Jamie Dimon as One of a Breed of Extremely Successful Bankers - Case Study Example

INTRODUCTION This paper is about Jamie Dimon, the legendary chief of investment bank J P Morgan Chase. Throughout the current credit crisis, when one Wall Street Major after the other collapsed or morphed into banking entities, J P Morgan chase was the only bank that required minimal assistance from the government and instead was actively involved in looking for acquisitions. Thus, this set apart J P Morgan and the charismatic CEO Jamie Dimon apart from the rest of the crowd. Jamie Dimon has been at the helm of other investment banks as well. He is no stranger to Wall Street and knows the game inside out. He has also served as a director on the Federal Reserve and though there have been controversies surrounding this role has effectively tried to steer himself away from getting into any flaps over the issues. STRATEGIC MANAGEMENT Jamie Dimon heads the only bank that was capable of acquiring Bear Sterns in the March of 2008 when it needed a buyer. This alone makes it unique among the Wall Street majors of Investment Banks and hedge funds that had to be bailed out by the government. Thus, J P Morgan stands uniquely placed as one of the banks that have survived with limited assistance from the government. This is an example of smart and savvy investment and strategic management practices. As Crains, one of the leading investment news reporting online journals puts it, “By making his tough, successful offer, Mr. Dimon became a major player in the first of the year's big financial dramas—and one of Wall Street's most influential people. He now leads the nation's third–largest financial services company, behind Citigroup and Bank of America. J.P. Morgan Chase has $1.8 trillion in assets, more than 175,000 employees, headquarters buildings lining Park Avenue and another one under construction near Ground Zero” (Crains, 2008). Thus, J P Morgan and Jamie Dimon have managed the strategic environment to their advantage by scouring for potential take over targets and acquiring Bear Sterns in the process. It is as much a reflection on the capacity of J P Morgan as it is on the strategic insights of Dimon that he was able to maneuver the bank to a position of relative comfort and security amidst the turmoil that is happening all over the world and Wall Street in particular. Jamie Dimon is no stranger to the art of strategic management having been at the helm of Smith Barney when the bank was going through a troubled phase. It is to the credit of Dimon that he managed to pull Smith Barney out of troubled waters pretty quickly. As Business Week points out, “Since January, when Dimon got the top job at Smith Barney, he has been coming into his own as a major Wall Street mover and shaker. A straightforward, unpretentious workaholic, Dimon has a lot going for him. One asset is his youth. In the stodgy financial-services business, he's on the same wavelength as younger consumers. A technology advocate, he got the firm on the Internet and made it the only brokerage to tie into the popular personal-finance software Quicken. He also pushed Smith Barney to become the first brokerage to sell no-load mutual funds, breaking industry tradition” (Business Week, 1996). EXTERNAL ENVIRONMENT In this section we take a look at how he has capitalized on the chances that the changes in regulatory laws and practices and the external environment threw up and ensured that the banks that he was leading came out on top. The first set of regulatory changes involve the political, governmental and legal factors Due to globalization of the world economy, the major financial providers face intense competition as governments deregulate and re-regulate of the financial industry. For example, the breakdown of the Glass-Steagall Act (1933) and its replacement, the Gramm-Leach-Bliley Act (1999) has made it possible for the merger and acquisition of investment and commercial banks in the United States. Whether re-regulation or deregulation is an opportunity or threat is highly dependent on the effects of the changed legal framework in which the financial institution is subjected to. In the case of JPMorgan Chase, the gradual opening up of the Malaysian financial sector like how foreign banks can open more branches locally should be viewed as an opportunity to expand JPMorgan’s presence in Malaysia. On the other hand, the recent increase in the reserve requirement of bank’s operating in China is a threat, as it would reduce a bank’s profitability. The second segment, the economic factors, refers to the nature and direction of the economy in which a firm competes or may compete. According to the IMF’s World Economic Outlook April 2008, global growth will experience a slowdown (3.7%) in 2008 because of troubles in the United States like the subprime and financial crisis while emerging economies though likely to fare better would also experience adverse effects. Global inflation on the other hand, would be a major concern as commodity prices like crude oil, tin, nickel; soybeans, corn, and wheat have reached records high in current U.S. dollar terms. The ongoing global economic slowdown is a major threat to the survival of the financial institutions as it means that there will be lesser investment projects in need of finance worldwide that would result in Dimon’s bank being forced to compete viciously against competitors in a smaller market. Fluctuations in price levels especially in property and commodity sectors also present itself as a threat as the bank faces increased uncertainty on the value of collateral taken as insurance against defaults. However, a good deal of opportunity lies in emerging Asian countries especially in China and India that are still forecasted to maintain high economic growth. INTERNAL ENVIRONMENT In a press release on Mar 11 2009, J P Morgan laid out the performance of the bank and stressed on the soundness of their internal business mode. The bank’s first-quarter performance is “solidly profitable” and the outlook for earnings is “roughly in line with analyst expectations,” the bank said Feb. 23. Among the analysts interviewed for the article, the average estimate of 13 analysts placed the earnings at 33 cents a share (Bloomberg, 2009). Of course, this does not mean that all is rosy as J P Morgan, the second-biggest U.S. bank by assets, received $25 billion from the government’s first round of investments as part of the Troubled Asset Relief Program. Dimon stated that the funds received in the program were a “major” step to stabilize the financial system. The results that were declared further stated that “The New York-based bank made $46 billion in new loans and credit lines during January, he said. J P Morgan slashed its dividend 87 percent last month to 5 cents, the first time since 1990 the lender or its predecessors made a cut. The move was not “directly related” to receiving TARP money and was aimed at protecting the company if the economy deteriorates “significantly,” Dimon said at the time. BUSINESS LEVEL STRATEGY In this section we take a look at Jamie Dimon’s approach towards business level strategy. According to Dimon, “If one wants to talk about what one can do better and what other people do better and what we do wrong. At management meetings, forget the rah-rah. Forget the improvements we made. What are the competitors doing better? What is our balance sheet? How do we account for loan losses? How do they pay their sales people? Deal with the facts, especially the bad facts. If you are going to buy companies and you are a bank and you are not going to consolidate systems, don’t buy the companies. You are kidding yourself. Multiple complexities will destroy a company. Margins were half of the industry when Jamie took over Bank One because of inefficiencies. Peak of the bull market in March, Jamie Dimon was terrified by the peak of the bull market and was asking, “what if there was a recession?” What out and deal with all these scenarios. Be prepared for contingencies. Dimon’s approach towards his company is straight forward: Build a Meritocracy. You know who the good people in the company. Go to the bar across the street and earn their trust and respect and they will tell you. The lower level workers know both. Pay and promote those that are good and the bad people must go and those who need to be demoted must be moved. The hardest decision is demoting the good guy. But does someone deserve the job because he is a good guy? You want someone who can do the job. You must go out of your way – more breakfast, lunches and dinners and in bars than business meetings. If you want to find out about people, find out from other people. Meritocracy is seeking out good people and earning people’s trust and respect that you actually do it (Life worth Living, 2008). COMPETETIVE RIVARLY AND COMPETITIVE DYNAMICS Much has been written about the tempestuous relationship that Dimon and Sandy Weill of Citigroup shared when they were working together at Smith Barney. Jamie learnt the ropes of the business while he was there and Weill provided him the launch pad for his further career ambitions. Even to this day, Dimon likes to talk about his time at Smith Barney and how he helped turn around the business. Dimon's and Weill's tumultuous relationship is more than just good gossip. The competition between the two banking titans could have implications that investors might want to consider. "In a lot of ways their relationship has an oedipal arc to it," observes Peter Cohan, a former banking executive, now a management consultant and author of Value Leadership. CORPORATE LEVEL STRATEGY Jamie Dimon separates the idea of a conglomerate from what he calls are a natural set of related products. Most of the regional banks around the world are in a similar role and do all of our businesses and Dimon does not go and artificially put them together. According to him “The business grew up this way, and it grew up for a good reason. When you're a consumer, you walk in and you expect a certain kind of retail product set. When you're a small or middle-market business, you walk in and you expect a certain kind of financial-services product set. It's the same when you're a large corporation. And the fact is, the average regional bank provides cash-management services, private-client services, small-business services, retail, and middle market. So when we organize across these six business lines, it's really for three sets of customers—consumers, private companies, and large companies and institutions—and we provide a natural product set that we are always trying to expand. And the reason this works is that our size and scale allow us to find ways to deliver those products better, faster, and cheaper to the customer. ACQUISITION As noted in the previous sections, Jamie Dimon’s spearheading the rescue of Bear Stearns has had the effect of ensuring that J P Morgan Chase stays ahead of the pack in terms of looking for potential sellers and locking down their investments. This was one of the most talked about acquisitions of the year with Dimon emerging as the white knight in distress for Stearns. Dimon has led JP Morgan for two years, steering the bank away from the deepest depths of the credit crisis. His career is the stuff of Wall Street legend. He began with a degree in biology and economics at Tufts, before embarking upon an MBA at Harvard. Jamie Dimon has long had a reputation for being one of the best numbers men around. If he says that JP Morgan’s acquisition of Bear Stearns represents good long-term value, Wall Street will listen. INTERNAL STRATEGY Dimon’s strategy for J P Morgan is simple in its approach and has been worth the effort. The strategy is to boost revenues at a healthy rate while ensuring that costs are down all time. "If the market is convinced you'll keep the cost line flat and that you have the disciplines to raise revenues faster than your competitors, your stock price can rise in double digits," says Dimon. "But you have to do both." In pursuit of those goals, Jamie doesn't get bogged down in a search for consensus or worry about hurt feelings. This shows in the way in which he had dealt with Todd Maclin, head of J.P. Morgan's commercial bank, when the latter complained to Dimon that the investment bankers were hoarding hundreds of so-called middle- market firms--those with annual sales of $500 million to $2 billion--on their "prospects" list, keeping the commercial bankers from approaching them. Dimon wanted straight answers without any “flab” as he calls it. He has already revamped J.P. Morgan's retail-branch system to encourage greater selling of mortgages, credit cards, and other products. When he arrived, branch personnel got the same pay for pushing products as for dozing behind their desks; 50% of branch managers received bonuses of $8,000 to $18,000. Today, the firm pays big bucks to stars and fires laggards. CO-OPERATIVE STRATEGY Jamie Dimon has been in the news for his roles as a director of the Federal Reserve. Though there were some controversies that were bandied about, Dimon saw his role as essentially helping the financial system when it was in distress. As he put it, the financial system can be saved if people stop vilifying the same. This has been his approach towards the restructuring of the sector that is reeling under the credit crisis. STRATEGIC LEADERSHIP Jamie Dimon’s chief asset is his Wall Street education or his considerable experience on Wall Street as compared to other CEO’s who have been at the helm of a single or a two majors in their entire careers. “But what really sets Dimon apart is his superb Wall Street education. Dimon has been the right-hand man of Weill, 63, who has been masterfully buying, consolidating, and running brokerage firms and creating shareholder value since 1960. ``Weill built his empire by sticking to three basic principles: controlling expenses, building revenues through acquisitions, and never taking risks that are unnecessary,'' says Smith Barney veteran Stephen Treadway, now an executive vice-president at PIMCO Advisors. ``The essence of Jamie is that you have a bright, driven guy trained on the principles Sandy built'' (Business Week, 1996). STRATEGIC ENTREPRENEURSHIP Jamie brings a certain energy level to his work that allows the others in the organization to do things in a different way – when they see things that doesn’t make sense, they change it. Jamie has done a phenomenal job inspiring people at the top to clear things out so that they have a good execution. He believes that no matter the age, people are going to be successful if they have the combination of luck, opportunities and how abilities. And conversely, it is not true that people are going to be successful by a certain age. But the good people will get there. Jamie Dimon’s goal in life was not money but to build something. CONCLUSION One thing that strikes me when reading about Jamie Dimon is his unfailing capacity to spot trends and capitalize on them before any of his competitors has a chance to make good of them. It is this ability that has seen him turn around Smith Barney and helped J P Morgan weather the storm of the credit crisis. He has an uncanny knack of seeing the big picture and correlating it to the micro view of the firm. Of course, in the midst of all this positive analysis, what stands out as a criticism is his personal style that is often seen as abrasive and haughty. For a person who stands at the helm of a major Investment Bank, the abrasiveness and cocksure self confidence may be symbols of his breed. But, they can easily lead to his dethroning from the spot as well as we have seen in the Wall Street Crisis of 2008. Thus, one hopes that he tempers his style. In conclusion, it is apparent that Jamie Dimon is one of a breed of extremely successful bankers who have held sway in the de-regulated environment of the last decade. The fact that he has survived along with his bank adds to his credentials as an uber-successful banker. I have enjoyed researching the material about Jamie Dimon and I have attempted to convey the gist of what I have learnt. Sources Deutsch, Clayton. (2006). Building a Global Bank. The McKinsey Quarterly. Retrieved Mar 17, 2009 from: http://www.mckinseyquarterly.com/Building_the_global_bank_An_interview_with_Jamie_Dimon_1860 Sprio, Leah. (1996). Smith Barney’s Whiz kid. Business Week. Retrieved Mar 17, 2009 from: http://www.businessweek.com/1996/43/b3498153.htm Hester, Elizabeth. (2009). Dimon Says System can be saved… Bloomberg. Retrieved Mar 17, 2009 from: http://www.bloomberg.com/apps/news?pid=20601087&sid=a3xPFlNxi7i4&refer=home In this Corner! The Contender. (2006). Mutual of America. Retrieved Mar 17, 2009 from: www.mutualofamerica.com/articles/Fortune/April2006/fortune2.asp Hanson, Joyce. (2009). Outcast caps a triumphant return. Crains New York. Retrieved Mar 17, 2009 from: http://mycrains.crainsnewyork.com/newinfluentials/view/8 Read More