On the morning of Sept. 18, 2008, the phone rang in Jamie Dimon's office on the 48th floor of JPMorgan Chase's New York headquarters. It was Hank Paulson, the secretary of the Treasury, who for the second time in six months had a pressing question: would Dimon be interested in acquiring the floundering investment bank Morgan Stanley—at no cost whatsoever?
The call came at a tumultuous moment. Stocks had fallen 27 percent between Aug. 29 and Sept. 10. Lehman Brothers had already failed, Merrill Lynch had been sold to Bank of America, and AIG had received an emergency loan of $85 billion from the federal government. The only remaining question was whether it would be Morgan Stanley or Goldman Sachs to fail next. The government was desperately seeking to stave off a total wipeout of Wall Street. And here was Paulson offering Dimon the chance to own Morgan Stanley for absolutely nothing. At the government's urging, Dimon had agreed to take over Bear Stearns in March in a whirlwind 48-hour deal, a transaction that established Dimon as the government's banker of last resort. "Some are coming to Washington for help," Sheila Bair, chairman of the Federal Deposit Insurance Corp., later said. "Others are coming to Washington to help."
Ultimately, the Morgan Stanley deal was not to be. Dimon reportedly said he'd discuss it with his board, but his initial view was that his bank shouldn't do it—it would be a bloodbath for employees on both sides, a doubling down of risk, and years of distraction for the company. Moreover, Dimon's team was already busy preparing a bid to take over Washington Mutual, which was also on the verge of failure.
The amazing thing about this phone call: Paulson really didn't have anyone else to turn to. In the year since Lehman's collapse, it's become even clearer that Jamie Dimon was the only chief of a major bank to have properly prepared for the hundred-year storm that hit Wall Street. Starting the year before, his firm had been aggressively dialing back its exposure to mortgages—particularly of the subprime sort—while others were sitting tight.
In retrospect, as the economy has begun to stabilize, many of the government's actions last fall—particularly the aggressive and creative efforts of Ben Bernanke to provide liquidity to credit markets—have seemed effective. But in the midst of the crisis, regulators seemed to repeatedly rely on a simple tactic: calling Jamie Dimon and asking him to step in.
As we emerge from the throes of the financial crisis, it has become clear that not only is Jamie Dimon the government's banker of choice, JPMorgan Chase is increasingly customers' bank of choice as well. Its share in retail banking continues to rise, and in the first six months of 2009, it led the industry in the most important capital-raising categories for investment banks, trouncing erstwhile market leader Goldman Sachs. Despite Goldman's outsize reputation, Dimon leads an institution that dwarfs Goldman: its $2 trillion in assets are more than twice Goldman's $890 billion, and the company's market value of $160 billion is twice Goldman's own $80 billion. In short, Jamie Dimon is the world's most important banker. "Banking is a very good business if you don't do anything dumb," says Warren Buffett, who's emerged as a big fan of Dimon. "Morris Shapiro said long ago that there are more banks than bankers, and that's fundamentally the problem. But Jamie is a banker from head to toe."
Dimon is a third-generation banker, the grandson of Greek immigrants and a lifelong Manhattanite. He grew up on the Upper East Side and graduated fourth in his class at the elite Browning School before attending Tufts University (summa cum laude) and excelling at Harvard Business School. Married to Judy Kent, an HBS classmate, he has three daughters, and today he spends much of his life on Park Avenue—the street where he's lived since he was a teenager, and where JPMorgan's Chase's offices are located. After Harvard, Dimon spent the first 16 years of his career as the protégé of Sandy Weill, first at American Express and later at Citigroup. By the late 1990s he'd had a falling out with Weill, which culminated in Dimon's firing; afterward, Dimon served as CEO of Bank One, and became chief executive of JPMorgan Chase in 2004 after a merger of those two banks.
By early 2008, it was already apparent that JPMorgan Chase was better positioned than most competitors, in large part because it had eschewed the siren call of investing in risky mortgage securities. As a result, it had suffered far smaller writedowns than the competition in 2007. But while the bank had performed admirably in 2007, Dimon was concerned about weakening results in both the investment bank and the company's loan portfolios. The price of a barrel of oil had hit $100 on Jan. 3, the U.S. dollar was cratering, and the Fed was cutting rates to stave off the recession that had become all but inevitable. After working hard to keep the company's balance sheet strong, -JPMorgan Chase executives faced the likelihood that they might be the good house in the bad neighborhood, dragged down with the broader economy.
In February, at JPMorgan Chase's annual investor day—a series of presentations by top executives for analysts and shareholders—the mood was mixed. The company sat on $94 billion of home-equity loans, and delinquencies were headed skyward. CFO Mike Cavanagh dropped a bomb by explaining that the firm could add as much as $450 million more to loan-loss reserves in the first quarter alone. "We did not see the magnitude of the housing crisis coming," admitted Cavanagh. Though it had sold off much of its subprime portfolio, the company still owned $15.5 billion worth, and more than 12 percent of those homeowners were delinquent 30 days or more.
Still, Dimon voiced irritation with what he considered the overdone concern among investors about the state of the markets. "This is not the first crisis that ever happened," he told the assembled crowd. "We shouldn't be all atwitter over this stuff. Life goes on. Recovery will come … for most." His caveat turned out to be prophetic. Within a few weeks, the first major victim of the financial crisis was knocking on his door, begging for help.
While the first week of March had seemed quiet on Wall Street, chaos reigned inside Bear Stearns. Despite expectations of solid first-quarter earnings, trading partners were increasingly skeptical that the firm could remain solvent. Firms began reeling in the credit they'd extended to Bear, and CNBC chatter suggested the firm was in serious trouble. By March 12, Bear had just $5.9 billion of cash on hand and its stock price was plummeting. Gary Parr, Bear's investment banker from Lazard, was working the phones, trying to find a "validating" investor who could lend credence to the idea that Bear was still viable. One of the first people on his list was Jamie Dimon.
At the same time that Bear Stearns' world was falling apart, Dimon was settling into his comfort zone. While -JPMorgan Chase had grabbed market share during the credit boom—by loosening loan covenants or adjusting pricing downward along with the rest of the herd—their relatively disciplined approach had left Dimon in position to pick off a weakened competitor or two if the turmoil continued. Around 6 p.m. on Thursday, March 13, Dimon stuck his head into a conference room where his senior team was gathered. It was his 52nd birthday, and he was heading out for dinner with his wife, his parents, and his oldest daughter, Julia. The celebration was to be at Avra, a Greek restaurant. "I got another call from someone who wants us to consider buying their company," Dimon said, almost in passing. To no one's surprise, the caller had been investment banker Gary Parr, on behalf of Bear Stearns. "But it didn't have a tone of 'This is going to happen in the next 12 hours'," recalls Cavanagh.
An hour later, Dimon's cell phone rang during dinner. It was Parr, asking him if he had a moment to speak to Bear Stearns CEO Alan Schwartz. As Dimon walked outside to the sidewalk, Schwartz cut to the chase. "We really need help," he said. "How much?" Dimon replied. "As much as $30 billion," was Schwartz's response. "Well, the answer to that one is easy," said Dimon. "No."
But Schwartz was desperate. He asked Dimon if he would consider a mere overnight loan. "I can't, it's impossible," said Dimon. "There's no time to do the homework. We don't know the issues. I've got a board." Dimon suggested that Schwartz call both the Federal Reserve and the Treasury Department, and told Schwartz he would be in touch. And then he hung up.
Dimon left dinner, went home, and was on the phone for much of the night. His first call was to Tim Geithner, who urged Dimon to help Bear. Despite the implied threat that regulators can hang over a Wall Street CEO's head, Dimon wouldn't be bullied. "Tim, look, we can't do it alone," he said. "Just do something to get them to the weekend. Then you'll have some time." The two agreed to continue the conversation later. Dimon also spoke to Treasury Secretary Hank Paulson and Federal Reserve chairman Ben Bernanke.
At 11 p.m., JPMorgan Chase dispatched a team of credit people to the Bear -Stearns offices at 383 Madison Avenue. That group was joined at 2 a.m. by teams from both the Federal Reserve and Securities and Exchange Commission. Dimon spent much of the night on the phone with Treasury and Fed officials. By 6 a.m. on Friday, Dimon told his team to cut Bear Stearns into numerous slices and report back every three hours with a sense of their value. By now a plan had formed: the Fed, which lacked the authorization to lend directly to broker-dealers like Bear -Stearns, would instead lend to JPMorgan—an actual bank—which would turn around and lend that money to Bear. By 6:45 a.m., Dimon's team was e-mailing a draft of a press release of the deal to Bear executives.
When the stock market opened the next morning, Bear Stearns shareholders appeared to be relieved. The stock floated around its close of the previous day of $57 a share, even climbing to $62 in the first half hour of trading. But within hours, it'd been cut in half. By that evening, CEO Alan Schwartz was in a car on the way to his home in Greenwich, Conn., when Paulson and Geithner called. They said a "stabilizing transaction" had to be done by the end of the weekend—in other words, Bear would have to be sold in the next 48 hours. Schwartz later testified that "all the leverage went out the window when a deal had to happen over the weekend."
During that weekend JPMorgan Chase had 2,000 people combing through Bears' books and sizing up the potential deal. Even if JPMorgan Chase were to pick up Bear Stearns for a single dollar, executives debated whether there was enough value in the Bear businesses after unloading or hedging all the toxic assets. The numbers thrown out were all ballpark estimates—$2 billion worth of losses here, $500 million there—with the goal of coming up with a raw total. This approach was pure Dimonology: dwell on the downside of a deal before entertaining the upside.
Some of Dimon's colleagues thought a Bear Stearns bid would be crazy. Never in history had anyone tried to take over a $400 billion balance sheet in just a few days, especially one that was surely full of holes. JPMorgan Chase had earned a reputation for being cautious, and this deal was anything but. Nevertheless, there was talk between the two firms of the possibility—but just the possibility—of doing a deal for $10 a share, just a third of Bear's Friday closing price.
At a key moment on Sunday, Dimon placed a call to Geithner. The discussion was brief. Dimon explained that the risks were too great for JPMorgan Chase to buy the company on their own. "This wasn't a negotiating posture," Dimon later testified in front of the Senate. "It was the plain truth." Geithner was in a pinch. Despite all the subsequent descriptions of him as a dapper young bureaucrat-in-training, he had nevertheless failed to rustle up any further interest for the failing bank, and was facing a botched rescue operation as the first notable moment of his career. When Geithner called Dimon back a few minutes later and urged him to keep trying to get a deal done, he was essentially signaling to Dimon that he now had negotiating leverage over both Bear Stearns and the Fed, which both had their backs to the wall. At the same time, however, Geithner was making it clear that this was a deal that had to happen. Even Jamie Dimon knew it wasn't a smart move to say no to the government a third time.
With the Asian markets opening at 7 p.m., Bear had to announce something or risk a complete implosion of the firm—and conceivably the financial system itself. Bear's Plan B was a deal with JPMorgan Chase and there was no Plan C. A number of former Bear Stearns executives view the events of that Sunday as brinksmanship on Dimon's part. Dimon chafes at the notion: "We had literally 48 hours to do what normally takes a month." A thoughtful man who luxuriates in rigorous analysis, he was being asked to put his own company at risk because another firm had played too fast and too loose.
Jamie Dimon had long preached that there are three components of a successful deal: business logic, the ability to execute, and price. In this instance, the business logic was a mixed bag. Buying Bear would give JPMorgan Chase a handful of assets it wanted, but it would also saddle them with a number it most certainly did not. Their ability to execute was totally unknown, especially on such short notice. Bear's customers could continue to bolt, as could valuable employees. To get a deal done, then, the price was going to have to come down even further.
In fact, the price came down on two fronts. A little after lunchtime, one of Dimon's deputies called Bear's CEO and floated the idea that JPMorgan Chase might offer $4 a share—a number that enraged some Bear executives, who had few options but to wait for an official offer. At the same time, Dimon was explaining to Geithner that unless he received a substantial guarantee of Bear's dodgy assets—$30 billion worth, to be precise—he could not do the deal. Realizing that he had no other viable options, Geithner agreed to provide a $30 billion loan.
Then, a new wrinkle: late Sunday afternoon, Treasury Secretary Hank Paulson called Dimon to talk about the terms of the deal. Dimon told Paulson that the firm was mulling a $4-a-share offer. "That sounds high to me. " Paulson replied. "Why $4? Why not $1? The less you offer, the less it's going to look like a bailout." Dimon replied that he'd been thinking of the shareholder vote that would be required at Bear -Stearns, and that to go much lower would be to risk enraging the very people he needed to approve a transaction. "But at the end of the day, it wasn't that big a deal, so we changed it to $2," he recalls.
After a heated 30-minute discussion, the Bear Stearns board unanimously approved the $2-a-share transaction at 6:30 p.m. When The Wall Street Journal broke the news online at 7 p.m., John Mack, CEO of Morgan Stanley, wondered aloud whether the $2 was a typo. Dimon later revised the offer upward to $10 a share, but for many wealthy Bear Stearns employees, the firm's demise still meant many millions in vaporized net worth—and an irrational and unrelenting hatred for Dimon and JPMorgan Chase.
Dimon told his senior staff on Monday that he wanted to go over to Bear Stearns and "talk to the troops." The response was that he was crazy. Emotions were still raw, he was told, and it might actually be dangerous. But Dimon argued that it was disrespectful to stay away. By Wednesday, March 19, he had waited as long as he was prepared to, and scheduled a meeting with 400 Bear Stearns managing directors in their second-floor auditorium. He was greeted with a mixture of resignation and derision.
It had been drizzling when Dimon had stepped out the door of JPMorgan Chase to walk across the street to Bear Stearns. A bodyguard standing nearby opened an umbrella, and held it over Dimon's head at the very moment a New York Times photographer took a picture. When the photo hit the paper the next day, Dimon was vilified—he looked like he had a butler.
Warren Buffett—who passed on making his own bid for the company—gives Dimon credit for making a gut decision based on limited information. "You don't have to understand it perfectly," he says. "You just need to know the outer limits. A guy can walk into a room and you might not know whether he weighs 300 or 350 pounds, but you know he's fat. I just felt I couldn't even categorize it to that extent. But you can act, and we do act, with imperfect information. If Jamie told me that the boundaries of value for Bear were x and y, I would feel he was right. I've seen enough of his judgment to know it's extraordinarily good."
While admitting that the deal had not been charity—JPMorgan Chase had kept the interests of its own shareholders paramount in negotiations—Dimon nevertheless pushed the notion that he'd done it for the good of the country. "Bear Stearns would have failed without this effort, and the consequences could have been disastrous," he told the Senate Banking Committee a few weeks later. Dimon delivered a polished performance, without a hint of the cockiness that he usually can't hide when he gets asked obvious questions. Reputations were made, destroyed, and burnished during that tumultuous week in March. Paulson, Bernanke, and Geithner were the recipients of largely positive press, even if some questioned the long-term implications of the government's role in the deal. They had managed to calm the market, had taken out a weak player, and opened up the discount window at what seemed a critical moment. All three were later roundly criticized for seemingly haphazard responses to the more dramatic events at the time of the Lehman Brothers collapse six months later.
Bear Stearns was neither the greatest deal of all time, nor even the greatest Dimon deal. Merging Bank One and -JPMorgan Chase had greater ramifications for his career. Nonetheless, the Bear Stearns deal buffed JPMorgan Chase's reputation so much that the firm was still benefiting a year later, even as its business continued to deteriorate along with the economy. "In the end, it was a tough deal," recalls JPMorgan Chase asset management head Jes Staley. "With one exception. What it did for our reputation was worth every penny."
As Dimon's reputation has risen, there's been plenty of speculation about whether he might gravitate toward a second career in politics. Wall Street was, at one time, a place where statesmen were forged. But since the 1970s, few bankers have earned that distinction; the Goldman Sachs graduates Bob Rubin and Hank Paulson failed to rise beyond the level of technocrat.
Could Dimon revive the tradition? Perhaps, but as a lifelong banker, he does hold certain viewpoints that could easily undermine a political career. He's an unabashed defender of unrestricted executive compensation. Still, after Obama's victory, the media and the blogosphere were awash in conjecture that Dimon was on Obama's shortlist of Treasury secretary candidates. Dimon didn't expect a call and wouldn't have taken the job if he'd gotten one. "There's no way a Wall Street CEO would have been named secretary of the Treasury," he said in December 2008, after Obama tapped Geithner for the job. "With all the anger at Wall Street, people understandably want someone that they feel is independent of specific influence."
In the past year, however, Dimon's opinions on issues like the deficit, tax cuts, and stimulus have become part of the national conversation. Barack Obama, whom Dimon had avidly supported, routinely sought out Dimon's views. The esteem in which Obama holds Dimon was revealed by The Wall Street Journal's Monica Langley in a story about a March 2009 meeting at the White House. Business executives, she wrote, "implored Mr. Obama to get credit flowing again. 'All right,' the president said. He'd have his people 'talk to Jamie.' " Even today, it's a fair bet that those conversations are continuing.