JP Morgan CEO Jamie Dimon's legend is growing by the day--and justifiably so. Here, he tells Charlie Rose how his JPM avoided the boneheaded mistakes that have crushed almost all of its competitors and forced the ouster of most of his fellow CEOs:
ROSE: Why did you have less problems than others?
DIMON: ... I don`t think we are doing that great. And you know, the you higher you ride, you always get afraid how bad it is
going to get. You are never going to do stuff perfect in life. It is
irrational for anyone to think every time you get up to bat, you will
hit a home run. You are going to make errors.
ROSE: You shouldn`t strike out every time.
DIMON: If you do things right, people you trust, great reporting,
complete transparency, separate accounting from trading, separate ops
from training, will you minimize the risk and you won`t make errors. So
I will give you some examples. SIVs, we stayed away from SIVs.
ROSE: Tell them what --
DIMON: Sivs are structured investment vehicles that were sponsored by
certain banks around the world to -- they were basically arbitrage
vehicles, but they had no business purpose. We didn`t sponsor one. We
didn`t really finance them because we didn`t see what they had to do
with real clients. And so I didn`t even know how big they were, by the
way. So to me, I was also caught off guard by the size of them. And we
were careful. We made some mistakes in mortgages. We were careful in
mortgages. We share across the company all the risk areas. And we
always look how bad could it get.
So I was asked how much could the stock market go down. So we said OK,
well, 25 percent. There are shareholders here who say, well if it goes
down 25 percent, we`re going to have a really bad day, but we`ll be
fine. I don`t want to say well, it went down 25 percent. It was a 29
Sigma event and we`re bankrupt and I`m sorry, you know. So we often ask
the question about OK, well foreign exchange can move 10 percent in one
day, credit spreads can gap out 300 basis points in one day, the stock
markets could fall 25 percent in one day, because they did. So just
using a lot of common sense and some experience and judgment to try to
avoid the worst ones.
And remember, betting your own balance sheet isn`t the same thing as
serving a client. So you also have to ask the question, why are you in
fact doing that
ROSE: They were betting the balance sheet, and they borrowed the money.
DIMON: The carry trade had nothing to do with serving clients, in my
opinion. So I also ask myself that question, well, what does that have
to with building a great company over time. Just -- the people at JP
Morgan make fun of me, because they say my grandmother could do that.
Bless her soul, she`s dead. But my grandmother could own risky assets
and hold them and see what happens and earn a nice spread. That`s not a
business. That is -- sometimes, it is completely reasonable thing to
do, but it is not a new client. It`s not a strategy. So we do some of
that. Don`t get me wrong, but carefully.
In sum, unlike the rest of Wall Street, JP Morgan didn't get greedy and bet the firm on the continuation of a particular trend. It also appears to have done a far better job than most of assessing the risk it was taking. One could be forgiven for thinking that the key responsibility of every Wall Street CEO would be to make sure that his or her firm got both of these critical elements right. In fact, Dimon demonstrates that it is a rare skill--which is why he's still employed.
Here, meanwhile, is Dimon on the mistakes the rest of Wall Street made, and the "growth trap" that kills businesses across all industries:
ROSE: Let`s talk a minute about how this happened and how much do we
blame Wall Street. Because everybody looks at the market and the bull
market, and to look at leverage and to look at the valuation of risk;
and they say, it was Katie bar the door, and smart people should have
known it was going to come to an end.
DIMON: ...If you mean Wall Street firms, obviously, a lot of mistakes made. I
think it is very important if you want to run any business well, you
spend quite a bit of time focusing on your errors. As a matter of fact,
the management means -- emphasize the negatives. And it is quite
obvious that there was too much leverage, too many liquid assets. Sivs,
which I won`t describe here, had no business purpose. Too many things
were short-term funded. CDO squares had no great business purpose. I`m
not saying that JP Morgan did all of these things, but that is
completely obvious to me that that is true.
That wasn`t all the Wall Street firms. That was a lot of people
involved in that, including --
ROSE: Some of the biggest and best.
DIMON: Overseas banks, investors, pension plans, a lot of people
involved in this.
ROSE: What was the reason --
DIMON: At the end of the day, absolutely, the institutions that lost
the money should blame themselves. They shouldn`t blame anybody else.
And certainly not the federal government.
ROSE: But was something wrong with the Wall Street culture, even though
it is a broad bush?
DIMON: Some firms are taking a tremendous amount of risk. There is a
legitimate question there were misincentives that pushed people to take
risk. I just heard a session before talking about public companies and
private at companies; I advise other company CEOs don`t fall into the
trap. Wherever you go, where is the growth, where is the growth, where
is the growth. And they go home and feel this tremendous pressure to
grow. Well, sometimes you can`t grow. Sometimes you don`t want to grow.
In certain businesses, growth means you are either putting on bad
clients, excess risk, asset leverage.
So I think some of the Wall Street firms felt this pressure to grow too
and succumbed to it.
ROSE: And those guys are letting traders do whatever they want to do.
So in order to maintain the same profitability, we have to do that too.
DIMON: I think some people may have done that, yes.
See Also: Jamie Dimon Goes Insane: "People Who Pass on Rumors Should Go to Jail"
