Jamie Dimon访谈：JP Morgan如何成为一家8000亿美元的银行

David, we completely blew it. We went into Jamie Dimon's office and had our little meet-and-greet. We did not ask about the dueling pistols from the duel between Alexander Hamilton and Aaron Burr, which JPMorgan owns and keeps in its headquarters. We blew it. We didn't ask to see them.

We'll just have to come back. When they finish the new building, I'm sure they'll be on the executive floor. We can go get a viewing of this piece of American history. Speaking of American history, let's do it.

Yeah, let's do it.

Today's episode is the story of a rising star on Wall Street in the 1980s who worked with his mentor to merge and acquire their way to the top of the financial world in the '90s, then got fired unexpectedly by that same mentor and had to figure out what to do next. In 2000, he accepted a job turning around a poorly run Midwestern bank. Over the next 25 years, he orchestrated one of the most remarkable runs in banking history—and really, all of corporate history.

This is the story of Jamie Dimon and how he created the modern financial behemoth JPMorgan Chase out of the beleaguered component parts of Bank One, JPMorgan Chase, Bear Stearns, Washington Mutual, and First Republic.

Jamie is now the longest-serving CEO of any major Wall Street bank and is viewed as kind of the great stabilizer of the American financial system, especially during the 2008 financial crisis. He now sits atop the largest bank in the United States, with a market cap of over $800 billion—more than twice that of its nearest competitor. It is the only bank within spitting distance of the big, trillion-dollar tech companies we've covered here on Acquired.

To really put a finer point on the dominance, it is the most valuable company east of the Mississippi in the United States and the only company east of the Mississippi worth more than half a trillion dollars. Incredible. So the question, of course, is: How did he do it? Banks fail. Financial firms often have spectacular blowups, and large organizations, financial or not, can often get so bloated that they slow down to a crawl. So what did Jamie Dimon do differently?

Well, this feels appropriate. You guys dressed up for me.

You dressed up for us, too. Thank you. Last year, we had you on the video board at Chase, and you were looking very summery there. You look great tonight.

Thank you.

We know you're a big history buff, and we consider ourselves historians above all else. What we'd like to do here tonight is walk through the 20-year story with you of how you turned JPMorgan Chase from a bank among many to the most systemically important financial institution in the world. Are you game? Sound good?

Sounds great. Thank you.

We want to start in 1998. You and your mentor, Sandy Weill, have just spent the past 13 years building the modern financial institution conglomerate—the blueprint for what JPMorgan Chase is today. Except it's not JPMorgan; it's Citigroup. Everybody on Wall Street, in the entire world, expects that you're going to be named CEO of Citigroup in short order.

1998.

This is not what happens. Instead, you get fired, and you have to restart your whole career, everything, your whole life from scratch. Sorry to start here, by the way, but before we get into what you do next, what was the model that you and Sandy built at Citigroup?

First of all, I am thrilled to be here. I want to congratulate these guys for building Acquired. It's a great, intelligent addition to what we need to learn in society.

1. The Firing That Changed Everything

I would say it wasn't quite the model, because if you look at what we did at Commercial Credit, Primerica was then Travelers, and they merged. We were a financial conglomerate. We bought lots of companies and lots of different businesses. We fixed them up, we turned them around, and we made money. Then we merged it with Citibank, which obviously was a huge bank.

My view was that we should skinny it down and shed the parts that aren't that important to the rest of the company, and keep the things that strategically belong together together. It was one of my small disagreements with Sandy about the future of the company. But it was big, it was making a lot of money, and it was quite successful at the time. Then I got fired.

So how were you feeling in that moment?

When I got fired?

Yeah, that moment.

My wife is here, and I was hosting 100 people, recruiting kids, in my apartment in New York City—the same apartment I have now. They called me. We had a management meeting Sunday at 4:00 p.m. that night. Sandy and John Reed called me and said, “Can you come a little early? We've got a bunch of stuff to talk about.”

I was the president and chief operating officer. I drove up. I said, “I can't.” They said, “It's really important.” So I drove up. I sat down in the room with Sandy and John, and they said they wanted to make a few changes. There were 3 of them, and they said, “We want to make this person in charge of that.”

I said, “Okay.” That didn't make sense to me. The second one was that they wanted to make someone in charge of the global investment bank, which I was running. I thought it was another stupid decision. And the third was that they said they wanted me to resign. I said, “Okay.”

At that moment, I knew it was all arranged. The board had voted, the press release was written, and the management team was coming up. So I waited for the management team to come up. I wished them the best. I said, “You guys have a chance to build one of the great companies.” They all thanked me. Sandy said, “You want to do the—”

I went home and went to see my kids. One of my daughters is here, too. They were like 12, 14, 12, and 10. I walked in the front door and told them I was fired.

The youngest one said, “Daddy, do we have to sleep on the streets?” I said, “No, we're okay.” The middle one, who was always obsessed with college for some reason, said, “Can I still go to college?” I said, “Yeah.” And the one who was here, who was the oldest one, said, “Great. Since you don't need a job, can I have your cell phone?”

That night, about 50 people came over—all the same people I'd just met, the entire management team—bringing whiskey. It was like having your own wake. There's one really tall guy who came in, a very good friend of mine. He looks at my daughter, and my daughter looks up at him and says, “Who are you?” He says, “I used to work for your daddy.” She says, “Not anymore, you don't.”

That was it. I was okay. I tell people it was my net worth, not my self-worth, that was involved.

For anyone who doesn't already know Jamie's story, you were the rising star. Citi was the biggest bank. You were the heir apparent. This was unfathomable, and for you to take it this gracefully says a lot.

You're sort of wandering in the woods, as best as I can reconstruct it, for about 18 months. Is that right? Figuring out what's next?

Yeah. It took me a while to exit, sign agreements, and get out. They were kind of mean. Then I stepped into an office, and it was late. We went for a nice, long vacation and stuff like that.

When I got back in September, so that was 6 months later, I went to my office. I started going to work. I had nothing to do, but I went from 2:00 to 9:00 to 5:00 and started calling people and thinking about what I was going to do. It was in the Seagram Building, so I could go for lunch downstairs every day.

Four Seasons?

At the Four Seasons. I explored everything. I started my own merchant bank.

I could have retired just teaching, just investing, but I was 42.

And you took a call about running Amazon, right? You took a call about running Amazon, didn't you?

I went to visit Jeff Bezos, who was looking for a president at the time. He and I hit it off. We've been friends ever since. He's an exceptional human being. But it was like a bridge too far, even though that movie had just come out, “When Harry Met Sally.” I was thinking, “My God, I'll never wear a suit again. I'm going to live in a houseboat.” Yeah, this would be really great.

What an alternate universe we'd be living in.

It would have been an alternate universe, but I'm still good friends with Jeff, so I got at least one good thing out of it.

And then I got serious. I was offered jobs to run other big global investment banks. Hank Greenberg, who ran AIG, called me up and said, “You should come join us.” I was thinking, “I'm going to go from Sandy Weill to you? I mean, I'd have my head examined to do something like that.” I didn't know the AIG story.

Well, that happened years later, too.

2. Choosing Bank One

Then I got a phone call from a headhunter about Bank One. I was also—you guys, a lot of you probably know Ken Langone, Bernie Marcus, and Arthur Blank, who ran Home Depot. My wife and I loved them. But at my first dinner with them, I went to see them in Atlanta and said, “I have to make a confession. Until you guys called, I'd never been in a Home Depot.”

We were actually wondering. David and I were debating.

My friend made me go up there and get some equipment and plants and stuff like that. But I loved their culture and their attitude. They wanted me to do it. Ken Langone says, “I still should have gotten you. I wasn't going to pay you enough.” Of course, it had nothing to do with anything like that.

I had Bank One, but Bank One was my habitat. I was used to financial services and banking. It wasn't quite global. It was a little global at the time. It was a troubled bank, and I decided that life is what you make it. It was hard on my family. We had to move. I think the kids were 14, 12, and 10 or something like that. It's hard for anyone who's going to move kids.

For context on Bank One for folks who are not familiar, it's not in New York. It's a large bank, but it's a troubled bank.

Yeah. It's based in Chicago.

David, it's a $30 market-cap bank. Citigroup, where you had just been before, was a $200 billion bank.

$21 billion at the time, because it had done a split. If you look back, it was more like $20 billion or something like that. Citi was $200 billion, but I didn't worry about that. I was like, in life, you make things what they are. I don't like complaining about spilled milk. You put on your pants, you get going, you see what you can make out of it.

It sounds like you had opportunities to stay in New York to run bigger, more glamorous things.

One, I was going to run the company. The other ones would have been investment banks. I didn't really trust some of the people who were talking to me about that. There was a whole bunch of other stuff that I explored. I took phone calls from some small companies and some big companies. There were a couple of subprime mortgage companies who called me, and I was like, “Absolutely not.”

We'll get to that.

So I just thought this was a chance. If the family was willing to move, we got a nice place. It took us a while. We had to live in a rental for a while, but we got a nice brownstone, and we ended up loving Chicago. Chicago's a wonderful city in a lot of different ways. I guess it is what you make it. I put half my money in the stock at the time.

I was going to be the captain of the ship. I was going to go down with the ship. I made it clear to everyone I was here permanently, and it would be what it would be, so I got to work literally the next day.

Did we do the math right that, right before you joined Bank One, you bought $60 of stock?

I did.

I've never heard of someone taking a CEO job and saying, “I'm going to invest half my net worth in this company now.”

I thought it might be overvalued a little bit, because people thought it might be sold or something like that, but I didn't care about that. If you work at a company and the new CEO comes in from out of town, you're going to have a lot of shareholders, and I knew a lot of the shareholders. I was going to know a lot of the shareholders. I wanted them to know I was 100%—lock, stock, and barrel.

There was no question I would never sell that stock. I was going to go down with the ship or go up with the ship. They also saw me as making decisions that I thought were right for the long-term health of the company, and I wasn't doing it for a short-term type of thing.

So what did you find when you got there? Day 1 on the job, you start investigating. Was it better or worse than you thought, or about the same?

There had been an analyst called Mike Mayo who had done a report. I remember one of the great lines in the report: “Even Hercules couldn't fix it.”

It had been an amalgamation of Bank One, First Chicago, and National Bank of Detroit. They'd never put the companies together, so they had multiple statement systems, processing systems, payment systems, and SAP systems. They had different brands and services coming down. We were losing accounts. They were closing branches. It was a mess. It was all of it—systems, people, and operations.

But again, I met the management team. It's hard. I walked in and met 6 of the directors. There were 21 directors. 11 hated the other 10.

Wait, wait, wait. There were 21 board members?

21 board members from the merged multiple acquisitions. They were tribal. They ended up hating each other. I knew that when I went in, because I knew people, and I spoke to a lot of people and did research in the bank.

But again, in life, you get handed these things. It's not perfect. Even today, people want to be handed something perfect. It's not perfect.

When I got offered the job, I shook all their hands. I told them I would do the best I could. I'm going to tell the truth, the whole truth, nothing but the truth—the good, the bad, the ugly. We're going to try to build a great company. I'm going to need your help. Then they left.

Now I'm on the executive floor, and I don't even know where to go. I knocked on someone's door—the head of HR—and said, “I do need an office, and I really need an assistant.” They were going to give me the chairman's office in the corner. I said, “No, no. I want to be right in the middle, so I can see people when I stick my head out.”

Then I went to meet the management team. They put them all in this conference room with nice white plush carpets. I walked in with a cup of coffee, and they said, “Jamie, we don't drink coffee here, for obvious reasons.” So I looked at them. I had the coffee. I looked at them and said, “You do now.”

Then I started meeting with them all, and the systems were terrible. The company was losing money. I didn't know all the businesses really well, so the credit card company had collapsed. That's probably the business I knew the least. But again, that didn't matter to me. I was going to try to fix it. It had some good assets and things like that. I rolled up my sleeves and went to work.

As we were chatting a couple of weeks ago in preparing for this, we asked you, in the context of JPMorgan, what the critical things in your mind were that had made JPMorgan what it is. The first thing you said was risk—the culture around risk and the way you treat risk. When you got to Bank One, I think this is where you first started putting into practice the culture around risk. What was the risk culture at Bank One, and how did you change it?

3. Building Risk Discipline

By management of risk. I've always been very risk-conscious. Risk-conscious does not mean getting rid of risk. It means properly pricing it and understanding the potential outcomes.

When I got there, I started meeting people and going through everything. I quickly realized that Bank One had more U.S. corporate credit risk than Citibank did. The way they accounted for it was unbelievably aggressive. They had less capital, less reserves, less of this. They were calling these things profitable. They were basically losing money.

Loans are a big part of the business. You have to be very careful about the credit business. Once I found that out, I panicked a little bit. I went through every single loan in the books. I marked them all down, put up more reserves, told the board about it, and then wanted to earn more revenue per dollar of risk.

For example, in the middle-market business, for every loan, we had about 80 cents of net interest income and 20 cents of other revenue.

Income from the non-banking business?

Income from the loan, and 20 cents of other revenue, like payments. By the time we merged with JPMorgan, we had 40% net interest income from the loan and 60% non-interest revenue from other types of things, like payments. In one, you're being paid for the risk, and in one, you're being paid little for the risk.

I always stress-tested, and I showed the board that if we ever had a recession—and we're about to have one—how much money we'd lose in credit.

So, I hired a woman called Linda Bammann, who said, “Okay, if you’re going to let me do credit, you’re going to let me sell loans.” I said, “Yes.” “Are you going to let me hedge loans?” “Yes.” “Can I do $10 billion?” I said, “Yes.” She said, “Okay, I’ll join.”

We probably reduced the balance sheet by $50 billion, because then we did have a recession, but we were kind of okay by then. With one big bad one, which was United Airlines, which went bankrupt, and we basically owned it for a small period of time.

There seems to be a fundamental Jamie Dimonism, which is: don’t blow up. A lot of other people have gotten decent at pricing risk, but everyone else seems willing to get closer to the line than you. Where did you develop this “don’t blow up at all costs” philosophy?

Yeah. Around risk, there’s always this ecosystem. You always hear it: “Everyone’s doing it. Everyone’s okay. This is going to work. This time is different.” History teaches you a lot, and I always say, if you read it, you learn a lot.

My dad was a stockbroker, so I bought my first stock when I was 14. In 1972, the stock market hit 1,000. It hit 1,000 in 1968, and I was already helping a little bit with stuff. By 1974, it was down 45%. All the limousines on Wall Street were gone, and restaurants were closing.

Markets move violently. Then we had kind of a recovery in 1980 and had a recession. In ’82, you had a recession. In ’82, it was lower than it had been in 1968, and it hit 800.

In 1987, the market was down 25% in 1 day. In 1990, all these banks—JPMorgan, Citi, Chase, and Chemical—were all taken to their knees by real estate losses. They were all worth about $1 billion. I think Citi was $3 billion at the time, and the other ones were about $1 billion.

Then you had the 1997, also real-estate-related thing. You had the 2000 internet bubble, and then you had the Great Financial Crisis. If you go through history, there are tons of these things.

Andrew Ross Sorkin is in here, and I just read his book. He was nice enough to send it to me: 1929: Inside the Greatest Crash in Stock Market History—and How It Shattered a Nation. Man, history does rhyme. Too much leverage, too much risk. Everyone thinks it’s going to be great. No one thinks it’s going to go down a lot.

That stock market went down 20% 1 year, 30% the next year, and 20% the next year. At 1 point, it was down 90%. It happens.

It seems like your philosophy is that the worst thing will happen, so just plan for it. Don’t say, “Oh, we’re good as long as this crazy, insane, four-sigma event doesn’t happen.” You’re like, “No, that will happen, and it happens often.”

Yeah. When I look at it, I always ask—for example, when I do stress testing or risk for high yield—what’s the worst? I remember getting to JPMorgan and going through the risk books. Their stress test was that the high-yield credit spread would move 40%. At the time, it was at 400 or whatever it was. That means 560.

I said, “No, our stress test is going to be worst ever.” Worst ever was 17%. They said, “That’ll never happen again. The market’s more sophisticated.” Well, in ’08, it hit 20%, and you couldn’t have sold a bond. There was no market.

The point isn’t that you’re trying to guess. The point is you can handle these events, so you continue to build your business. I always look at what I call the fat tails and manage so that we can handle all the fat tails—not just the stress test the Fed gives us, but all the fat tails.

Markets down 50%, interest rates up to 8%, credit spreads back to their worst ever. Of course, your results will be worse, but you’re there.

The thing about financial services is that leverage kills you. Aggressive accounting can kill you, which a lot of companies do. And also, confidence: if you lose money as a financial company, I always knew this, too, people read the headlines. If they’re relying on putting their money with you, they look at that differently.

So, they lose trust. And that’s what causes you to see runs on banks, and you saw some recently, because people run and take their money out.

There’s a thing that you just said, which is that you might do worse, but you’re there. There’s this trade-off that you make where you’re less profitable in the short term, but at least you stick around.

If you look back at the companies that you’ve run—the big one, JPMorgan Chase—is that true in the good years? Were you actually less profitable than those who were more risk-on?

Yeah, a little bit. You’re saying that if you look at the history of banks from up until 2007, a lot of banks were earning 30% return on equity. Most of them went bankrupt. We never did that much. In ’08 and ’09, we were fine, and they weren’t.

You want to build a real, strong company with real margins, real clients, conservative accounting, where you’re not relying on leverage. It’s very easy to use leverage to jack up returns in any business, but in banking, it could be particularly dangerous.

It seems like a core part—if not the entirety—of this, distilled into your operating strategy, is the fortress balance sheet.

Yeah.

When did you first hear about the fortress balance sheet?

I’ve been talking about it—I go way back to Primerica. I used to talk about that: you’re going to be able to survive the tough times. Probably the 1990s. Like I said, I grew up with my father, and I went through those market events. I remember how hard it was on people on Wall Street.

The fortress balance sheet is that you run a company serving clients well, you have good margins, good liquidity, and good capital. I’m as conservative in accounting as you can find. I don’t front-load profits when I can spread them over time.

Accounting—you know, accountants hate it when I say this—you can drive a truck through accounting rules. In accounting itself, certain things are considered expenses, but they’re good. They’re an investment for the future, but they’re called an expense.

Then revenues: if I make bad loans, they are bad revenues. They will kill you, but for a while they look pretty good. So, it’s all those things—margins, clients. In the banking business, the character of the clients you have will be reflected in your bank.

The first thing is who you’re doing business with, how you’re doing business, and also making sure your compensation plans aren’t paying people for stuff that is stupid or unethical. You always have to review these things to make sure you have them right, because they change all the time.

All right, David, catch us up to the merger. You ran Bank One for 4 years from Chicago. Then, in 2004, you merged with JPMorgan Chase in what was termed at the time a merger of equals. I think JPMorgan Chase referred to it as that. Bank One shareholders got 42% of the combined company. I mean, I think people don't realize how much of JPMorgan Chase is Bank One today.

4. Merging With JPMorgan

That's what I said. It's a little irritating when they say, “You've been running it since ’07.” I was running JPMorgan—I was running 40% of the company the whole time.

When I got to Bank One, I was working around the clock, but I already knew that a logical strategic merger might be JPMorgan. I knew all these companies, and that's the other thing about a fortress balance sheet: You also have real strategies that survive the test of time. You're not flipping and flopping.

Then, of course, the tape comes: “JPMorgan Chase to merge.” We were worth around $25 billion; they were worth around $80 billion or $90 billion, or whatever the number was. I'm like, “Well, there goes that dream.” But 4 years later, our stock was up—doubled or something like that. The stock had actually come in, and it was in the target range. I'd been meeting with Bill Harrison, the current chairman of JPMorgan at the time. We were talking about it, and we both knew it made business sense. They were looking for a CEO, so we had been talking for probably a year and a half before that about them looking for a CEO.

Did they give Bank One shareholders 42% because they were looking for a CEO?

There were 2 lawsuits. So, we got the premium. They got the name and the location, and I effectively had kind of control from day 1 because, inside the merger agreement—and this is almost unheard of—when we got the premium, to not have me become CEO 18 months later, 75% of the board would have to vote me out.

The default was that you were going to become CEO. The board was 8 Bank One people and 8 JPMorgan people. I knew a lot of the JPMorgan board members, too, who respected me, and Bill Harrison and I were very close. But that was the agreement.

They got sued for paying too much to buy me. I got sued for not taking enough. You get sued; you can't win at these things. But it worked out.

Yeah. All right. Before we get to 2006, when you were going through that process—and even maybe the couple of years before, when you and Bill were talking and starting to think about JPMorgan as a partner—I'm curious: Did the brand, did the name JPMorgan, factor into your thinking at all? Did you view that as an asset?

I mean, the JPMorgan brand is a Tiffany name.

I didn't value it in the deal. What I looked at was this: I think the first thing is, run your company well. People thought I was going to start doing deals immediately. I was like, “No, we suck. We haven't earned the right to run someone else's company yet. When we're running a good company, we can merge with somebody.”

The first thing I looked at was business logic. We had a consumer business; they had a consumer business. We had a credit card business; they had a credit card business. They were both terrible. They had a big investment bank; we had a big U.S. corporate bank that needed some of those investment-banking services. We both had a wealth-management business. I knew we could save a lot of costs. So, the business logic was pretty impeccable.

Then there's the ability to execute. Can you actually get it done? Because you've all seen a lot of deals where they fall apart. They don't have management, they don't consolidate the systems, or they have infighting, as kind of happened at Citi. And so, you don't effectuate it.

Then there's the price. I knew we had a Tiffany brand, but I didn't value it, because if everything else didn't work out, I don't think it would have mattered that much.

Interesting. All right, so I'm going to fast-forward a couple of years. It's 2006. You're officially chairman and CEO of the combined JPMorgan Chase. And 2006 on Wall Street is go, go, go, baby. It's like the 1980s all over again.

I think you had the same incentives as everybody else, but you behaved very differently. Am I missing something? Did you have the same incentives, or did you pull JPMorgan back hard on the risk side in 2006?

5. Seeing the Crisis Early

There were cracks out there in 2006. You may remember the quants—there started to be a quant problem in late 2006. We definitely saw subprime getting bad, and so I pulled back on subprime. I wish I'd done more, because if you look at what I did, you say, “Okay, well, you had saved half the money, but you would have saved more.” You still lost some money.

But we also had less—maybe a third of the leverage of the big investment banks—and a lot more liquidity. So, in 2006, I started to stockpile liquidity. Looking at the situation, I was quite worried.

The leverage, because of accounting rules and Basel III Basel I, went from 12 times leverage to 35 times leverage for investment banks, particularly the big investment banks. It was go, go. For every $1 you were putting in, you had bridge loans—the whole thing. In ’07, the bridge book of Wall Street was $450 billion. Today it's $40 billion. JPMorgan can take on the whole $40 billion today, though we're not at $40 billion today.

There were much more leveraged deals, and a lot of them fell apart and collapsed. That was before you had the collapse in the mortgage markets, which really took down a lot of these banks.

But you did have the same incentives, and you had the same access to information that a lot of these other folks did, but you didn't blow up. What explains this? Because usually behavior follows incentives.

Well, first of all, if you work for me, I would tell you, I don't care what the incentive is: Don't do the wrong thing. And don't do the wrong thing to a client. Treat yourself—if you're the client, how would you want to be treated?

I'd gotten rid of—I mentioned that one risk thing. There were multiple risk things like that. They were being paid to take the risk.

You were telling us about the auto-loan business.

Yeah, but they were being paid. The second I put in all these new risk controls, all of a sudden you weren't making money by taking that leverage, because I was looking at how much capital could actually be deployed if things got bad. I was looking at earnings through the cycle.

Very importantly, all of these investment banks were doing side deals—private deals, 3-year deals, 5-year deals. I got rid of almost all of them. This was for compensation for senior bankers.

So, today at JPMorgan Chase, there are no—you know, we do do things, and I know some of my partners are in the room here, but we all know about it. There are no winks, there are no nods, and there are no side deals. There's almost no one paid on a particular thing, because if you're paid on a particular thing, you can do the wrong thing while not helping the company manage its risk or something like that.

We changed the incentive programs, and I'm quite conscious about incentive programs—that they don't create misbehavior. But it's also very important: If you're in a company and you say the incentive program is doing that, you should tell the company, “This incentive plan is not incentivizing the right behavior” versus the customer.

A lot of it was leverage. If you look at the leverage in some of these securitization books and mortgage books, if you have 30 times leverage and you're getting 20% of the profits, you'll go to 40 times leverage. It literally will add 25% to your bonus. So, I got rid of the 20% profit pool and the leverage. I lost some people, too, in the meantime.

JPMorgan, as part of the system, had the same incentives, but you changed the incentives for the team within the company.

Okay. All right. We've got to go to 2008. March 13, 2008—a Thursday. Thursday night, you get a call from the Bear Stearns CEO. The stock closed that day at $57 a share. It was like $150 a couple of months before. Three days later—you've got to remember it like yesterday—I remember that night: $2 a share, and you're buying Bear Stearns. Tell us the story.

6. The Bear Stearns Rescue

I was at Avra on 47th Street with my parents, my parents' favorite restaurant. My whole family was there. It happened to be my birthday. I don't normally get emergency calls.

Alan Schwartz, who was the current CEO—we'd seen their stock go down. I knew they had some real problems because we saw their hedge funds and some of the things that were taking place there. He said, “Jamie, I need $30 tonight before Asia opens.”

To which I said, “I don't know how to get $30 billion for you. Have you called Paulson? Have you called Tim Geithner?” So, we all called. I called up the management team. I went back in, probably had a bite, and said goodbye. I went back to the office.

We probably had 100 people come in that night. They all got dressed and went back to work because it was an emergency. We now rang all the bells for an emergency.

Bear Stearns went bankrupt. I spoke to the Fed about, “Let's just get them to the weekend.” We had 1 day, and we needed a Saturday and Sunday, and we concocted this loan.

We couldn't lend the $30 billion, and the Fed technically couldn't lend the $30 billion. But the Fed could lend to us, technically, and I could technically use the collateral of Bear Stearns. So, we got the literally 1-day loan. Then, the next day, we had thousands of people come and do due diligence, and we went through every loan, every asset, every balance sheet, all the derivatives, all the lawsuits, and all the HR policies.

It was like real due diligence in a 2- or 3-day period, and we bought the company that night at $2 a share. Hank Paulson was saying, “Why are you paying anything for it?” I said, “Well, I do have to get shareholder votes.” I did have to get shareholder votes because it was a public deal.

The worst part of it is, I was going to get the lawsuits from the Bear holders. And I knew that. But we couldn’t let it go bankrupt. It wasn’t like an industrial company—you can buy it in bankruptcy and it would be gone. The crisis would have just unfolded.

Okay. Two questions. One, what would have happened if it went down? Two, afterward, did you think it was over?

No. That was March. You know what happened with Lehman: It was an uncontrolled failure. There was money locked up everywhere. People panicked; they started pulling money out of everything. That would have happened with Bear.

So it did stop that, and I would have thought that it gave other people time to clean up their act. Literally 6 months later, I would have thought some of these other firms would have had more liquidity and more capital and been a little bit more prepared for what might be happening.

We already had the stress in the system, which you saw already. It was going to mount; it wasn’t going to go away. There were tremendous losses coming. So we bought it, and it probably did help, but in hindsight, it didn’t stop the crisis from unfolding.

We bought it, and then about a week later, we changed it to $10 a share. It had been at $120. The way to think of it is, it was $300 billion of assets and a $12 billion tangible book value. We wrote off the whole tangible book value when we bought the company.

To pay for it, we had to liquidate the loans, hedge stuff, and cover severance costs and lawsuit costs. We basically used all that. So we paid $1 billion for a company that had been worth $20 billion recently. The building we’re in now was worth $1 billion on the balance sheet, and we got it for zero.

We got some very good people, and we got some good businesses, but it was an extremely painful process.

I’ve seen estimates that, in the fullness of time, after really dealing with unwinding all the stuff there, it cost you $15 billion to $20 billion.

It cost us $20 billion anyway. It was the $12 billion we wrote off. That didn’t cost us—we didn’t really pay for it. And then the government sued us on the mortgages, which I was quite offended by. I really was. I thought it was a terrible thing.

But this is the government. Whatever government you did a deal with, that’s not the government down the road that decides, “I don’t care. We’re going to come after you anyway.” So while we kind of saved the system and bailed a lot of people out, they made us pay $5 billion on the bad mortgages that Bear Stearns had done.

That’s what made me say I wouldn’t do it again. Put it this way: I wouldn’t really trust the government again.

I’ve got to ask a follow-up question to that. Is that a structural thing, just the way that we’re set up with a new administration every 4 years?

Yeah. They don’t feel obligated to what the prior administration did. Contracts—even some contracts were violated in this thing, which I won’t go through. Literally, contracts. It would have been tortious interference had it been company to company.

But since you operate under their laws, they can basically take you down. I went to see Eric Holder trying to settle all this mortgage stuff, which we settled. I brought my lead director. He expected me to come in and be pounding my chest, and I went in and said, “Eric, I am here to surrender. I cannot fight and I cannot win against the federal government. You know that a criminal indictment can sink my company. I will not do that to my company or my country. I’m here to surrender.”

Before I surrendered, I wanted him to know the circumstances by which we bought WaMu and Bear Stearns, because 80% of what they were asking for related to Bear Stearns and WaMu, not JPMorgan Chase. I went through the whole thing. He said, “Thank you. I’ll take it into consideration.”

But they never gave me the accounting, so I don’t know what they did. It is what it is. It was quite painful, but you’ve got to move on.

We’ll move on from this. We’ll move on from the specifics. I do have one more thing. Whether you would have done it again wasn’t very clear. It was not a great deal on paper for JPMorgan. But as we look at it now, the reputational value—the reputation of JPMorgan now is unlike any other in the industry.

Part of why you’re worth $800 billion is that reputation. A lot of what created that reputation was that weekend.

Yeah. If the government called me up again and said, “We need your help to save our country,” of course I’m going to help. I’m a patriot that way. I’d just try to come up with some ways to avoid the punishment by the next president. I would come up with something.

You need, like, a version of the merger agreement with JPMorgan Chase where 75% of Congress needs to vote not to sue you, and the default is that you’re not going to get sued.

All right. All right. So Bear Stearns happens. 6 months later, you get another phone call: WaMu is going under. You do buy WaMu. Contrary to everything we’re talking about with Bear, WaMu was actually a great acquisition, right?

7. Buying WaMu Clean

Yeah. So this is a legitimate acquisition. It was very hard. Remember, we bought WaMu a week after Lehman went bankrupt, and most boards wouldn’t have touched that at all because the whole system was in trouble.

But WaMu put us in California, parts of Nevada, Georgia, and Florida, which we weren’t in. Think of these really healthy states. They had 2,300 branches, and they had huge mortgage problems. But we had looked at it over and over and over, so we knew their mortgage books cold and we wrote it off.

We bought it for $30 billion, discounted tangible book value, because they had debt, and we left the debt behind. That $30 billion was approximately what the mortgage loss was going to be. So we bought the company—think of it, we bought a company clean. We wrote off all that stuff. The books were clean.

Then we did something unheard of, too. The next day or 2 days later, I went in the market and raised another $11 billion of equity, which I didn’t really need. But again, this is my conservatism. I was like, “You know what? This could get even worse, and I don’t want to be short capital or liquidity.”

So we raised that to make sure our balance sheet was just as strong after WaMu as it was before WaMu.

And you already had the reputation to pull this off, right? I’m imagining, in the worst month of the financial crisis, who can go out and raise $11 billion of equity?

Yeah. People trust you. We knew a lot of the shareholders, and you earn your trust over time with shareholders. We gave them a quick little presentation, and a lot of them stepped up and said, “This is great.”

They also knew we could execute it, because behind Bear Stearns, people forget the work is the next day. You’ve got 50,000 people consolidating 5,000 applications, branches, compensation programs, settlement programs, payment systems. It’s a lot of work.

But we obviously have the capability to do that, and we had the capability to do WaMu. I think we finished the WaMu consolidations in 9 months, all of them. Within 9 months, they were all on the same systems, which allows you to start doing a better job on customer service and things like that.

So this fortress-balance-sheet strategy—raising this equity capital, having additional margin of safety, and conservative accounting—in retrospect, it seems like the obvious right strategy for running a large financial institution. Why wasn’t everyone else copying it? Have people changed, and does everyone else run their banks like this now?

I think people are more conservative today. I think regulators are more conservative today. But again, I go back to the fact that people get involved in aggressive accounting. They don’t look at stressing their own bank in a real way.

You saw people take too much interest-rate risk, too much credit exposure, too much optionality risk. Or sometimes it’s new products. If you look at financial services, very often it’s the new products that blow up. It takes a while; they haven’t been through a cycle.

You had that with equities way back in 1929. You had it with options. You had it with equity derivatives. You had it with mortgages. You had it with Ginny Mae—even Ginny Mae’s at one point blew up, even though they’re government-guaranteed. Arguably, you had it with quant and with LTCM.

It happened with quant. It happened with leveraged lending. Then people become more rational about how they run these balance sheets and how they think through the risk. So I have to ask you: Is this private credit today?

I don’t really think so. I don’t think it’s $2 trillion. It’s grown rapidly; that’s an issue. But the other thing about markets is that there are some very good actors in it who know what they’re doing. Customers like the product.

But there are also people who don’t know what they’re doing.

And it's grown rapidly. There may be something in there that would become a problem one day. I don't think it's systemic. The mortgage market, when it blew up, was, I'm going to say, $9 trillion, and $1 trillion was lost. And $1 trillion was also more than $1 trillion back then.

A lot of these private credits are not leveraged like that. But that doesn't mean there won't be problems; it's slightly different. You've got to look at the whole system. There are other things out there that are leveraged that can cause problems. Of course, people will take secret leverage in a way you don't necessarily see it.

What are some of these, in your mind, that are potentially problematic today?

Well, look, when you look at asset prices, they're rather high. Now, I'm not saying it's bad, but if today's PEs were 15 as opposed to 23, I'd say that's a lot less risk. There's a lot less to fall, and you have some upside. I would say at 23, there's not a lot of upside and there's a long way to fall. That's true with credit spreads.

We look at it, and we stress-test everything. We do, like, 100 stress tests a week to make sure we can handle a wide variety of things. The other thing, and the biggest risk to me, is cyber. I think this cyber stuff is—we're very good at it. We work with all the government agencies. They would say that at JPMorgan Chase, we spend $800 million a year or something on it. We educate people; we just do.

But you're talking about grids and communications companies and water, and even part of the military establishment. The protections are not what we need if we ever get in any kind of war where cyber is involved. China is very good at it, and so is Russia, but Russia's mostly criminal, which is slightly different.

All right. I'm going to pull us back to the story. We're going to fast-forward to 2023. We're not really equipped to talk about Russia. It's not what we do on Acquired, but Silicon Valley Bank and First Republic both fail. You're there again. Did you see it coming? What lessons did you learn from how 2008 went that you could apply in 2023? Obviously, you bought First Republic.

Yeah. Silicon Valley Bank and First Republic both did some very good stuff. But they both had something unique that we didn't know at the time. I'm going to call them concentrated deposits—not uninsured, because people are misstating that—concentrated. They also had a lot of venture capital.

What happened to Silicon Valley Bank and, kind of, First Republic is that some of these large venture capital companies—there are hundreds of them, maybe 1,000—told their constituent clients, whom they had invested in and who all banked at Silicon Valley Bank and First Republic, that the banks weren't safe and to get out. Silicon Valley Bank, I think, had $200 billion in deposits, and $100 billion left in 1 day. That caused the problem, but they also had other problems.

They didn't have proper liquidity. They didn't have their collateral posted at the Fed. They had taken too much interest-rate exposure, and that interest-rate exposure was hidden by accounting. It was called held to maturity, where you don't have to mark even Treasuries to market. I always hated held to maturity because it gives you better regulatory returns and stuff like that.

When you looked at that held-to-maturity portfolio, if you said, "What's the tangible book value of one of these banks?" you said it was 100. Well, all of a sudden, it was 50 if you just marked that one thing to market. Now you're into judgment land. At what point, if you saw a bank where just that one mark had the tangible book value drop to 40 or 30 cents on the dollar, would you panic? I would have said, "That's too much risk."

The regulators helped us because they said rates were going to stay low forever. These banks bought a lot of 3% mortgages. When rates went up to 5%, those 3% mortgages were worth 60 cents on the dollar or 50 cents. And that was it. Both of those banks took too much interest-rate exposure. It was known to management, and it was known to the regulators. It was unfixable.

We knew a little bit about Silicon Valley Bank. We were trying to compete in that area, so we learned a lot afterward about how to do a better job for that ecosystem of venture capital. We have a whole campus in Palo Alto now. We hired 500 innovation bankers. We cover venture capital companies. We're not as good as they are yet, but we're going to get there because we're organized slightly differently.

We knew First Republic. We were watching it. I called Janet Yellen, and I said that company's in trouble, and 1 or 2 others. "If you want to, we'll take a look. We could probably buy it and eliminate the problem." They waited a little bit too long. It's kind of a little melting ice cube. But you can imagine, the day we bought it, you never heard about it again.

We hedged all their exposures in a couple of days. We merged everything. We wrote everything down. But we did get some good stuff from it. We actually got some good people. The normal thing in an acquisition is, "They're terrible, get rid of them," or, "They failed." But we also looked at what they did and how they dealt with clients. Some of you may be clients here. They did a great job with high-net-worth clients: single point of contact and concierge services.

Now, if you go down Madison Avenue, you see things called J.P. Morgan Financial Center. That's your first J.P. Morgan-branded consumer effort, right?

Yes, because it's kind of based on that. When you walk in there, we know your small business, we know your mortgage, and we know your consumer banking. We can get you travel. We can do a whole bunch of different stuff. We're providing very high-level services.

I think we have 20 of them now. But I love it. If it works, in 20 years we'll have 300. These things are opportunities, and I hope it works. You don't always know they're going to work for a fact, but so far, so good.

All right, so we're effectively caught up to today. Now we've got the whole story, and we've got a lot of context. Obviously, we didn't go into every detail. But if we're trying to answer the question, how did you separate from the pack? Why did you become a completely different animal from your whole competitive set? What are the things in your mind that led to this success?

8. The JPMorgan Operating System

Well, I don't know totally. First of all, we skipped over strategy a little bit. This is important for you all: what we do is the same thing that a community bank does, other than global investment banking.

If you walk into a small community bank, they know your business account, they know your consumer account, and they usually have a trust company. They used to call it trust. They'd manage your private affairs, set up a trust for you, and do stuff like that. Their CRM is up here. They don't need a Salesforce CRM because they know everyone in town. They didn't do big-time global investment banking.

But the strategy is that those businesses fit together. They feed each other, and so does investment banking. A lot of our middle-market clients use investment-banking products. A lot of our consumer clients use some FX. All of our businesses feed each other. There's nothing extraneous. We got rid of everything that didn't fit a strategy.

Then you start building client businesses and client services: fortress balance sheet, fortress accounting, all those various things. I've always talked about it as holding a portfolio of things that actually feed each other.

Fit. Whereas Citi had consumer finance—that didn't fit. Life insurance—that didn't fit. Property and casualty—that didn't fit. They eventually got rid of them all. Sandy just wanted to do more of them. He bought American General, which did truck leasing, for God's sake. Once you get involved in these things, it's hard for people to understand the risk in each one of these businesses.

But all of ours fit. I don't like hobbies. I don't like things. We've made plenty of mistakes because you have to try and test things. And then you're always investing for the future.

That investment is always people, branches, and technology. And that's true whether it's investment banking people or consumer bank people, or opening consumer branches. I think Doug Petno is here, and Troy Rohrbaugh, who run the global investment bank, but they've opened commercial banking branches all over Europe. And I think you're telling me—it's going great. It's feeding all the other parts of the company.

So, just sticking to your knitting, constantly investing, not overreacting to the market. Markets are like accordions. Sometimes, if you're strong when others aren't, you have a chance to buy things you want to buy. And then always look at the world from the point of view of the consumer: What do you want? How do you want it? How do you want to get it?

Can we provide it to you in a way that makes sense for us, too? Not going for the last dollar, nothing like that. And building teams of people. Our people are curious and smart. They have heart. They have soul. They give a damn about the guards in the company and the receptionists. It's not just about the big-time bankers and people pounding their chests.

We try not to put up with that. And we have big-time bankers. They are exceptional. But the company serves the clients, and I think the clients know that.

When you really dig in to start analyzing JPMorgan's financials, you see this one thing that jumps right out at you, which is the efficiency ratio. For every dollar that you make, compared to your competitors, you get to keep 15 cents more of that dollar as profit. It's not hard to see how that compounds and how that allows reinvestment. Why is your efficiency ratio so much better than competitors?

It is literally continuously investing and gaining business at the margin, and not stopping and not stop-starting. The thing about margins, too, is that we have that margin while investing a lot. It's much easier to have that margin and just cut billions of dollars of marketing out tomorrow. We can stop opening branches and save 1 billion dollars next year. We could do a lot of things. Your margins will go up. Your growth will go down. Your long-term margins will probably get worse.

So we kind of look right through the cycle, and we look at the actual economics of the accounting of what we do. We've built it over time. We have great people and great products. And there's some secret sauce I'm not going to tell you about.

We do invest today, and we tell everyone everything. I'm sitting there watching them do the presentations, and I'm saying, “Oh God, we're just giving away too many secrets here.” So there are secrets as to why the efficiency ratio is so good.

Howard Schultz was here before, you know, and I'm not supposed to say that, probably.

It's okay. It's okay.

No, but we're glad you invited your friends.

Look what he built over the years. The consistency, the curiosity, the heart, the branch-by-branch products. It's just always doing that, knowing you're going to make mistakes, but building the culture that just kind of plows through that.

And you all know I do use sports. Sports is a great analogy. If you have a sports team with a bunch of real jerks on it, are they going to be a great team? Almost never. If the team members aren't giving it their best every day during practice, you learn from Tom Brady. Every day at practice, he worked hard. If people are not giving their best, how are you going to have a great team? It's not that different in business.

The difference in business is you can BS about it all the time. You can make up stories, but in sports you see it on the playing field. Do they have the talent? Do they play together? They don't even have to be friends. They have to practice and know their teammates.

And so I do think companies have that. It's like a sauce that works. You've seen it in lots of different companies, not just JPMorgan Chase.

So, all right, we've got one last question for you. If you look back to 2008, which was a long time ago now, all of the other leaders that were involved in that era have long since retired. I think many folks within JPMorgan Chase have long since retired. It seems like you're working as hard as ever and in it as much as ever. Why are you still here? What keeps you going?

Yeah. So I want to thank my wife, who was here too, and who suffered through all this with me all these years. I probably couldn't have done it without her.

I don't know. Look, I don't know, but I do believe in it. My grandparents were all Greek immigrants who didn't finish high school. There's a Greek ethic that I don't even realize I learned from my parents, from the ground up. Judy's parents—my wife's parents—were the same: have a purpose.

It could be art, it could be science, it could be the military, it could be business, or it could just be being a great parent or a great teacher. But have a purpose, and then do the best you can. Give it your all. Don't be one of those people who complain all the time. Give it your best, and then treat everyone properly. Everyone.

If there's a bully beating up on someone, you have to stand up for that someone. You are not allowed to let a bully do it. So how you treat people, what you do—in my hierarchy of life, the most important thing is my family. It still is.

The second thing is my country, because I think this country is the indispensable nation that brought freedom of speech, freedom of religion, and freedom of enterprise. We have to teach everywhere we go how important it is, because I don't think people fully understand it sometimes.

And then my purpose. My family wants me home every day, and this is my contribution. Through this company, I can help cities, states, schools, companies, and employees. I get the biggest kick out of that. And so that's what I do. As long as I have the energy, I'm going to do it. I can't imagine not doing it.

I don't play golf. One of my daughters said, “Dad, you need some hobbies.” And I said, “I do: hanging out with you, family, travel, barbecuing, and wine. We now like whiskeys.” I love history. I think history is the greatest teacher of all time. Hiking. I can't play tennis anymore because of my back, but those are my hobbies.

I don't buy fancy cars and stuff like that, but this gives me purpose in life beyond family and beyond country. Plus, I think this helps the country. I get to do a lot of things for our country that I just think are quite meaningful from this job.

And so when I'm done with this, I don't know. I'll teach and write. I may write a book like Andrew Ross Sorkin did. I'll do something, but I've got to do something. I'm not going to twiddle my thumbs and smell the flowers.

There are a lot of people who have floated your name for political or policy roles over the years. It is hard—there is only 1 job that could possibly impact the country on a bigger scale than you're currently doing. Do you agree?

Right now, yeah.

Well, that's probably a great place to leave it. Jamie, thank you so much for joining us.

David, Ben, these guys are great, by the way. So thank you.