Last Man Standing

A worthwhile book: maybe not all the Wall Street executives are crooks.


Duff McDonald, “Last Man Standng” (The Ascent of Jamie Dimon and JPMorgan Chase), Simon & Schuster, 2009, 328 Pages
Jamie Dimon, currently the chairman and CEO of JPMorgan Chase, is considered the pre-eminent figure on Wall Street these days. Dimon’s approach to banking stands in stark contrast to the other bankers in the current crisis; he is almost literally the last man standing.

Dimon earned a Harvard MBA and joined Wall Street legend Sandy Weill at American Express in 1982, becoming the older man's protégé for the next 15 years. Weill hunted out financial firms worth acquiring, and Dimon closed the deals, becoming president of Primerica at age 35.

The business model Weill and Dimon adopted was that of running the business conservatively, building fortress balance sheets (high-quality capital - common and preferred stock, conservative accounting and loss reserves) to make acquisitions during downturns when assets were cheap. They aimed to make the firm either more distinctive (eg. provide customers with a more comprehensive accounting statement), or the low-cost producer. They went on to buy Primerica, then Drexel Burnham, Barclay's American/Financial, and ultimately Traveler's Insurance.

Weill eventually became jealous over the publicity and attention given Dimon and was additionally outraged that Dimon denied his daughter a promotion. In 2000, shortly after Weill acquired Citibank, he pushed Dimon out. Subsequently, Dimon went on to head Bank One and then the global megabank JPMorgan Chase, which he transformed into a high-performing firm following his persistent cost-cutting methodology. JPMorgan Chase was the most fiscally sound bank around as the 2007 financial crisis began to unfold. Dimon’s annual letter to shareholders’ is compared to Buffett’s for honesty and straight-talk.

My Notes:
Pg. 18: Sandy Weill’s philosophy: You can’t control income. It varies based on conditions outside of our control. But you can control expenses. Dimon learned this lesson well.

Pg. 192: When Dimon took over JPMorgan Chase he immediately curtailed the use of any use of expensive consultants; any costing over $100K had to be approved by him. He gutted executives’ benefits, eliminating country club memberships, first-class airline travel, 401(k) matching, severance plans, golden parachutes, deferred compensation, and change of control provisions. Higher-paid employees were told that their health insurance premiums would be increased in order to subsidize those of lower-paid ones.

Pg. 205: From just $492.6 billion in issuance in 1996, the mortgage market had grown to $3.1 trillion in 2003. Between 2001 and 2007, $15 trillion in mortgages was issued. Just a few years after the dot-com debacle, America had embarked on yet another gold rush, but this time it wasn’t just in California—it was everywhere. Refinancings had climbed from just $14 billion in 1995 to nearly $250 billion by 2005. They had become the piggy banks that just kept on giving.

Pg. 232: Money had been too cheap for too long. It is only logical that Wall Street chieftains, with limited liability in their roles as executives at public companies, and unlimited access to capital, would take on so much risk. They shared in the upside and were protected on the downside. Chuck Prince received a good-by present of $39 million for nearly wrecking Citigroup. Stan O’Neal of Merrill Lynch received $162 million for gutting Merrill to the point at which it was forced into a shotgun marriage with Bank of America.

Pg. 237: The International Monetary Fund estimates that stock market bubbles happen about every 13 years, and that housing bubbles occur every two decades. That’s what makes it so amazing that the majority of Wall Street firms were caught unawares by the credit debacle. However, this time around it was not just one entity (such as Long-Term Capital Management) or one investment product (such as Internet stocks) that melted down. Almost every credit product out there collapsed—subprime mortgages, mortgage-related collateralized debt obligations, asset-backed commercial paper, auction-rate securities, SIVs, Alt-A mortgages, financial insurers, home equity. Among the large commercial and investment banks, only Goldman Sachs and JPMorgan Chase seem to have been in any way prepared for the possibility of disaster.

Pg. 284: With Goldman and Morgan Stanley choosing, in effect, to become banks, the era of investment banking had come to an end. Of the major investment banks, three were now gone Bear, Lehman, and Merrill) and two had thrown in the towel (Goldman and Morgan Stanley). An era of unregulated excess appeared to have come to a close.

Pg. 310: In April 2009, regulators buckled under industry pressure, relaxing mark-to-market rules that affected banks. Shortly thereafter, JPMorgan Chase, Citigroup, Bank of Americas, and Goldman Sachs all announced surprisingly strong quarters. But whereas Dimon made clear during the company’s conference call that the accounting change had no effect whatsoever on earnings, Bank of America and Citigroup did no such thing.