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The House of

Dimon

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The House of

Dimon

How JPMorgan’s Jamie Dimon Rose to the Top

of the Financial World

Patricia Crisafulli

John Wiley & Sons, Inc.

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Copyright © 2009 by Patricia Crisafulli. All rights reserved.

Published by John Wiley & Sons, Inc., Hoboken, New Jersey.Published simultaneously in Canada.

No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, (978) 750-8400, fax (978) 646-8600, or on the Web at www.copyright.com. Requests to the Publisher for permission should be addressed to the Permissions Department, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030, (201) 748-6011, fax (201) 748-6008, or online at http://www.wiley.com/go/permissions.

Limit of Liability/Disclaimer of Warranty: While the publisher and author have used their best efforts in preparing this book, they make no representations or warranties with respect to the accuracy or completeness of the contents of this book and specifi cally disclaim any implied warranties of merchantability or fi tness for a particular purpose. No warranty may be created or extended by sales representatives or written sales materials. The advice and strategies contained herein may not be suitable for your situation. You should consult with a professional where appropriate. Neither the publisher nor author shall be liable for any loss of profi t or any other commercial damages, including but not limited to special, incidental, consequential, or other damages.

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Library of Congress Cataloging-in-Publication Data:

Crisafulli, Patricia. The house of Dimon : how JPMorgan’s Jamie Dimon rose to the top of the fi nancial world / Patricia Crisafulli. p. cm. Includes bibliographical references and index. ISBN 978-0-470-41296-1 (cloth); ISBN 978-0-470-92469-3 (paper); ISBN 978-0-470-48372-5 (ebk); ISBN 978-0-470-48373-2 (ebk); ISBN 978-0-470-48388-6 (ebk) 1. Dimon, Jamie. 2. Capitalists and fi nanciers—United States—Biography.3. J.P. Morgan Chase & Co. I. Title. HG172.D495C75 2009 332.1092—dc22[B] 2008052153

Printed in the United States of America

10 9 8 7 6 5 4 3 2 1

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In memory of my father, Patrick B. Crisafulli, who taught me the difference between “the fast nickel and the slow dime”

1918–2006

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From everyone who has been given much, much will be demanded; and from the one who has been entrusted with much, much more will be asked.

—Luke 12:47-49 (New International Version)

I tell people there is a book on every single one of you. If I want to know you, all I have to do is talk to people who work with you and for you, clients, counterparts at other fi rms, friends, and relatives. . . . I will know you . . . much better than you think; in fact, maybe even better than if I spent an hour with you or two. . . . There is a book on everybody, and part of it is to try to make sure you fi gure out that book.

—Jamie Dimon, October 2002 speech Northwestern University, Kellogg School of Management

Executive Master’s Program

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vii

Contents

Preface xiAcknowledgments xvIntroduction xvii

Part One: In the Eye of the Storm

Chapter 1 The Dimon Way 3 Running the House of Dimon 7 The Rise, Fall, and Rise of Jamie Dimon 10 What You See Is What You Get 14 Straight Talk about a Credit Crisis 15 Never, Ever Forget the Downside 18 A Culture of Transparency 20 Doing What It Takes to Get the Job Done 23Chapter 2 Taking a Bear-Sized Bite 25 No Ordinary Deal 27 Presenting the Deal to Shareholders 29 Step-by-Step Through the Deal That

Changed Everything 32 Reining In the Risks 41 On Dimon’s Shoulders 42

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viii c o n t e n t s

Part Two: The Making of a Wall Street Leader

Chapter 3 The Weill Years: In the Trenches 49 The Making of Jamie Dimon 52 The Market in His Blood 53 Going to Work for Weill 56 The Rise of Sandy Weil 58 In the Trenches at Commercial Credit 60 Buying Primerica—A New Second Chance 65Chapter 4 A Force on Wall Street 71 Primerica Grows 74 A New Team for a New Corporate Entity 77 Growing Tensions 80 The Deal of Deals 85 The Firing of Jamie Dimon 89Chapter 5 The Recruitment of Jamie Dimon 91 Life after Citigroup 92 Bank One’s Search for a CEO 95 The New Bank One CEO 102 Taking Over as CEO 105 A House Divided 107 The Beginning of a New Culture

of Accountability 108Chapter 6 The Turnaround of Bank One 111 New Players for the Team 113 Welcome to Boot Camp 116 Taking It to the Street 117 Turning Around Bank One 119 Straight Talk from the New CEO 128 The Fortress Balance Sheet Debut 129 Restoring Profi tability 130Chapter 7 Back on Wall Street 133 The House of Morgan 136 The Deal That Almost Didn’t Happen 139 Delving into JPMorgan Chase 142 Dimon Takes Over 146 The Storm of 2007 150 The Wall Street Statesman 151

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Contents ix

Part Three: Weathering the Storm

Chapter 8 The Dimon Fortress 155 Strong Defense, Strategic Offense 157 The Signature Phrase 158 It Always Pays to Be Prepared 159 No Resting on the Laurels 162 Advice and a History Lesson 164 Stress Testing Assets 165 Having Real Capital 166 The Long-Term View 170Chapter 9 Taking Over WaMu: A Sign of the Times 171 Welcome WaMu 173 Washington Mutual Runs into Trouble 175 A Strategic Fit for JPMorgan 176 “First-Class” Banking Meets “Whoo Hoo!” 179 A Somber Picture 180 Failure and Takeover: A Sign of the Times 182 More Acquisitions in the Future? 186 Waiting for What Comes Next 187Chapter 10 Navigating Financial Storms 189 A Brief Postmortem of a Complicated Crisis 191 Bubbles Are Trouble 192 Even the Best Model Can’t Predict Everything 195 Blame the Underwriting 196 Launch New Products Cautiously 199 Risk at One Firm Affects Others 200 More Regulation Is Coming 201 Bolder, Braver Leaders 203Chapter 11 A Wall Street Statesman 209 The Hard Work of Being a Leader 211 Family, Humanity, and Then JPMorgan 212 Loyal—to the End 217

Notes 219About the Author 233Index 235

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xi

Preface

We would not seek a battle as we are, Nor, as we are, we say we will not shun it.

— William Shakespeare, HENRY V , Act III.6

T he stock market was an outrageous place in 2008: a plunge that wiped out years of gains in market capitalization and trillions of dollars of stock market wealth for investors and professionals

alike. Amid the wreckage, the deadliest toll has been in the fi nancial sec-tor, with the demise of the weakest companies and body blows suffered by even the strongest. As a recession — at fi rst feared and then declared a certainty — gripped the United States and started to spread globally, Wall Street became a dire place: profi ts dwindling, losses mounting, and thou-sands of jobs slashed.

This is not a typical backdrop for a business book, in what is arguably the darkest hour in U.S. fi nancial history since the Great Depression. And yet, these are the times that face us. No one gets to choose when or how such times will occur; certainly if there were any choice in the matter it would be to avoid them altogether. The only

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xii p r e f a c e

way to survive the assault is by facing it head - on, embracing the reality of just how bad it is and how much worse it could possibly get.

To paraphrase Thomas Paine, these are the times that try one ’ s soul. Yet these are the very same times that defi ne one ’ s leadership: not in the midst of all that goes well, but in the worst of all possible scenarios. Here is the real proving ground for those who will survive.

The market is rife with dramatic themes: of bloody battles, agoniz-ing losses, crushing defeats, and, for some, the potential for victory. No one will emerge unscarred from the Shakespearean tragedy that is the fi nancial crisis of 2007 – 2008. Yet some players stand to gain more (or at least to lose less) than others in an industry that has suffered at its own hands: the aftermath of taking on risks that proved to be not only unwise but untenable.

As with most good stories, this one continues to unfold. Indeed, the challenge of writing this book has been to fi nd the place where it at least pauses for a moment. With no clear end in sight, nor the abil-ity to pronounce with even the slightest certainty how it will turn out, the story of the rise of Jamie Dimon to the top of Wall Street (albeit a beleaguered place these days) provides lessons for today and as we head into an uncertain tomorrow.

Within the fi nancial crisis drama, Dimon has been a central char-acter as he has taken on not one, but two, acquisitions of failed or fail-ing fi rms. He and his team have managed to do this — although not without signifi cant diffi culties and challenges — because of his leader-ship style that focuses on preparedness above all. Thus in The House of Dimon we look at not only the current tumultuous events, but the developments that have brought Dimon — and JPMorgan Chase — to this moment in time.

Act I of Dimon ’ s career begins with a man born to the fi nan-cial industry: the son and grandson of stockbrokers, and the prot é g é of Sandy Weill, with whom Dimon helped to build what eventually became Citigroup. Act I comes to a dramatic climax with Dimon ’ s fi r-ing from Citigroup, a move that stunned him as well as the marketplace. Act II opens with Dimon ’ s reemergence from an 18 - month hiatus as the CEO of Bank One, which was in need of strong leadership and a turnaround. Then came the sale of Bank One to JPMorgan Chase and Dimon ’ s ascent to the top executive spot at the fi nancial institution

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Preface xiii

named for legendary fi nancier J. Pierpont Morgan. The real drama of Act II still rages with a credit crisis that has spared no one, not even the strongest. If Dimon ’ s past is at all predictive of his future, however, he will emerge from this stronger perhaps and, as a student of history, undoubtedly wiser from the lessons learned.

James Dimon, known the world over as Jamie, has made his mark on JPMorgan, itself a legendary fi rm. For that reason the company he leads as a hands - on, full - accountability executive is the House of Dimon, refl ective of his leadership style and management vision. The success of the fi rm is intertwined with his own and is largely depen-dent upon the ability of Dimon and his team to navigate through the worst of this storm and make it, one expects, to the other side.

— Tricia Crisafulli

Author ’ s Note: The company name appears through much of the manuscript as JPMorgan Chase, in keeping with the fi rm ’ s own style, or shortened to JPMorgan. When referring to the fi rm in the past, particularly prior to its merger with Chase, the name J.P. Morgan & Company is used. In addition, some news organizations, which are quoted herein, refer to the company as J.P. Morgan Chase. The author has attempted to use the company name consistently while respecting these preferences, and apologizes for any inadvertent confusion.

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xv

Acknowledgments

S pecial thanks to my husband, Joe Tulacz, for your love, support, and understanding. Being married to a writer — especially one on deadline — is not easy.

To my son, Pat, for your sense of humor and for making me laugh (especially at myself ). Watching you grow up is pure joy.

To Susan and Steve Dolan; thank you for your enthusiasm and feedback. What a joy to have neighbors who are not just good friends, but also good readers!

To my sisters, Bernadette Crisafulli and Jeannie Zastawny, and my brother - in - law, Ben Zastawny; thank you for your love and prayers. And for my niece, Stephanie Crisafulli, who is an inspiration.

To supportive friends too numerous to mention, especially Janie Gabbett, Margaret McSweeney, Leslie Levine, and Debi Spellman; to Rich Green, my UBS stockbroker and friend; and Fari Hamzei of Hamzei Analytics, dear friend and wise adviser. Thank you all for cheering me on.

To my editor at John Wiley & Sons, Kevin Commins, who cham-pioned this book from the fi rst conversation, and coached and encour-aged me at every step. Thank you for your faith in me. Thanks to

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Meg Freeborn, development editor, for the time and care taken with this manuscript. And thanks to Mary Daniello, senior production edi-tor, and the entire Wiley team.

To my agent, Doris S. Michaels, at DSM Literary Agency, and Delia Berrigan Fakis, director of development at DSM. A huge thank - you for so many, many things. What a journey we ’ re having together!

Thanks to Joseph Evangelisti of JPMorgan Chase for arranging interviews and fi elding questions. And to the many people who agreed to be interviewed and graciously gave of their time, thank you; without you, this book would not have been possible.

xvi a c k n o w l e d g m e n t s

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xvii

Introduction to the Paperback Edition

Two years later, so much was different. When I fi rst interviewed Jamie Dimon in October 2008, the fi nancial world was unraveling and no one knew for sure where it would all end. Now, on this

hot summer day in July 2010, the world was in a much more stable place and, sitting in the very same conference room where we spoke previ-ously, JPMorgan Chase CEO Jamie Dimon had far fewer worries. Yes, the slow-growing U.S. economy was threatening to slip back into reces-sion and the impact of the recently enacted fi nancial reform on JPMorgan Chase and the fi nancial industry was going to be mixed, at best. But compared to 2008 when the fi nancial crisis threatened the very existence of major institutions, July 2010 was not bad at all. Relaxed and jovial, Dimon’s demeanor was far different from our initial meeting, when he had appeared tense and somewhat distracted at fi rst, and with good rea-son. A few weeks earlier, the fi nancial world had been rocked by Lehman Brothers’ tumultuous bankruptcy. Just days before, Washington Mutual became the largest bank failure in U.S. history and was subsequently acquired by JPMorgan from the government. And that very day of our

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xviii i n t r o d u c t i o n t o t h e p a p e r b a c k e d i t i o n

conversation, the Dow Jones Industrial Average dropped another 700 points.

“I am surprised I met with you at all,” Dimon said, with a shake of his head. “I had canceled so many things. I was here 12 to 15 hours a day.”

My fi rst impression of Dimon in October 2008 had been just how tired he looked, like someone who had gotten very little sleep, who went to bed with worries on his mind and woke up to fi nd that those concerns had multiplied overnight. “I was scared,” Dimon admitted, recalling when the entire fi nancial system looked vulnerable and the U.S. economy plummeted into recession. “But I always slept,” he added. “I was never up all night like some people through the crisis. I would actually lie down and try to get a little sleep. I used to tell people, ‘Just feel free to call anytime.’ So I was awakened many times.”

One of those wake-up calls came during a business trip to the Middle East in late summer 2008. Henry “Hank” Paulson, who was then Treasury secretary, called Dimon at a hotel in Saudi Arabia one night with news that stock prices for many fi nancial institutions were collapsing. When Dimon got up a few hours later, he knew he had to cut his trip short and immediately return to New York. “I said, ‘This is just getting worse,’ so I rushed back.”

Dimon is sleeping better these days. He is no longer involved day to day in what he described as “constant fi refi ghting.” During the worst of the crisis, JPMorgan, one of the strongest of the Wall Street institutions, fought blazes in its own portfolio, while at the same time helping to keep the fi nancial system from being torched by a deadly confl agration of bad debt, shrinking asset values, and panic. Now, enough time has passed to declare the worst of the crisis over, although things are far from back to normal and the effects will no doubt be felt and fi nanced for years, if not decades, to come.

Looking ahead, Dimon declined to share any specifi c eco-nomic predictions, such as the possibility of infl ation skyrocketing in the future, which some economists see as the inevitable result of the government’s spending for bailouts and economic stimulus. “No one knows the future. Our job is to be prepared for the future, not to spend all our time guessing,” he added. Preparing for the future, of course, involves making economic projections, such as JPMorgan did when buying Washington Mutual. In that transaction, it laid out specifi c

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Introduction to the Paperback Edition xix

scenarios for increasingly bad conditions, including severe drops in housing values and rising unemployment (see Chapter 9). No doubt in its internal analyses and projections today, JPMorgan is plotting the likely future course of the economy with several variations for con-ditions that improve or worsen from here. Whatever those scenarios might be, Dimon did not give any hints.

What Dimon did share, however, was a fairly optimistic view of the current economy, which seems all the more signifi cant given his bias toward caution. “There is no question that things are far better than they were when we last met. A lot of underlying things in America are actually okay; they’re getting better, stronger. . . . Employment is going up a little bit, but obviously not enough to reduce the unemployment rate signifi cantly. Businesses are healthier; banks are healthier. So yes, things are getting better,” Dimon observed. “We see it in consumers, middle-market companies, order books anecdotally, consumer delin-quencies, home prices—everything is better. It doesn’t mean that things can’t get worse, but there has been real improvement.”

Considering how bad things were in 2008, during the worst crisis since the Great Depression, current conditions can’t help but appear better—including for JPMorgan, which has had a string of strong quar-terly earnings performances. Most signifi cant of all, today Dimon and his team are no longer at battle stations, as they were during much of 2008 and into 2009, often working seven days a week and sometimes through the night. “On some of these fl oors you could walk around and there was leftover pizza in that room, leftover Chinese in that room, people sleeping on couches. It was surreal,” Dimon recalled.

The magnitude of the crisis required an all-out response that focused almost exclusively on identifying problems and dealing with them. “That’s the other thing. I remember seeing some other people [at other fi rms] and for them it was like business as usual. Not me. I tethered myself to the desk. I was at my desk prepared.” He clasped his hands on the conference room table with a gesture that mimicked his readiness to handle whatever came his way, whether a problem that needed to be addressed internally or a call from the government. “In the crisis, you’ve got to be relentlessly focused on the crisis—nothing else. That is the only thing you’ve got to do. Everything else pales by comparison. . . . I cut out everything extraneous.”

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Risk meetings that were normally held once a week were happen-ing three times a day, seven days a week, for months, starting with the near collapse of Bear Stearns and its subsequent purchase by JPMorgan Chase (as related in Chapters 1 and 2) in March 2008. The meetings extended beyond the 15 people on the JPMorgan risk committee. It wasn’t unusual to have 50 people in the room to discuss, say, mort-gages, and 50 more waiting outside for their chance to present prob-lems and provide updates in another area. “You might have said, ‘We’ve got a problem with this huge client.’ That would be on the list. We’d go through the risk; we’d go through the people [involved]; we’d go through clients. Everyone would be in the room to discuss what we needed to do and the risks that were systemic,” Dimon explained.

At the center of the meeting was Dimon, directing most of the discussions for the sake of expediency. “It was, ‘What d’you got? What d’you got? What d’you got?’ ” Dimon pointed around the empty chairs at the conference table. Even as he reenacted the scene briefl y, his intensity could be felt.

“We didn’t allow the normal ‘Well, I didn’t really think that you’d ask me a question about that.’ It was ‘Okay, leave the room, get the answer, and come back. Be succinct because we don’t have time.’ Or, ‘We’ll do it at twelve. You’ve got fi ve hours,’ ” he added.

The acquisition of Bear Stearns was a risky proposition right from the start, Dimon commented, “and that was before we knew how bad the world was going to get.” Although he has said repeatedly that Bear Stearns will be a “net plus” for the company as it generates profi ts in the future, JPMorgan had to deal with a crisis-induced combination of enormous uncertainty and horrible market conditions. Having gone through the experience of buying Bear Stearns, mitigating the worst risks in its portfolio and integrating operations, would JPMorgan do it again? Dimon gave a qualifi ed answer of both yes and no.

“So would we do it today? Yes. The businesses we’ve got today are actually worth the money we spent,” he observed. But add in the amount of risk that JPMorgan had to deal with, the level of fear and panic in the marketplace, and the timing of the transaction as the fi nancial system appeared headed toward collapse, and Dimon offered a different response. “No, we wouldn’t have done it if we weren’t asked by the government. And based on everything I know today, that would still be true.”

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Introduction to the Paperback Edition xxi

The three-a-day risk meetings that began with Bear Stearns lasted through early summer of 2008, when things appeared to be getting better. By late summer, however, things had taken a decided turn for the worse, and the intense risk sessions resumed from late summer 2008 through the winter of 2009. The worst time of all was late September 2008 when Lehman Brothers failed. This time, unlike the Bear Stearns rescue, the government did not intervene. As Wall Street braced for the impact as assets were dumped onto an already weak market, Dimon rallied his troops. “I called everyone Friday night and said, ‘Get to the offi ce at seven tomorrow.’ I told them why,” Dimon recalled. “We had a hundred work streams going at one time.”

At one point JPMorgan lent $100 billion to Lehman in its bank-ruptcy at the request of the government. “Think about that for a second—a hundred billion. We fi nanced Lehman in its bankruptcy because the government wanted us to. And our exposures to Lehman were huge,” Dimon said. “We tried to protect ourselves, while also try-ing to do the right thing.”

JPMorgan also acted as the counterparty, or a middleman, for banks including Lehman Brothers in what is known as “tri-party repo,” in which an institution such as JPMorgan holds securities for its clients and then lends out those securities to other parties. When Lehman’s fi nancial condition worsened, JPMorgan asked for more collateral since 90 percent of the loans made through tri-party repo involved cli-ent money and assets, which JPMorgan needed to protect. An alleged demand for $8.6 billion in additional collateral from Lehman Brothers is at the heart of a lawsuit against JPMorgan brought by the Lehman bankruptcy estate. JPMorgan has called the suit without merit.

As liquidity seized up during the crisis out of fear of who could fail next, JPMorgan stepped up its lending in the interbank market, at one point lending $70 billion a day “at the worst time,” Dimon recalled. “We did it because they [the other banks] needed it. We were trying to do everything we could do that was right for the system.”

When West Coast–based Washington Mutual failed in September 2008 and was taken over by the Federal Deposit Insurance Corporation (FDIC), the process was far more orderly. JPMorgan then stepped in to buy the institution for $1.9 billion. The transaction (as described later in the book) was seamless, showing how the system of government takeover

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and disposition of assets is supposed to work. For JPMorgan, the deal was a great opportunity. “We were dying to get into California and Florida,” two markets in which Washington Mutual had an extensive presence, Dimon explained. “We actually visited most of these branches—not all 2,300 but more than you think. We knew that it made great economic sense.” Although JPMorgan has had to write off $40 billion in Washington Mutual assets—mostly subprime loans—and could potentially write off another $10 billion or even $20 billion more in a worst-case scenario, it will still be “a home run for a hundred years,” Dimon declared.

It’s All about the Team

JPMorgan Chase has been criticized for picking off valuable assets dur-ing the crisis at bargain-basement prices. That was possible only because of what Dimon has frequently described as the bank’s “fortress bal-ance sheet,” meaning fi nancial strength and reserves that are more than enough to withstand cyclical downturns and risks that could mate-rialize should conditions change suddenly or worsen. Because of the company’s prudent, conservative approach, Dimon has received many accolades and awards, the most recent being the Executives’ Club of Chicago’s 2010 International Executive of the Year. He is largely cred-ited for protecting JPMorgan from the worst of the systemic risks and leading the fi rm through the crisis relatively unscathed.

Yet when asked about his personal leadership abilities, Dimon shrugged off the question with an eye roll and a laugh, showing his public aversion to taking credit and always deferring to his team. “If you don’t have a good team, it doesn’t work,” he said. “So the fi rst thing is that a leader needs to be able to assemble and have a disciplined team. That discipline supports the whole team. It’s the work ethic; it’s the constant facts and analysis, constantly delving into it.”

Also crucial is creating an environment in which it is safe to dis-close mistakes and address them as quickly as possible. If a company cul-ture is one in which problems are hidden for fear of reprisal or because management would prefer not to know, then what is a relatively minor issue today can easily escalate into something much more serious. “Businesses make lots of mistakes, so part of the point of business is to

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Introduction to the Paperback Edition xxiii

analyze them, to correct them, to have some sense of urgency about it; to have a management environment where it’s okay to acknowledge mistakes—that way you can fi x them,” Dimon added.

What has distinguished JPMorgan from other organizations, most notably the ones that failed, such as Lehman Brothers and Bear Stearns, or those that have struggled, such as Citigroup, is the fact that the team was already prepared and disciplined long before the crisis hit. “You can’t start a war and then say, ‘We need the 82nd Airborne.’ The train-ing to do that takes decades; it didn’t take two minutes. You can’t repli-cate these things overnight—the discipline, the risk reporting, analyzing your business,” Dimon said.

“You’ve got to be prepared before the crisis. It doesn’t help to wait for a crisis and then get prepared. That means your people are already prepared and trained, the place is disciplined, the reports are mostly there, the facts are already being disclosed. When we were going through these problems [at the height of the fi nancial crisis] there were companies that had no idea what their capital calls were going to be. We always knew.”

Two years before the fi nancial crisis, JPMorgan Chase had started to increase its capital reserves. By the time the crisis hit, the bank already had strong levels of operating capital that allowed it to weather the storm without incident. When it came time for the government-mandated stress tests in early 2009 to determine which banks were well capitalized, JPMorgan Chase passed with fl ying colors.

“I always said capital and conservative accounting are protection. So it’s the preparation beforehand: capital, reporting, and liquidity,” Dimon added.

Dimon’s leadership has been developed and tested over the years, from his days at Citigroup, to taking over as CEO of Bank One, which was in need of a turnaround, and then at JPMorgan Chase after it acquired Bank One. Although Dimon is known for bringing his brand of discipline and accountability to JPMorgan Chase, where he came in as president and later became CEO, he was quick to credit the man-agement and the team that was already in place. As he described it, the company already had “high-quality people throughout. It had an intel-lectual honesty that was palpable. So when I fi rst got here and went to meetings. . . . people wanted to tell you everything. They had ana-lyzed it. They wanted to share the results of the analysis. So it wasn’t

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like pulling teeth; it was more like ‘Are we making the right decisions?’ You already had the integrity, work ethic, and global perspective.”

When it comes to leading and executing, one of Dimon’s most effective tools is a piece of white paper—an ordinary unlined 8 1/2-by-11 sheet on which he keeps track of everything. Hearing that this sheet of paper has elicited numerous queries after The House of Dimon was fi rst published, Dimon brought it into our meeting.

“These are the calls I’ve got to make. These are the dates. This is stuff I have to do or think about,” Dimon said, showing the paper on which there were columns of brief notations. When a task is completed, it is crossed off the list.

Dimon smiled mischievously as he drew attention to “F/U” writ-ten on the page in his large and somewhat sloppy handwriting. “That’s ‘follow up.’ ” After a weekend of reading, the F/U column quickly fi lls up with items for the operating committee.

Every third or fourth day Dimon starts with a fresh piece of paper. There might be 20 or 30 items remaining on the old sheet, which he evaluates to determine whether they still need to be addressed. If so, they are noted on the new sheet, along with any additional tasks and priori-ties, with notes so cryptic that the paper could be lost (and sometimes is) without compromising any proprietary or confi dential information.

The sheet of paper not only is a highly effective organizing tool, but it also symbolizes Dimon’s leadership as a detail-oriented executive with a hands-on approach. He keeps track of myriad details, which is impressive in any organization, let alone a gigantic one like JPMorgan, to make sure information is shared broadly and problems are uncovered and thoroughly discussed.

“We’ve acquired companies where nothing happens. The infor-mation doesn’t fl ow,” Dimon explained. “The people in the corporate headquarters don’t know what the salesman does. The people who run the systems never talk to people who run the business. Companies have to have everyone at the table, from the lawyers to the systems to sales to marketing to risk.”

When information doesn’t fl ow, bureaucracy builds and depart-ments become siloed. Stagnation is the inevitable result. “Bigger compa-nies are always slowing down. Bureaucracy is always growing. Corporate headquarters becomes too self-important,” Dimon says. “What you’ve got to do is always have a sense of urgency; always kill the bureaucracy.

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Introduction to the Paperback Edition xxv

Make sure that everyone in corporate headquarters knows that they’re there because there is a banker in front of a client. . . . We should always be responsive to that.”

Dimon related a story that obviously irked him about someone who had talked about operations as if they were simplistic. “I said, ‘If you went to a mortgage operation center and we had to train you on how to do mortgages or defaults, you’d be shocked at how hard it was for you to learn, and when you are under pressure with an angry client, how hard it is to deal with that. You’ve got to respect that. You can’t act like that’s the simplistic part.’ We’ve got 15,000 people doing that, and we all better support that process.”

After the Crisis and Financial Reform

In the aftermath of the fi nancial crisis, there are dozens of lessons learned, which Dimon has documented in his chairman’s letters in the most recent JPMorgan Chase annual reports. Many also appear in the upcoming chapters of this book, from the dangers of high-risk mortgage lending to the derivatives created to capitalize on them. Among the lessons is the faulty thinking behind too big to fail, which Dimon has called “a bad idea.” Too big to fail sets up the possibility of oversized risks to be taken on by institutions that can rely on the cush-ion of government intervention. “Were some of these companies bailed out? Yes. Did they need to be bailed out to stop the system from get-ting far worse? Probably,” Dimon remarked.

Bailing out troubled institutions is not the only solution. Dimon pre-fers allowing troubled fi nancial institutions, large or small, to “die a peace-ful death that doesn’t damage the economy if you set it up that way. . . . Think of it as bankruptcy that doesn’t damage the whole world—a spe-cialized bankruptcy that is a little different than for normal companies.”

In a November 2009 editorial in the Washington Post, Dimon laid out his ideas for the “orderly failure of large fi nancial institutions,” which requires that regulators be given “the authority to facilitate failures when they occur.” As Dimon wrote, “Under such a system, a failed bank’s shareholders should lose their value; unsecured creditors should be at risk and, if necessary, wiped out. A regulator should be able to terminate management and boards and liquidate assets. Those

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xxvi i n t r o d u c t i o n t o t h e p a p e r b a c k e d i t i o n

who benefi ted from mismanaging risks or taking on inappropriate risk should feel the pain.”∗

If regulators had those tools for investment banks and large fi nancial institutions, such as the FDIC has for banks, Dimon said in our con-versation, the Lehman bankruptcy and the need to bail out American International Group (AIG) would have proceeded differently and more effectively. At the time, however, “regulators just didn’t have them in effect for nonbanks.”

At the time of our most recent conversation, Congress was hag-gling over the details of fi nancial reform, which, despite all the debate along party lines, appeared certain to pass in one form or another. Dimon has written and spoken publicly of his support in general for fi nancial reform, particularly the creation of a single bank regulator and strong capital and liquidity requirements across the board for fi nancial institutions. Increasing systemic risk oversight is also a positive.

Nonetheless, Dimon noted there were “a lot of things in the bill that have nothing to do with the crisis and that will have adverse con-sequences on clients, customers, and credit.” Just what that impact will be, however, is diffi cult to determine, given the scope of the legislation and the uncertainty of how the hundreds of rules will be written.

JPMorgan has devoted hundreds of work streams on the analysis and implementation of regulation. Even before fi nancial reform became law, JPMorgan noted that its revenues and earnings are predominantly generated by client-focused businesses, and not by in-house proprietary trading businesses, which would be subject to stricter regulations. In addition, the company has a clear separation between fi duciary and trad-ing businesses, maintains a conservative balance sheet and strong capital levels, and pursues strong fundamentals and a diversifi ed earnings base.

Dimon has regarded fi nancial reform as the inevitable result of a crisis of such magnitude, even though there are clearly parts of the bill that he fi nds objectionable. “We’ll be fi ne,” he assured me. “We just want to work through it, do the right thing for the company, do the right thing for clients. It is what it is. This is how a democracy works, and that’s life. I do think there are some things there that were not

∗ Jamie Dimon, “No More ‘Too Big to Fail,’ ” Washington Post, November 13, 2009, www.washingtonpost.com/wp-dyn/content/article/2009/11/12/AR2009111209924.html.

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