The CEO of JPMorgan Chase sees a strong economy ahead, a safer banking system, but also some causes for concern, writes economics columnist Jon Talton.
Jamie Dimon emerged from the financial panic of a decade ago as the only banker with his reputation enhanced.
JPMorgan Chase was in good shape when the collapse hit. It didn’t require a federal bailout. Dimon had lowered the bank’s exposure to complex trading bets much earlier than its peers and had warned shareholders.
When Bear Stearns, in deep trouble from securitized mortgages, was on the brink of failure, regulators engineered its sale to JPMorgan, with a $30 billion guarantee from the Federal Reserve.
That was in March 2008. A few months later, Seattle-based Washington Mutual became the largest banking failure in history. Again, JPMorgan rode to — a very self-interested — rescue. It bought WaMu’s assets, in a deal engineered by Federal Deposit Insurance Corporation Chair Sheila Bair to protect the deposit fund.
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At 62, Dimon is still chairman and CEO of JPMorgan Chase and likely to stay for another five years.
This week, he’s on a “bus tour” of the Pacific Northwest, visiting branches, talking to employees and meeting customers. So if you walk into a Chase bank and see someone who looks familiar, it might be the big boss.
When I was in Phoenix and Dimon was running Bank One, then the merged JPMorgan Chase, I had a couple of sit-downs with him every year. His wide-ranging and demanding intellect was always on display, something you can sample in his annual Chairman’s Letter. He never lied to me.
I talked to him again in 2009, after he gave a speech to Seattle Downtown Rotary. It was remarkably well-received considering the loss of WaMu’s headquarters had vaporized thousands of headquarters jobs, hurt many vendors and ended Seattle’s reign as a banking center. In those days — before Amazon’s expansion and during Microsoft’s lost decade — the city’s future looked uncertain.
In a telephone interview last week, we caught up again.
“All business is local at some point,” he said, explaining his tour.
“We have to be very good in Seattle, in Washington, and across the country. Washington has been a great state for us. I understand the WaMu loss. Losing a company is hard. But we’ve been doing the things you would want a bank to do: Serving customers, making loans… We were very lucky to find Phyllis Campbell (as chairman of JPMorgan in the Pacific Northwest). It’s great to have the trust she has in that area.”
In 2008, JPMorgan Chase inherited 187 branches in Washington. Today the number is 200. Deposits have grown from $12.4 billion to $17 billion.
I walked Dimon back to those scary months of 2008, especially after Lehman Brothers went down in September, and how a second Great Depression was narrowly prevented.
“It was a crisis,” he told me. “A lot of things caused it, (such as) too much leverage, unsecured wholesale funding, subprime…
“But the regulators should take a victory lap for averting the worst. Dodd-Frank worked. With things like increased capital requirements, we wouldn’t have a Lehman Brothers today. It couldn’t have withstood (regulatory stress tests). And we have the ability for an orderly unwinding. This is a huge victory.”
On the other hand, “Not everything (Congress) did was perfect. Many (elements) of Dodd-Frank haven’t been turned into rules. The mortgage rules are not complete…. But the banks are in much better shape today.”
So is the economy. Last quarter’s 4.1 percent growth in gross domestic product is likely a one-off, but the long expansion continues.
“Things actually look good,” Dimon said. “There’s slack in the system. Consumers are in good shape. I can’t see a pothole. We’re looking at two (more) years of growth.”
What keeps him up at night?
“I worry about trade a little bit. There are legitimate concerns about (the fairness of the trading system) and those need to be addressed. But we have to be very careful about how we go about it. As long as the economy keeps plowing along, the Fed can raise interest rates.”
That may be little comfort for people trying to buy a house. Affordability is a nationwide problem, although acute in star West Coast cities such as Seattle.
“There’s a shortage of housing,” Dimon said. “This is a tailwind of the economy and we need to build more homes. Household formation is up. One thing hindering housing is mortgages. They’re too expensive because of the new rules.
“With all the legal risks in mortgages, banks won’t make certain kinds of loans any more. People with lower incomes are being hurt. I’m not suggesting going back to subprime. But we need to provide credit to more people.” Another impediment is regulatory overlap with seven regulators having independent authority and every state having its own (loan) originating requirements, said Dimon.
Any policy fixes will take time.
Another goal he’s championed is for public companies to back away from their obsession with short-term results.
In a Wall Street Journal op-ed, he and Warren Buffett wrote:
“In our experience, quarterly earnings guidance often leads to an unhealthy focus on short-term profits at the expense of long-term strategy, growth and sustainability.”
“The pressure to meet short-term earnings estimates has contributed to the decline in the number of public companies in America over the past two decades. Short-term-oriented capital markets have discouraged companies with a longer term view from going public at all, depriving the economy of innovation and opportunity. Fewer public companies has also meant fewer opportunities for retail investors to create wealth through their 401ks and individual retirement accounts.”
Whether they can persuade their peers is an open question. But this is business statesmanship that’s much needed in America.
A decade after the panic, Dimon maintains that, “You can’t have a healthy economy without healthy banking.”
He’s right, of course, and U.S. banks — even though the big got bigger — are the healthiest they’ve been in years.
Still, an interconnected financial world can be a tough neighborhood, with shadow banks, the non-bank financial institutions that operate with much less regulation; a variety of other market participants; greed and groupthink that make for unhealthy risk, and psychology.
As Dimon put it, “Panic in the market hasn’t been outlawed.