Jamie Dimon reflects on the economy, business and leadership

 

James “Jamie” Dimon, chairman and CEO of JPMorgan Chase & Co., who has lead his company through several crises, says it’s important to be prepared for tough times in advance.

“You need the army before the war starts,” he says. “And that means a disciplined group; they know what they’re doing.”

Dimon was ranked No. 18 on Forbes The World’s Most Powerful People of 2014, and JPMorgan Chase is the largest private employer in the Columbus region with more than 20,000 employees.

George Barrett, chairman and CEO of Cardinal Health, interviewed Dimon at the Columbus Chamber of Commerce annual meeting in February. Here’s some of what Dimon had to say.

 

Workforce readiness is a huge issue

The local businesses have to hook up with the local high schools, the local community schools, and say, ‘What do we need?’ And then train the kids so they have jobs when they get out, as opposed to just debt with no jobs.

It’s a big effort. We estimate that 2 million jobs would be filled in the U.S. today had it been done properly.

 

A quick tour of the global economy

China, in my opinion, will meet its 7 percent expected growth. Why? They have the wherewithal. They’ve got $4 trillion in unused reserves … and they can macro-manage in a way that you can’t in the U.S. Macro-management works when you’re still a developing nation.

They can’t macro-manage forever. They’ve got to broaden out their democracy. You always worry; there’s huge corruption issues. They know about these problems. There are very sophisticated people in that country, but those problems will cause bumps in the road down the road.

Europe is going to be sick for a long time. It’s really hard to get 19 nations to agree to fiscal policies and social policies.

The logic was always good. … And then they came up with the common market. The Euro may have been a mistake. But they can’t go backwards; they’ve got to make it work.

In terms of the economy though, (Europe) will probably do better in 2015 than 2014, marginally. So it’s not a negative on the global economy. And the same thing about Japan; it’s also going through its own growing pains, but it will probably do a little bit better in 2015 than 2014.

The emerging markets are all different. But in total, we’ll be OK. Some will shrink a little bit.

Russia is really confusing. … We all had made the bet that Russia would join the industrialized world, and it had been. And now we’ve had this huge setback.

There are some real dangers in Russia, and so we keep a close read on it. Russia itself will be shrinking this year. They’ve caused themselves huge economic issues.

 

On management

  • I think the most important thing about management is people can speak up. If you ever said to me we didn’t invest in important technology because we couldn’t afford it in the budget, and you didn’t make that clear at the time. Honestly, I would probably pull you aside and say you shouldn’t have that job. Lay it out, all of it, and then deal with it.
  • Forget quarterly profits. You make decisions all the time, if you made them just for quarterly profits, you’d be in trouble.
  • If you don’t know where you’re making your profit, you can’t make a decision. You may make a decision on something that’s not profitable. I do it all the time. But you will be making the wrong decision if you have no idea.

 

After the financial crisis

We should recognize that we had a crisis. Part of it was in the financial system, and you need reform.

You need good regulations. And I always talk about having good, not just more. So we support a lot of regulations; we don’t support all of them.

 

Seek out the bad

Fire the a**holes. I’m sure you’ve all put up with them, but they will destroy your company. It doesn’t take many of them.

We have these meetings, and after the meeting, they say, ‘I’ve got to come see you.’ (They always want to come see you after the meeting.)

You say, ‘Why?’

‘Well, I didn’t want to say it if front of everybody, but …’

Unless it’s really personal or confidential, you say. ‘No, if you can’t say it in front of everybody, you shouldn’t be getting the big bonus you’re getting.’

You’ve got to deal with conflict. Get the issues out. Have constant conversations about it.

It’s easy to say. It’s much harder to do. The CEO doesn’t always notice it himself because they are busy kissing up to you. You’ve got to get around and find out that they don’t respond to Jim — that they sound great here, but they are not serving people there.

 

Obstacles to U.S. growth

We’re growing at 2.5 percent. It should be faster.

Business is vibrant. We’re adding jobs. We’ve added a million jobs in the last three or four months.

The only difference now is if you ask me why it’s not faster, it’s just reams of bad policy — bad immigration policy, bad tax policy. We’ve had government shutdowns and all these silly things, just shooting ourselves in the foot.

And I’m not going to sit here and blame Republicans and Democrats. I blame them all. To me, we’ve just been wasting a lot of time, pointing fingers and not collaborating.

 

No road map for CEOs

There’s no road map when you get there. Things are always different than it was for your predecessors. And, obviously, the first goal is to manage the company.

But it’s your job to take care of your mind, your spirit, your body and your family. You’ve got to make a real effort — in all your jobs.

 

Small and big business are symbiotic

It’s very common to say that small business creates jobs. What ultimately creates jobs are capital expenditures, and in the U.S. I think it’s almost $2 trillion a year … and half of that comes from the Fortune 1,000.

When anyone (builds) a plant, in that plant is so many jobs, and outside that plant is usually five to 10 times that amount of jobs, often in small business.

 

Senate committee launches probe of JPM’s ‘Whale’ losses

NEW YORK, Fri Sep 7, 2012 – A U.S. Senate committee has launched a probe into JPMorgan Chase’s “London Whale” trading losses, according to a source familiar with the investigation.

The Permanent Subcommittee on Investigations, chaired by Senator Carl Levin, is interviewing current and former employees of JPMorgan’s Chief Investment Office in connection with the bank’s $5.8 billion loss on trades in an obscure corner of the credit market, according to the source.

A spokeswoman for the committee declined to comment.

JPMorgan’s losses stemmed from bets by London-based CIO trader Bruno Iksil on an index for credit default swaps. His outsized positions earned him the nickname “London Whale” from the hedge fund traders taking the other sides of his positions.

An internal investigation by the bank revealed the possibility that the trades may have been deliberately mismarked in JPMorgan’s books to make the losses look smaller.

On Thursday, JPMorgan named Craig Delany as the new head of the chief investment office, filling a role that had been vacant for over three months after his predecessor, Ina Drew, and other executives and traders from the CIO resigned.

Federal investigators and the Securities and Exchange Commission are looking into whether anyone involved in the incident committed a crime.

So far, seven current and former JPMorgan employees have hired lawyers to help them navigate the investigations. The bank’s internal probe is ongoing.

New York lender sues big banks over alleged Libor manipulation

NEW YORK, Mon Jul 30, 2012 – A New York lender has sued a group of large banks on the panel that sets a key global interest rate, saying it was cheated out of interest income through alleged rate manipulation.
The lawsuit, filed last week in District Court in Manhattan, seeks class-action status on behalf of similar lenders.
Berkshire Bank, which is not connected to Warren Buffett’s Berkshire Hathaway, says borrowers were able to take advantage of artificially low interest rates because of the big banks’ “unlawful suppression” of benchmark rates.
Defendants named in the suit include Bank of America Corp., Barclays Plc., JPMorgan Chase & Co. and Citigroup Inc.
At least one other community bank has filed similar legal claims, a sign that the rate manipulation scandal is having a broad impact. The Community Bank & Trust of Sheboygan, Wisconsin, said in a lawsuit several months ago that alleged rate rigging had kept its interest margins artificially low. That lawsuit also is pending in District Court in Manhattan.
Berkshire Bank had $854 million in assets at the end of last year, according to its website. It has 10 branches in New York and one in New Jersey.
The reliability of the London interbank offered rate, or Libor, which underpins transactions worth trillions of dollars, has been rattled by the rate manipulation accusations. Libor is used to set interest rates on credit cards, student loans and mortgages.
Big banks already face an array of Libor lawsuits by some big investors and local governments. Bank defendants have said in court papers seeking dismissal of these lawsuits that plaintiffs have failed to show banks acted to restrict competition, even if rates were improperly stated.

JPMorgan in $100 million credit card settlement

NEW YORK, Tue Jul 24, 2012 – JPMorgan Chase & Co. has agreed to pay $100 million to settle litigation by credit card customers who accused the largest U.S. bank of improperly boosting their minimum payments as a means to generate higher fees.
The class-action settlement resolves a three-year-old case stemming from Chase’s decision in late 2008 and 2009 to boost minimum monthly payments for thousands of cardholders to 5 percent of account balances from 2 percent.
It comes as JPMorgan, like many of its main rivals, addresses a wide range of litigation over its banking practices, such as whether it conspired to overcharge retailers on card transactions, or manipulated benchmark interest rates.
Cardholders claimed that JPMorgan had induced them to transfer balances from other lenders to Chase card accounts, where the bank would consolidate their debt into loans with “fixed” interest rates until balances were paid off.
But according to the cardholders, JPMorgan boosted minimum payments to force them either to accept higher rates to preserve the lower payment requirement, to make more late payments and trigger more fees or a 29.99 percent penalty interest rate, or to close underperforming accounts.
In a Monday filing with the federal court in San Francisco, lawyers for the cardholders said the $100 million is 45 percent of the $220 million in up-front transaction fees that their clients paid for the promotional loans.
They called the settlement an “excellent result” for cardholders, who would recover “a substantial portion of the transaction fees they paid.”
Legal fees would not exceed 27 percent of the settlement fund, the filing said.

JPMorgan Chase CEO to appear before Senate panel

WASHINGTON, Thu May 31, 2012 – JPMorgan Chase and Co. CEO Jamie Dimon will testify before the U.S. Senate Banking Committee on June 13 to discuss the bank’s recent trading losses, the committee said on Thursday.

The committee had previously asked Dimon to appear on June 7.

“June 13 is the only date in June that works for both the Senate Banking Committee and Mr. Dimon,” the committee said in a statement.

Earlier this month, JPMorgan said it had suffered at least $2 billion in losses from a set of trades that the bank said were meant to hedge risk, but that some analysts and critics say look more like speculation.

Regulators are examining what led to the losses before making any decisions about whether JPMorgan and other large banks will have to take steps to scale back the risk taking that led to the losses.

The losses have also added renewed vigor to the debate in Washington over how tough regulators should be when implementing the 2010 Dodd-Frank financial oversight law, passed in response to the 2007-2009 financial crisis.

A particular focus has been the so-called Volcker rule, which puts restrictions on bank trading activities.

A proposed rule was released in October, and a final version is due in July, although it may be delayed by a few months.

Supporters of the Volcker rule want regulators to tighten a provision in the October proposal that allows some trades to escape a ban on proprietary trading if they are done to hedge risk. They say the current proposal is too lax and would not have prevented the type of risk-taking that led to the JPMorgan losses.

JPMorgan’s future losses at the mercy of an obscure index

NEW YORK, Thu May 17, 2012 – It’s the biggest parlor game on Wall Street: Estimating how large JPMorgan Chase & Co.’s trading loss will be from a hedging strategy that went wrong.

The biggest U.S. bank by assets has already disclosed $2 billion of paper losses, and CEO Jamie Dimon said it could lose another $1 billion or more.

The losses will grow, some traders say, because it appears JPMorgan has only sold a small portion of its position, leaving it vulnerable to price swings in a thinly traded market. Others are not so sure the bank will suffer much more than it already has. Dimon said the bank won’t rashly sell, and any additional losses could arise throughout the year. A JPMorgan spokeswoman declined comment.

The source of JPMorgan’s problems is an obscure group of indexes that track the performance of corporate bonds. One of the indexes, the Markit CDX NA IG Series 9 maturing in 2017, is essentially a portfolio of credit default swaps – basically contracts that protect against default by a borrower.

This particular index is tied to the credit quality of 121 North American investment-grade bond issuers, including such names as Kraft Foods and Wal-Mart Stores.

JPMorgan used that index, and others, to bet that credit markets would strengthen. Because that position is widely known on Wall Street, many traders are betting the opposite way in the hope of profiting as the bank’s losses increase. The index has been moving against JPMorgan in recent days.

Oppenheimer & Co. used the average of the index in 2011 – 141 – to estimate on a straight line basis a theoretical additional loss for the bank of $5.9 billion. Oppenheimer analysts, however, cautioned that such a large loss was unlikely. “We think the number will be less” than a $5 billion estimate, they said.

JPMorgan to pay $150 million over failed Sigma SIV

NEW YORK , Tue Mar 20, 2012 – JPMorgan Chase & Co. agreed to pay $150 million to settle a lawsuit by pension funds and other investors accusing the largest U.S. bank of imprudently investing their cash in a risky debt vehicle that collapsed in 2008.

The settlement with investors including the American Federation of Television and Radio Artists Retirement Fund was disclosed in filings late Friday with the U.S. District Court in Manhattan.

It related to the collapse of Sigma Finance Corp, a $27 billion investment fund created by London-based Gordian Knot Ltd. Sigma failed in October 2008 at the height of the global financial crisis.

According to the complaint and a regulatory filing, JPMorgan invested cash collateral posted by participants in a securities lending program in about $500 million of medium-term notes issued by Sigma Finance Inc, a structured investment vehicle.

While Sigma once carried “triple-A” ratings, JPMorgan “buried its head in the sand and refused to heed the warning signs” as analysts began predicting by late 2007 that Sigma would be unable to repay the notes, the complaint said.

Sigma’s failure left about $1.9 billion as security for roughly $6.2 billion of medium-term notes and other secured debt, the complaint said.

JPMorgan says may face SEC action on mortgage bonds

NEW YORK – JPMorgan Chase & Co. said it may face federal enforcement actions stemming from two investigations into mortgage-backed securities that went bad in the financial crisis.

The largest U.S. bank, in a regulatory filing on Wednesday, said Securities and Exchange Commission staff told the company in January that they may recommend the commission bring cases against the company.

One possible case involves the bank’s scrutiny and disclosure of facts behind two sets of mortgage securities, JPMorgan said.

A second investigation involves loans used in mortgage securities created by Bear Stearns, the investment bank that collapsed and was sold to JPMorgan in 2008.

The JPMorgan statements, included in an annual filing to the SEC, follow similar disclosures on Tuesday by Goldman Sachs Group Inc. and Wells Fargo & Co.

The SEC staff frequently notifies subjects of investigations that it is weighing allegations of civil wrongdoing and offers them a chance to argue against legal actions.

The disclosures are the latest sign that government officials are stepping up action against banks that packaged home loans into bonds during the housing boom. The underlying mortgages later soured, spurring billions in losses for investors.

JPMorgan’s investment bank revenue ‘flat,’ chief Dimon says

NEW YORK ― JPMorgan Chase & Co., the largest U.S. lender by assets, will have “essentially flat” investment bank revenue this quarter excluding certain accounting adjustments, CEO Jamie Dimon wrote in an investor presentation.

The comparison is to this year’s third quarter, said Jennifer Zuccarelli, a spokeswoman for the bank. That period was the worst for trading and investment banking revenue at the biggest Wall Street firms since the depths of the financial crisis in 2008, excluding accounting gains.

The remarks show U.S. investment banks still face headwinds as corporations put off capital raises and investors sell riskier assets on concern the U.S. economy is weakening and Europe’s debt crisis may spread. New York-based JPMorgan’s private equity unit also expects to post a “modest loss” in this year’s fourth quarter, according to the presentation.

The company’s investment bank generated about $4.5 billion in revenue during the third quarter after backing out a $1.9 billion gain in debt-valuation adjustments. Dimon excluded that accounting effect in forecasting the unit’s revenue in a slide show to be delivered today at a conference hosted by Goldman Sachs Group Inc. in New York. A copy of the document was posted on JPMorgan’s website.

Revenue at the investment-banking unit has slid this year from $8.2 billion in the first quarter as concern that Greece would default and U.S. lawmakers would fail to raise the debt ceiling escalated in the third quarter. The firm told investors in October that the division will face similar market conditions for the rest of the year.

JP Morgan restarts Hewlett-Packard; cautious on big challenges

PALO ALTO, Calif. ― Hewlett-Packard Co. could face a troubled turnaround, with tough challenges that could result in underwhelming revenue and earnings growth, JP Morgan said, resuming coverage of the Silicon Valley company with an “underweight” rating.

HP is likely to underperform its peers as it undergoes a leadership transition, and the broader economy affects an overhaul of its businesses, JP Morgan analysts, led by Mark Moskowitz, wrote in a client note.

In August, HP stunned Wall Street by dropping its new TouchPad tablet device and saying it may spin off the world’s largest personal computer business.”HP’s $11.7 billion buy of software company Autonomy is expensive in the context of slowing organic growth and was not in the best interest of shareholders,” Moskowitz said.

“We think HP has set an unfavorable precedent that favors the sellers, not shareholders … HP will have to make a series of acquisitions over the next 5-10 years to become a full-fledged, one-stop IT shop,” he said.

The analyst expects HP, which has missed profit expectations three quarters in a row, to further disappoint Wall Street in the near to mid-term.

“The unclear messaging related to the PC business has contributed to competitive displacements, based on our conversations with industry contacts. It is our view that Dell and Lenovo are the early beneficiaries,” Moskowitz said, adding a slowdown would weigh on HP’s printer and services businesses.

Printer sales are likely to be dented as consumers move to smartphones and tablets, and slowing demand squeezes corporate IT budgets.

HP last month named Meg Whitman as president and CEO, replacing Leo Apotheker in a bid to restore investor confidence in the tech blue-chip.

Moskowitz praised Whitman’s leadership and communication skills, but expressed concerns about the former eBay Inc. CEO’s appointment.

“Our research indicates Whitman was not always willing to make the big changes at eBay near the end, and changes that investors had sought did not occur until after Whitman’s tenure. We are cautiously optimistic on the new appointment.”

Shares of the company closed at $23.02 on Tuesday on the New York Stock Exchange.