How Jamie Dimon prepared for and steered JPMorgan Chase through the 2008 financial crisis
Jamie Dimon's journey to the CEO and Chairman roles at JP Morgan Chase began with his appointment as chairman and chief executive at Bank One, based in Chicago, in March 2000. His decisive leadership and strategic 'playbook' led to an impressive 80% surge in the stock within a year.
In January 2004, JPMorgan Chase agreed to acquire Bank One in a bid to rival Citibank. Two years later, he was named CEO of Chase and, another year later, chairman of the board. By the end of the first year, with Dimon at the helm, the bank reported record profits and an upswing in its trading results - with revenue rising by $6 billion. The message of risk management discipline and long-term stability over short-term profits was ubiquitous throughout his first "letter to the shareholders" - "For example, last year we declined to underwrite negative amortisation mortgage loans and option adjustable-rate mortgages" - taken directly from the JPMorgan Chase Website, highlights Dimon's forward-thinking approach. His refusal to underwrite risky loans, which many other banks made for short-term profits, reflects his forward-thinking approach and prudent risk management. The bank even went to sell almost all of its 2006 subprime mortgage originations. Dimon also stated, "The subprime business is a great example of what happens when something good (the ability to help many more people buy homes) is taken to excess".
In addition, he made several moves to improve infrastructure and reduce costs, such as building six new data centres. This significantly reduced "Unallocated Corporate Overhead" - costs incurred by businesses that are disproportionate to the benefits provided and costs that were significantly higher than they should’ve been - from $2.4 billion in 2005 to $750 million in 2006, clearly indicating Dimon's effective cost management. The overhead was expected to shrink from $200 million to $400 million in 2007, instilling confidence in the bank's financial health.
As the financial crisis intensified, one of the largest banks, Bearn Stearns, was on the brink of collapse, with its stock plummeting from $170 to a mere $2. This dire situation prompted the Federal Reserve and the Treasury Department to step in, facilitating a deal for JPMorgan Chase to acquire the struggling bank for $2 a share. Just six months later, Washington Mutual, in the most significant bank failure in American history, was seized by federal regulators. This led to another strategic acquisition for Chase, costing it $1.836bn. Under Dimon's leadership, these bold moves saved the bank from collapse and positioned JPMorgan as the largest commercial bank heading out of the crisis, bolstering Dimon’s position as a Titan of Wall Street.
Article written by Iskander Shyngyssov | Proofread by Zhangir Zhangaskin
