this is how Dimon wants to be seen â?? as a retailer with 5,200 branches nationwide whose products happen to be financial services. The reason that J. P. Morgan runs so many disparate businesses, he says, is that they arenâ??t really disparate. Just as customers in Wal-Mart shop for groceries as well as televisions, people who want credit cards also need mortgages; small businesses that require commercial loans occasionally need an investment banker; and all of the above need a place to put their assets.
Few people think of banks this way, but as Dimon observed in a shareholder letter in 2005, â??Twenty years ago, who would have thought [Wal-Mart] would sell lettuce and tomatoes?â? As with lettuce, most of the products that banks offer are commodities. (No one cares where they get a loan, as long as it is cheaper.) Dimon sees the front of the store, which lends money, as linked to the back, which deals in securities.? Glass-Steagall, the 1930s law that separated Wall Street from banking, forbade this approach, but it was repealed in the 1990s. Dimonâ??s biggest quarrel with Dodd-Frank, the financial-reform legislation enacted over the summer, was that it erected new walls. Damon Silvers, policy director for the A.F.L.-C.I.O., said of J. P. Morganâ??s lobbying effort, â??They fought anything that appeared to resiloize the financial system, such as the Volcker rule,â? which will prevent banks from trading with their own capital, â??and other kinds of neo-Glass-Steagall things.â? Dimon vigorously supported enhanced mortgage regulation but not a separate consumer agency to administer it; he backed more controls on derivatives, but not the aspect of the law that requires banks to set up a new subsidiary for certain types of derivatives. (That and other derivatives reforms could clip $1 billion from J. P. Morganâ??s revenues a year.)
Dimon echoes the standard business sentiment that boundaries that create inefficiencies raise costs for the enterprise and, therefore, for customers. Perfectly unfettered, he thinks one bank could gain a 30 percent share of the market. Dimon doesnâ??t defend monopoly, but he says Americans should view financial mergers as not any scarier than, say, combining Chevrolet and Buick and calling it General Motors. Of course, financial companies are different. G.M.â??s assets wonâ??t disappear overnight; during a panic, a bankâ??s just might, and that could destabilize the financial system. This is why banks are closely regulated. A lot of the focus on preventing panics has centered on the size of banks; Dimon argues that regulating capital levels is more effective. Requiring higher capital puts a brake on how much banks can lend, and therefore earn, but gives them an added cushion to withstand losses.
There are, believe it or not, reasons for wanting banks to be big, including safety. A large bank with many loans is less prone to failure than, say, a bank in Texas that lends to only oil drillers. For related reasons, as a bank gets bigger, its credit will generally be stronger, its borrowing costs lower. But as Dimon points out, banking also suffers from diseconomies of scale, like the lack of attention to detail and the â??hubrisâ? that can undermine a large organization. Such sins are precisely what crippled Citigroup and A.I.G. Nonetheless, Dimon insists that for a bank that gets it right, the positives of consolidation are overwhelming. Since J. P. Morganâ??s acquisition, in 2008, of Washington Mutual, each Chase branch spends $1 million less on overhead and technology than it did before. â??Economies of scale are a good thing,â? Dimon stresses, sounding like a buttoned-down version of Sam Walton. â??If we didnâ??t have them, weâ??d still be living in tents and eating buffalo.â?
DIMON GREW UP IN QUEENS, the grandson of a Greek immigrant who rose from bank clerk to stockbroker, a profession also taken up by Jamieâ??s father. At home, Jamie absorbed a first-generation reverence for America and the stock-market wisdom of Benjamin Graham. (A disclosure: my mother is friendly with Dimonâ??s parents.) Teddy, his twin, recalls a superconfident sibling who always wanted the ball when the game was on the line. His interest in business took off in college, in part thanks to his fatherâ??s boss, Sanford I. Weill, already a legend for having built a brokerage empire. After Harvard Business School, in 1982, Dimon turned down an offer from Goldman Sachs and took the riskier route, going to work as Weillâ??s assistant at American Express. In 1986, after leaving American Express, Weill gained control of the Commercial Credit Company, a sleepy finance firm catering to middle-class clients â?? many of them the subprime borrowers of their day â?? and started rebuilding his empire deal by deal. Under Weillâ??s tutelage, Dimon was soon managing first one, then other financial operations â?? Primerica, Smith Barney, Salomon Brothers. He has been running banks ever since.
Roger Lowenstein, an outside director of the Sequoia Fund, is a contributing writer and the author of "The End of Wall Street."?
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