JP Morgan’s CEO successfully ruled his company to become the new king of Wall Street. But Charlie Gasparino says his reign may soon be over.
Jamie Dimon is in the hot seat. You wouldn’t know from the endless glowing press accounts he’s received for steering JP Morgan Chase fairly clear of the sub-prime debt crisis that has already taken out two firms—Bear Stearns and Lehman Brothers—and forced the federal government to bailout the once mighty Citigroup with billions in aid and other measures.
But Dimon is feeling that heat, nonetheless, from analysts, who believe his firm will post a lost this quarter, the first since he became CEO in 2006; from fellow CEOs, who believe he took advantage of competitors during the height of the financial crisis in mid-September; and now even some of his own board members, who believe their straight-talking CEO spoke a little too straight in a recent CNBC interview when he described in graphic terms the problems facing JP Morgan and the rest of the financial business. Following Dimon’s remarks, which he then repeated in a speech, the Dow Jones Industrial Average fell nearly 200 points, and shares of JP Morgan were among the biggest losers, tanking nearly 10 percent...
Yet for all of his acclaim, skill, and accomplishment, Jamie Dimon is set for a fall. Not a fall on the scale of Lehman Brothers’ Dick Fuld or Bear Stearns’ Jimmy Cayne. But a fall that will put into question his current status as the King of Wall Street.
People close to Dimon tell me he’s well aware of the fact that his image is about to take a major hit along with the financial performance of the bank—and he’s preparing for the worst. He’s now turning down just about every interview request (including one with The Daily Beast; he declined to comment for this story). Company executives in background interviews are quick to point out that they weren’t as smart as the glowing press account indicate and they made unwise investments as well, though they have yet to full materialize. The firm, for instance, has problems in the credit card debt areas and that tough times are ahead. It’s also why Dimon has privately told JP Morgan’s board that despite all the good he’s done for the company this year, he won’t take a 2008 bonus. (The official announcement could be made this week.). It’s also the reason he made a strategic decision to speak on television in pretty harsh terms— “November itself has been a terrible trading month ...December so far is still pretty terrible…It will be a tough quarter.” —about the challenges facing JP Morgan and its pending fourth quarter results, these people tell me.
The plan, as I understand it, was to use the CNBC platform to correct the public record about JP Morgan’s financial health and to suggest to the world, that Morgan could very well post a sizable loss for the fourth quarter. A few weeks earlier, at a conference sponsored by Merrill Lynch, Dimon was a bit more positive about the future; but since then, things had gotten worse, largely the result of the firm’s exposure to souring credit card business and other toxic stuff on the bank’s balance sheet. Dimon wanted to give Wall Street guidance in a perfectly legal way so investors didn’t have to wait until later in January when the firm is scheduled to announce earnings that will show it is now, like everyone else, losing money—or pretty close to it.
Most analysts I speak to say if JP Morgan does record a loss, it probably won’t be at the levels of Goldman Sachs and Morgan Stanley, which recently announced gargantuan losses of more than $2 billion for the fourth quarter. People close to the firm tell me that’s why some analysts, investors, and his own board members believe that Dimon’s comments to CNBC were over-the-top. “He could have said the same thing without being so aggressive,” said one person close to the firm who is a Dimon fan. “Jamie is great, the best on the street, but he got way ahead of himself. All that he had to say was that the fourth quarter will be difficult and move on.”
Already I hear the schadenfreude picking up: When I asked one Wall Street CEO to assess Dimon’s performance he pointed to the nearly 40 percent drop in JP Morgan shares since the beginning of the fourth quarter. This executive believes JP Morgan will now join other banks and experience problems beyond the fourth quarter and well into next year as credit card debt, student loans, and other debt on the bank’s balance sheet begin to falter. “The market is telling you something is wrong,” the executive said. “The stock market is saying one thing, and his image in the press is saying something else.”
Meanwhile, more than a few Wall Street executives I speak to can’t wait for Dimon to be brought down to earth because they believe he has taken glee in the misery of his competitors, particularly during those treacherous weeks in September when Wall Street appeared on its deathbed. Morgan Stanley’s John Mack actually called over to JP Morgan questioning whether Dimon was badmouthing his firm to steal business from Morgan Stanley—officials at JP Morgan denied that and Dimon himself has told people that he sent out a memo warning that spreading rumors to win client money is a fireable offense.
And several Wall Street executives still attach some blame to Dimon and JP Morgan for demanding that both Lehman Brothers and Merrill Lynch post billions of dollars in collateral the week before both firms ceased being independent companies, and in the case of Lehman, wiped off the map altogether.
Officials at JP Morgan, of course, deny all this. Dimon himself has heard the criticism and told people who raised it with him that the firm was merely protecting clients that had lent both firms money. These clients, he has said, were worried about getting their money back given the shaky finances of Merrill and Lehman at the time, and JP Morgan was willing to work with both firms to get the collateral in a reasonable amount of time. All which, of course, is a plausible defense, but the mere fact that this story lingers and that Dimon is still defending himself says something about how many people on the street can’t wait for the King to fall. And how happy they will be when and if he does.
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