I can't believe the show sold out without us telling anyone what's happening.
I know, right? I hope people aren't disappointed.
Should we have told them at least one guest or like released a detail?
I like it. You know, it's Broadway. It's theater. You're in for a show.
Come see Acquired as a show. Yep. The suspense, the mystery. Which train are we taking again?
New York really jumps. It does feel like the center of everything.
You know the famous New Yorker cartoon about how New Yorkers see the geography of America—that it's the island of Manhattan in the cartoon, and then there's the Hudson River, and then it's just California on the other side of the Hudson River. There's nothing in between.
We got a little bit of time before the show. What do you think about a hot dog?
All right, let's do it. Thank you. I love it.
It is my favorite thing to do when I come to New York.
Spend some time in Central Park and you're just like walk around all day, pop out, get bagels. I was trying to think what was the first listener live thing we ever did.
I think it was the GeekWire conference in Seattle. And then we did the WeWork in San Francisco in the Tenderloins. About 100 people.
Yep. The PA system went out halfway through.
Yep. Picked up a new PA system. That was amazing. Come a long way.
New York City, please put your hands together for Ben Gilbert and David Rosenthal.
Who got the truth? Is it you? Is it you? Is it you? Who got the truth now? Is it you? Is it?
Hello, Acquired listeners.
We are so, so excited to have you all here tonight for our live podcast episode recording. So, all right, David, should we do it? Let's do it.
Um, I think this was better in theory. I'm not sure. It feels like kind of a waste of all this stage, this Radio City Music Hall that we have here.
I think you're right. Should we do the other thing?
Yeah, maybe we should do the other thing instead. Let's do that. Hey, Mike. Could you help us level it up a little bit in here?
I think we can cook something up.
Radio City. Are you ready? Who got the truth? Is it you? Who got the truth now? Is it you? Is it you? Is it you? Set me down. Say it straight. Another story on the way. Who got the truth? Who got the truth?
Radio City, Mike Taylor, everyone. Woo.
Now, this feels a little more Radio City.
David Rosenthal, you look sharp.
I suppose we have our friends at Hermès to thank for helping us celebrate the occasion and show up in style.
Well, welcome to Acquired LIVE AT RADIO CITY MUSIC HALL.
Thank you so much for all of you for coming out and those of you who traveled from far away. We've got people from different states, different continents. Thank you so much. So, what are we really doing tonight?
David and I thought long and hard about what to do tonight. What is the best show we can put on on the greatest stage in the greatest city in the entire world here in New York? Woo! And we realized that what we should do tonight is obvious what Acquired should do. We are going to have three conversations with three of the city's most iconic company CEOs. The way we're going to do it is in two acts. So act one, we've got a big conversation with an important American company that we haven't covered yet here on Acquired that we're going to tell here with the protagonist himself. And in act two after intermission, we are going to have some fun and we're going to try out a new format for Acquired specifically tailored for Radio City Music Hall.
Yep. So, our first conversation, there is really only one active CEO today here in America who transcends leading his company and really is also looked to as a leader for our country.
His company is now worth around $800 billion. And not only is it the most valuable company in New York, but it's the most valuable company east of the Mississippi.
So for tonight's big conversation, please welcome the chairman and CEO of JPMorgan Chase, Jamie Dimon.
Great to have you here. Well, this feels appropriate.
You guys dressed up for me.
You dressed up for us, too. Thank you. Well, we know you're a big history buff, and we consider ourselves historians above all else. So, what we'd like to do here tonight is walk through the 20-year story with you of sort of how you turned JPMorgan Chase from a bank among many to the most systemically important financial institution in the world. Are you game?
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, really the blueprint for what JPMorgan Chase is today. Except it's not JPMorgan, it's Citigroup. And everybody on Wall Street in the entire world expects that you are 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?
Okay, 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. And so 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 merged. We were a financial conglomerate. We bought lots of companies and lots of different businesses. We fixed them up. We turned them around. We made money. And then we merged it with Citibank which obviously was a huge bank. And you know my view is we should skinny it down and kind of shed the parts that aren't that important to the rest of the company and keep the things that strategically belong 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. It was quite successful at the time and then I got fired.
So how are you feeling in that moment?
Well, you know, my wife is here and I was hosting 100 people recruiting kids in my apartment in New York City. Same apartment I have now. And they called me. We have a management meeting a Sunday at 4:00 p.m. that night and Sandy and John Reed called me up and said, 'Can you come a little early? We got a bunch of stuff to talk about.' I was the president, chief operating officer. I said, 'I can't.' They said, 'Well, it's really important.' So, I drove up there. And I sat down in the room with Sandy and John and they said they want to make a few changes and they have three of them. And they said, 'One, we want to make this person in charge of that.' Okay, well, that didn't make sense to me. The second one 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 is they said, 'And we want you to resign.' And I said okay because you know at that moment I knew it was all arranged. The board had voted, the press release was written, 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 press with me?' I said, 'Yeah, but I'll do it from home.' So I went home, went to see my kids. They were like 12, 14, 12, and 10. And I walk in the front door. And I tell them I was fired. And the youngest one says, 'Daddy, do we have to sleep on the streets?' I said, 'No, no, we're okay.' And the middle one, who's always obsessed with college for some reason, 'Can I still go to college?' I said, 'Yeah.' And the one who was here, the oldest one, said, 'Great. Since you don't need it, can I have your cell phone?' And then that night about 50 people came over. All the same people I just met, all the management team bringing whiskey and it was like being at your own wake. And there's one really tall guy who came in, very good friend of mine. And he looks and my daughter looks up and says, 'Who are you?' He says, 'I work for your daddy.' And she says, 'Not anymore you don't.' And that was it. I was okay. You know, I tell people my net worth, not my self-worth, was involved.
And for anyone who doesn't sort of already know Jamie's story, you were the rising star. I mean, Citigroup was the biggest bank. You were the heir apparent. I mean, this was unfathomable. And for you to take it this gracefully, you know, it says a lot. So, you're sort of wandering in the woods as best I can kind of reconstruct it for about 18 months. Is that right? Figuring out what's next.
Yeah, you know, it took me a while to exit and sign agreements and get out. They were kind of mean. But then I stepped in the office and it was late. We went for a nice long vacation and stuff like that. When I got back in September, so I was six months later, I started going to work. I had nothing to do but I went from nine to five and started calling people and thinking about what I'm going to do. It was in the Seagram Building so I'd go for lunch downstairs every day and I...
At the Four Seasons and I explored everything. Thought about my own merchant bank. I could have retired, just teaching, just investing, but I was 42.
And 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 on a houseboat.'
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, you know, and 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.' So I was thinking I'm going to go from Sandy Weill to you. I mean, I had to have my head examined to do something like that.
I didn't know the AIG story then.
Yeah. Well, that happened years later too. And then I got a phone call from a headhunter about Bank One. And I was also, you guys, a lot of you probably know Ken Langone and Bernie Marcus and Arthur Blank ran Home Depot. My wife, I loved them, but at my first dinner with them, I went to see them in Atlanta. I said, 'I have to make a confession. Until you guys called, I had never been in a Home Depot.'
We were actually wondering, David and I were debating. We were talking about a lifelong New Yorker.
My friend made me go up there and get some equipment and plants and stuff like that. But I love their culture, their attitude. They wanted me to do it. Ken Langone says he still should have gotten me. 'I wasn't going to pay you enough.' Of course, it had nothing to do with anything like that. And I had Bank One, but Bank One was my habitat. I was used to financial companies, you know, services, banking. It wasn't quite global. It was a little global at the time. And you know, it was a troubled bank and you know, I decided that, you know, life is what you make it. It was hard on my family. We had to move. I think for anyone who's going to move kids, you know, I think they were 14 and 12.
Some 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.
Large, David. It's a $30 billion market cap bank. Citigroup where you just had been before was a 200...
It was 21 billion at the time because it did a split and so if you look back it was more like 20 billion or something like that. And Citi was 200 but you know, I didn't worry about that. I was like, you know, in life you make things what they are. I don't like complaining about spilled milk. You know, you just put on your pants, you get going and see if you can make something out of it.
But it sounds like you had opportunities to stay in New York to run bigger, more glamorous things.
This was when I was going to run the company. The other ones would have been some investment banks. I didn't really trust some of the people who were talking to me about that. And there's a whole bunch of other stuff that I explored. I took phone calls, some small companies, some big companies. There's a couple of subprime mortgage companies who called me and I was like, absolutely not.
We'll get to that. We'll get to that.
We'll get to that. And so I just thought this was a chance, you know, and if the family's willing to move. It took us a while. We lived in a rental for a while, but we got a nice brownstone. And you know, we ended up loving Chicago. Chicago is a wonderful city in a lot of different ways. And like I said, it is what you make it, you know, and I put half my money in the stock at the time.
I tied my... I was going to be the captain of the ship. I was going to go down with the ship, you know. I made it clear to everyone I was here permanently and it'll be what it is. And so I got to work like literally the next day.
Did we do the math right that right before you joined Bank One, you bought $60 million of stock?
I mean, 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.'
Yeah. And 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. You know, if you work at a company and the new CEO comes in, he's from out of town and you're going to have a lot of shareholders and you know, I knew a lot of the shareholders. I was going to know a lot of the shareholders. I wanted them to know I was in 100%. Lock, stock, and barrel. There was no question. I would never sell that stock and I'm going to go down with the ship or go up with the ship. And I was making decisions that I thought were right for the long-term health of the company, not for a short-term type of thing.
So what did you find when you got there? Day one of the job you start investigating, is it better, worse, the same than you thought?
You know, there had been an analyst called Mike Mayo who did a report. I remember one of the great lines of the report: 'Even Hercules couldn't fix it.' It had been an amalgamation of Bank One, First Chicago, National Bank of Detroit. They had never put the companies together. So they had multiple statement systems, processing systems, payment systems, SAP systems. They had different brands, services coming down. We were losing accounts. They were closing branches. It was a mess. But it was all of it—systems, people, ops. But again, I just met the management team. It's hard. I walked in, I met six of the directors. There were 21 directors, 11 hated the other 10.
Yeah. I mean, wait, there were 21 board members?
21 board members from the multiple acquisitions. They were tribal. They ended up hating each other. I knew that when I went in because I knew a lot of people and I spoke to a lot of people, did research in the bank. But again, in life you get handed these things and it's not perfect. You know, even today people want to be handed something perfect. It's not perfect. And so I met six of the directors. I walked in. When I got off the job, I shook all their hands. I told them I'm going to do the best I can. I'm going to tell the truth, the whole truth, nothing but the truth. The good, the bad, the ugly. We're not going to [__]. We're going to try to build a great company. I'm going to need your help. And then they left. So now I'm on the executive floor. I don't even know where to go, you know. And so I kind of knocked on someone's door, the head of HR. I said, 'I do need an office and I really need an assistant.' And 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. I stick my head out.' And then I went to meet the management team. They put them all in this conference room, 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 looked at the coffee. I looked at them. I said, 'You do now.' And then I just 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. So I rolled up my sleeves and went to work.
As when we were chatting a couple weeks ago in preparing for this, we asked you in the context of JPMorgan, what are the critical things in your mind that have made JPMorgan what it is today? And the first thing you said was risk and the culture around risk.
Fundamental understanding by management of risk.
Yeah. 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?
Yeah, you know, I've always been very risk conscious and risk conscious does not mean getting rid of risk. It means properly pricing it and understanding the potential outcomes. And so when I got there, I just started meeting people and going through. I quickly realized that Bank One had more U.S. corporate credit risk than Citibank did. And the way they accounted for it was unbelievably aggressive and so they had less capital, less reserves, less this. They were calling these things profitable. They were basically losing money. And you know, loans in a lot of business, you got to be very careful about the credit business. And once I found out, I kind of panicked a little bit and 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 revenues per dollar of risk. And I always stress tested and I showed the board that if we have a recession and we're about to have one, how much money we lose in credit. So, I hired a woman called Linda Bammann who said, 'Okay, if you're going to let me do credit, are you going to let me sell loans?' They 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.' And we probably reduced the balance sheet by 50 billion because and then we did have a recession but we were kind of okay by then with one big bad one which is United which went bankrupt and we basically owned it for a small period of time.
There seems to be kind of a fundamental Jamie Dimonism which is don't blow up. I mean, a lot of other people have gotten decent at pricing risk but everyone else seems to be willing to get closer to the line than you. Where did you sort of develop this don't blow up at all costs concept?
So there's, you know, around risk there's always this ecosystem. You've always heard it, everyone's doing it, everyone's okay, this is going to work, this time is different. And you know, history teaches you a lot. And I always say you treat history... My dad was a stockbroker and so I bought my first stock when I was 14 in 1972. The stock market hit a thousand, it hit a thousand in 1968. I was already helping a little bit with stuff. By 1974 it was down 45%. All the limousines on Wall Street were gone. Restaurants were being closed. You know, markets move violently. And then, you know, we had kind of a recovery in 1980. Had a recession in '82. In '82, it was lower than it had been in 1968. And it hit 800. And then in '87, the market was down 25% in one day. In 1990, all these banks, JPMorgan, Citi, Chase, Chemical, were all taken to their knees by real estate losses. And they were all worth about a billion dollars. I think Citi was three billion at the time and the other ones were about a billion dollars. And then you had the '97 real estate related thing. You had the 2000 internet bubble. And then you had the great financial crisis. And if you go through history, there's 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, about 1929. And man, history does rhyme. Too much leverage, too much risk. Everyone thinks it's going to be great. No one thinks it can go down a lot. You know, that stock market went down 20% one year, 30% next year, 20% the next year. At one point, it was down 90%. You know, [__] 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. It happens often.'
Yeah. So when I look at it, I always ask, like when I do stress testing of risk for high yield, the worst I remember getting at JPMorgan and going through the risk books, their stress test was that high yield would move 40%, the credit spread, and at the time was it 400 or whatever it was, that means 560. And I said, 'No, our stress test is going to be worst ever.' Worst ever was 17%. And 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. So, you know, those things do happen. And the point isn't that you're trying to guess them. The point is you can handle them. So, you continue to build your business. And so, I always look at what I call the fat tails and manage that we can handle all the fat tails. And not the stress test the Fed gives us, but all the fat tails. Market's down 50%, interest rates up to 8%, credit spreads back to worst ever. Of course, your results will be worse, but you're there. And the thing about financial services, leverage kills you. Aggressive accounting can kill you, which a lot of companies do. And you know, the goal should be, and also confidence. If you lose money as a financial company, I always knew this too. People, the headlines are, you know, people read that and if they're relying on putting their money with you, they look at that differently.
They lose trust, and that's what caused, you've seen 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 sort of 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, Commercial Credit, Bank One, JPMorgan Chase, is that true in the good years that you've actually been less profitable than those who are kind of risk-on?
Yeah, a little bit. He's saying that, you know, if you look at the history of banks up until 2007, a lot of banks were earning 30% on equity. Most of them went bankrupt. We never did that much. Okay? But in '08 and '09, we were fine and they weren't. And so, but you want to build a real strong company with real margins, real clients, conservative accounting where you're not relying on leverage. And it's very easy to use leverage to jack up returns in any business, but in banking, it could be particularly dangerous.
So it seems like a core part, if not the entirety of this distilled into your operating strategy, is the fortress balance sheet. When did you first hear about the fortress balance sheet?
I've been talking, I go way back to Primerica. I used to talk about that you got to be able to survive the tough times, early '90s, probably the 1990s. And like I said, I grew up, my father and I went through those market things and I remember how hard it was on people on Wall Street. But the fortress balance sheet is that you run a company serving clients well. You have good margins, good liquidity, good capital. I'm as conservative an accountant as you can find. I don't upfront profits when I can spread them over time. And accounting, you know, of course accountants hate it when I say this, you can drive a truck through accounting rules. And accounting itself, you know, certain things are considered expenses, but they're good. They're an investment for the future, but they're called an expense. And then revenues, you know, 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, you know, in the banking business, the character of the clients you have will reflect in your bank. So, the first thing is who are you doing business with? How are you doing business? And you know, also making sure your compensation plans aren't paying people for stuff which is stupid or unethical. And you know, 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. So you run Bank One for four years from Chicago and then in 2004 you merge with JPMorgan Chase in what is termed at the time a merger of equals. I think JPMorgan Chase referred to it as that. Bank One shareholders get 42% of the combined company. I mean, I think people don't realize how much of JPMorgan Chase is Bank One today.
That's why it's a little irritating to me when they say you've been running it since... I was running JPMorgan. I was running 40% of the company for the whole time. And when I got to Bank One and I'm working around the clock, I already knew that a logical strategic merger might be JPMorgan. Okay, I know all these companies and that's the other thing about fortress balance sheet is you also have real strategies that survive the test of time and you know you're not flipping and flopping. And then I'm sitting there and of course the news comes, JPMorgan Chase to merge. So we're worth like 25 billion. They're now worth like 80 billion or 90 or whatever the number was. I'm like, well, there goes that dream. But four years later, our stock had doubled or something like that. There's actually... it was in the target range and I'd been meeting with Bill Harrison, the current chairman of JPMorgan at the time. We were talking about it. We both knew it made business sense. They were kind of looking for a CEO. So we had been talking probably for a year and a half before that.
That they're looking for a CEO. Did they give Bank One shareholders 42% because they were looking for a CEO?
So we got the premium, they got the name and the location and I effectively had kind of control from day one because inside the merger agreement, and this is almost unheard of when we get the premium, is that to not have me become CEO 18 months later, 75% of the board would have to vote me out.
The default was you were going to become CEO.
And the board was eight Bank One people and eight JPMorgan people, 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 these.
I think every shareholder is probably...
But it worked. It worked out.
Yeah. When you were going through that process and even maybe the couple years before you and Bill were talking, you're 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, JPMorgan brand is a Tiffany name. I didn't value it in the deal. And what I looked at, I had given my board, I think the first thing is run your company well. And 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. But the first thing I looked at was business logic. Every business, we had a consumer business. They had a consumer business. We had a credit card business. They were both terrible. They had a credit card business. 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 on costs. So the business logic would be impeccable. Then there's the ability to execute, like 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. They have infighting. It kind of happened at Citi. And so you don't effectuate. And then there's the price. So, I knew we had a Tiffany brand, but it didn't value because if everything else didn't work out, I don't think it would have mattered that much.
Interesting. Okay. So, I'm going to fast forward a couple years. It's 2006. You're officially chairman and CEO of the combined JPMorgan Chase.
And 2006 on Wall Street is like, go, go, go, baby. It's like, you know, the 1980s all over again.
I think you had the same incentives as everyone else, but you behaved very differently. Am I missing something? Did you have the same incentives or... you pulled JPMorgan back hard on the risk side in 2006?
I did. So there were cracks out there in 2006. You may remember the quants. There started to be a quant problem late in 2006. We definitely saw subprime getting bad and that's when I pulled back on subprime. I wish I had done more because if you look at what I did, you say, 'Okay, well you saved half the money, but you would have saved more.'
You still had some losses.
Yeah. But we also had, I'm going to say maybe a third of the leverage of the big investment banks and a lot more liquidity. So in 2006 I started to stockpile liquidity and you know, looking at the situation I was quite worried. The leverage, you may not remember this, but the leverage because of accounting rules and Basel I, investment banks particularly, the big investment banks went from 12 times leverage to 35 times leverage. And it was go-go, you know, CMOs, bridge loans, the whole thing. Like in '07, the bridge book of Wall Street was $400 to $50 billion. Today it's 40 billion. JPMorgan can handle the whole 40 billion today, though we're not the 40 billion today. And they were much more leveraged deals and a lot of them fell apart, collapsed, and then of course 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.
Yeah. 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 the client. If you treat yourself, if you're the client, how would you want to be treated? And I had gotten rid of, I mentioned that one risk thing. There were multiple risk things like that. They were being paid to take the risk. All of these investment banks were doing side deals, private deals, three-year deals, five-year deals. I got rid of almost all of them. This is for comp of senior bankers. And so today at JPMorgan Chase, there are no, you know, we do do things, and I know some of my partners in the room here, but we all know about it. There are no winks, there are no nods, 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 and meanwhile not helping the company manage its risk or something like that. So 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 incenting the right behavior vis-à-vis the customer. And a lot of it was leverage. So 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's literally going to add, you know, 25% to your bonus. And so I got rid of the profit pool of 20% and the leverage.
And I lost some people too in the meantime.
It's funny. Yeah. You know, 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 got to go to 2008.
It's Thursday night. You get a call from Bear Stearns' CEO. The stock closed that day at $57 a share. It was like 150 a couple months before. Three days later...
God, I remember it like yesterday. I was working on Park Avenue. I remember that night. $2 a share. You're buying. And tell us the story.
So, I was at AVA on 47th Street. My parents' favorite restaurant. My whole family was there. It happened to be my birthday. I don't normally get emergency...
Yeah. And 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. And he said, 'Jamie, I need $30 billion tonight before Asia opens.' Which I said, 'I don't know how to get $30 billion for you.' And have you called Paulson? Have you called Tim Geithner? So we all called. I called up the management team. I went back in. I probably had a bite and said goodbye and went back to the office. Probably had a hundred people come in that day, that night. They all got dressed. They went back to work. It's an emergency. We now rang all bells for emergency. Bear Stearns went bankrupt. Spoke to the Fed about let's just get them to the weekend. We had one day and we needed a Saturday and Sunday and we concocted this loan. So, we couldn't lend the 30 billion and the Fed technically couldn't lend the 30 billion, but the Fed can lend to us technically and I can technically use the collateral of Bear. So we got literally a one-day loan and then the next day we had thousands of people come in for due diligence and we went through every loan, every asset, every balance sheet, all the derivatives, all the lawsuits, all the HR policies, like real due diligence, a two or three day period and bought the company that night at $2 a share. Hank Paulson was telling me, 'Why are you paying anything for it?' I said, 'Well, I do have to get shareholder votes,' which became...
Because you need Bear shareholders to approve. It was a public deal and the worst part of it is I was going to get the lawsuits from the Bear holders...
That you didn't pay enough for.
But we couldn't let it go bankrupt. It wasn't like an industrial company I could buy in bankruptcy. It would have been gone and the crisis would have just unfolded. So we paid a billion dollars for a company that had been worth $20 billion recently. The building we're in now was worth a billion dollars on the balance sheet for zero. And 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 to 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. And I really was, I thought it was...
Take this problem and then we'll see.
This is the government, when you do a deal with whatever government is there, the government down the road decides, 'I don't care. We're going to come after you anyway.' So while we kind of saved the system a lot, we bailed a lot of people out, they made us pay $5 billion on the bad mortgages that Bear had done. And that's what made me make the statement I wouldn't do it again. I wouldn't put it this way, and I don't know how to say this, I wouldn't really trust the government again. Okay.
I 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 four years?
Yeah. They don't feel obligated to what the prior administration did. And you know, even some contracts were violated in this thing which I won't go through. Literally contracts, I mean it would have been tortious interference that had been company to company, but they basically, you know, since you operate under their laws, you know, they can basically take you down. So I went to see Eric Holder trying to settle this mortgage stuff which we settled. I brought my lead director. He expected me to come 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 surrender, I want you to know the circumstances by which we bought WaMu and Bear Stearns, because 80% of what they're asking for related to Bear and WaMu, not JPMorgan Chase. And I went through the whole thing. You know, 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. And so it is what it is. It was quite painful, but got to move on.
We'll move on from this. We won't keep you.
Well, we'll move on from the specifics. [laughter] David's...
I do have one more thing. Whether you would have done it again, wouldn't have, you know, very clear it was not a great deal on paper for JPMorgan. But as we look at it now, the reputational value that JPMorgan — 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...
I, you know, if you're — yes. And I know I say I wouldn't trust the government. If the government called me up — they did, they did it again. If they called me again and said, 'We need your help to save our country,' well, of course I'm going to. I'm a patriot that way. I just — I would just try to come up with some ways to avoid the punishment by the next president. [laughter]
I would come up with something like...
You need — you know what you need? Like the version of the merger agreement with JPMorgan Chase where it's like 75% of Congress needs to [laughter] vote not to sue you. Like the default is you're not going to get sued.
All right. So Bear Stearns happens, six 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 is actually a great acquisition, right?
Yeah. So this is a lesson about acquisitions. It's 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 feels like...
The whole system was in trouble. But WaMu put us in California, parts of Nevada, Arizona — not Arizona — Georgia, Florida, which we weren't in. So think of these really healthy states, and they had, you know, 2,300 branches. They were — and they had huge mortgage problems, but we had looked at it over and over and over. So we knew their mortgage books, and we wrote off — we bought it for...
We bought it for a $30 billion discount to tangible book value because they had debt, and we left the debt behind. And so that $30 billion was approximately what the mortgage loss was going to be. So we bought the company — think if we bought a company clean, we wrote off all that stuff, the books were clean. And then we did something unheard of, too. The next day or two days later, I went in the market, 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 can get even worse. And I don't want to be short capital liquidity. So we, you know, 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?
Well, yeah, we knew a lot of the shareholders, and you earn your trust over time with shareholders. And, you know, we explained — we gave them a quick little presentation over, you know, and a lot of them stepped up and said, 'This is great.' We also know we can execute it because behind the Bear Stearns — people forget the work is the next day you got 50,000 people consolidating, you know, 5,000 applications, branches, compensation programs, you know, settlement programs, you know, payment systems. It's a lot of work, but we obviously have the capability to do that, and we have the capability to do WaMu. I think we finished the WaMu consolidations in nine months, all of them, so that within nine months they were all in the same systems, which allows you to start doing a better job in customer service and things like that.
So this fortress balance sheet strategy and raising this equity capital and, you know, having additional margin of safety and conservative accounting — in retrospect it seems like the obviously 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 — the people are more conservative today. I think regulators are more conservative today. But again, I go back to people get involved in aggressive accounting. They don't look at stressing their own bank in a real way. You know, you saw people take too much interest rate risk, too much credit exposure, too much optionality risk, and or sometimes it's new products. So if you look at the financial services, very often it's the new products that blow up. It takes a while. They haven't been through a cycle. And 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 GSEs. Even Ginnie Maes 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 leverage lending. And then people then become more rational how they run these balance sheets, 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 what happens — the other thing about markets is there's some very good actors in it who know what they're doing. Customers like the product. So I always say, well, the customers like it, but there are also people who don't know what they're doing, and it's grown rapidly. So there may be something in there that would become a problem one day. I don't think it's systemic. So that $2 trillion — the mortgage market when the time it blew up was, I'm going to say, $9 trillion, and a trillion dollars was lost. This is, you know, and it was a trillion dollars was also in high trillion dollars back then.
Yeah. A lot of these private credits are not leveraged like that, but it doesn't mean there won't be problems. But it's slightly different. But you look at the whole system, there are other things out there that, you know, are leveraged that, you know, can cause problems. And of course people take secret leverage in ways you don't necessarily see it.
What are some of these in your mind that are potentially problematic today?
Well, I look — when you look at asset prices, they're rather high. Now, I'm not saying that's bad, but if today PEs were 15 as opposed to 23, I'd say that's a lot less risk, 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. And that's true with credit spreads. So, and we look at — we stress test everything. We do like 100 stress tests a week, you know, and to make sure we can handle a wide variety of things. And then the other thing, and the biggest risk to me is cyber. I mean, I think this cyber stuff is, you know, we're very good at it. We work with all the government agencies. They would say that JPMorgan, we spend $800 million a year or something on it. We educate people on it. We just do. But it is — you're talking about grids and communications companies and water and even part of the military establishment. The protections are not what you need if we ever get any kind of war where cyber is involved. And China is very good at it, and so is Russia, but Russia is 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 at Acquired, but...
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. So Silicon Valley Bank — you know, they both — Silicon Valley Bank 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 have misstated that — concentrated. And so a lot of venture capital — what happened with Silicon Valley Bank and kind of First Republic is some of these large venture capital companies — call them there, hundreds of them, maybe a thousand — told their constituent clients that they invested in, who all banked in Silicon Valley and First Republic, the banks aren't safe, get out. And they all removed their deposits. In Silicon Valley Bank, I think they had $200 billion deposits — $200 billion, $100 billion in one day. And 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, and they had taken too much interest rate exposure. And the interest rate exposure was hidden by accounting. It was called held-to-maturity. But you don't have to mark even Treasuries to market. And I always hated held-to-maturity because — but it gives you better regulatory returns and stuff like that. But when that held-to-maturity — if you said what's the tangible book value of one of these banks and you said it was 100, well, all of a sudden it was 50 if you just marked that one thing to market. And now you're into judgment land. At what point, if you saw a bank where just that one mark had the tangible book value dropped to 40 or 30 cents to the dollar, would you panic? I would have said that's too much risk. And, you know, the regulators helped us because they said rates are going to stay low forever. So these banks bought a lot of 3% mortgages, and when, you know, 3% mortgages when rates went up to 5%, you know, worth 60 cents on the dollar or 50 cents, and that was it. And so both those had — they took too much interest exposure, known to management and it was known to the regulators, and, you know, and fixable. So, you know, we knew a little bit about Silicon Valley Bank. We were trying to compete in that area. So we learned a lot afterwards about how to do a better job for that ecosystem of venture capital. We have a whole campus in Palo Alto now. We've hired 500 innovation bankers. We cover venture capital companies. We're not as good as they are yet. We're going to get there because we're organized slightly differently. And we knew First Republic. We were watching it. I had called Janet Yellen and I said that company's in trouble and one or two 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 was kind of a little melting ice cube. But you could imagine the day we bought it, you never heard about it again. We hedged all their exposures in a couple of days, and, you know, we merged everything in. We wrote everything down. But we did get some good stuff from — we actually got some good people. You know, the normal thing in acquisition is they're terrible, get rid of them, or they failed. But we also looked at what they did, how they dealt with clients, maybe clients here. They did a great job with high-net-worth clients, single point of contact, you know, concierge services. So now if you go down Madison Avenue, you see things called JPMorgan Financial Center.
That's your first JPMorgan-branded consumer effort, right?
Yes.
Because it's kind of based on that. Then when you walk in there, we know your small business, we know your mortgage, we know your consumer banking, we can get you travel, we can do a whole bunch of different stuff. So very high-level services. I think we have 20 of them now. But I'd love it. And if it works, you know, in 20 years we have 300. And so these things are opportunities, and I hope it works. You know, 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, and now we've got the whole story. We've got a lot of context. Obviously we didn't go into every detail, but if we're now trying to answer the question: how did you separate from the pack? Why did you become a completely different animal than your whole competitive set? What are the things in your mind that led to this success?
What we do is the same thing that a community bank does, other than investment banking — global investment banking. Okay. So if you walk into a small community bank, they know your business account, they know your consumer account. They usually have a trust company. They used to call it trust. They'd manage your private affairs, they'd set up a trust for you, and they do stuff like that. And their CRM is up here. They don't need a Salesforce CRM because they know everyone in town. And they didn't do big-time global investment banking. But the strategy — 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. So all of our businesses feed each other. There's no extraneous. We got rid of everything that didn't fit a strategy. And then you start building client businesses and client services, fortress balance sheet, fortress accounting, all those various things. And, you know, I've always talked about...
So it's holding a portfolio of things that actually feed each other.
They actually fit. Whereas, you know, Citicorp had consumer finance, that didn't fit. Life insurance, that didn't fit. Property-Casualty, that didn't — they eventually got rid of them all. Sandy just wanted to do more of them. You know, he bought American General, which did truck leasing, for God's sake. I mean, and 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, you know — 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 they're investment banking people or consumer bank people or opening consumer branches. Or I think Doug Petno is here and Troy Rohrback, who run the global investment bank, but they've opened, you know, commercial banking branches all over Europe. And I think you were telling me — I mean, it's going great, you know, and it's feeding all other parts of the company. So just sticking to your knitting, constantly investing, you know, not overreacting to the market. You know, markets are like accordions, and then sometimes, you know, 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? You know, not going for the last dollar and nothing like that. And so, and building teams of people. You know, our people are curious and smart. They have heart. They have soul. They give a damn about, you know, the guards in the company and the receptionists. And, you know, it's not just about the big-time bankers and people pounding their chest. You know, we try not to put up with that. And we have big-time bankers. They are exceptional, you know. But the company, you know, serves the clients, and I think the clients know that.
When you really dig in to start analyzing JPMorgan's financials, you kind of 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 reinvestments. And 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 starting. And 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 — you know, we can cut billions of dollars of marketing out tomorrow. We can stop opening branches and save a 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 what we do, not the accounting of what we do. And, you know, we've built it over time. You know, we have great people and great products, and there's some secret sauce I'm not going to tell you about. We do Investor Day and we tell everyone everything, and I'm sitting there watching — I never do presentations. I'm watching them do the presentations. I'm saying, 'Oh god, we're just giving away too many secrets here.' But [laughter]...
So there's secrets as to why.
Well, you know, I saw Howard Schultz here before, you know, and I'm not supposed to say that probably. [laughter]
But no, but look what he built over the years, you know, the consistency, the curiosity, the heart, the, you know, 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. You know, if the team members aren't giving it their best every day during practice — you look at Tom Brady, every day at practice he worked hard. You know, if people are not giving their best, how are you going to have a great team? And it's not that different in business. The difference in business, you can BS about it all the time. You can make up stories. But in sports, you see it, you know, on the playing field — do they have the team? Do they play together? They don't even have to be friends. They have to practice, know their teams. And so I do think companies have that. It's like a sauce that works. You've seen it in lots of different companies, you know, not just JPMorgan Chase.
All right. We've got one last question for you. If you look back to 2008, which was a long time ago now...
To 2008, all of the other leaders that were involved in that era have long since retired. I mean, I think many folks within JPMorgan Chase have long since retired since then. 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's here too, who suffered through all this with me all these years, and probably couldn't have done it — couldn't have done it without her. [applause] I don't — look, I don't know, but I do believe [laughter] my grandparents were all Greek immigrants.
My grandparents were all Greek immigrants who didn't finish high school. But there's a Greek ethic, you know, which I — and you don't even realize you learn it from your parents, you know, from the ground up. And Judy's parents, my wife's parents, were the same, which is, you know, have a purpose. You know, have — and that it could be art, it could be science, it could be military, it could be business, it could be just being a great parent, a great teacher, you know, but have a purpose and then do the best you can, you know, give it your all. Don't be one of those people who complain all the time, you know, you give it your best and then treat everyone properly. Everyone, you know, like if there was a bully beating up on someone, you had to stand up for the someone, you were not allowed to allow a bully to do it. So how you treat people, what you do. And so in, you know, my hierarchy of life, the most important thing is my family, 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, freedom of enterprise, which we have to teach everywhere we go about how important it is. I don't think people fully understand it sometimes. And then my purpose because, you know, my family doesn't want me home every day, and this is my contribution through this company. I can help cities, states, schools, companies, employees, and I get the biggest kick out of that. And so that's what I do. And as long as I have the energy, I'm going to do it. I can't imagine — I don't play golf. You know, [clears throat] my daughter, one of my daughters said, 'Dad, you need some hobbies.' And I said, 'I do. We're hanging out with you, family travel, barbecuing, wine. We now like whiskeys, and I love to read. 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. You know, 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 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. There is only one job that could possibly impact the country on a bigger scale than you're currently doing. Do you agree right now?
Well, that's probably a great place to [laughter] be.
Jamie, thank you so much for joining us.
David, Ben, these guys are great, by the way. So, [applause] thank you.
Jamie Dimon, everyone. Thank you.
Appreciate it. Thank you.
Thank you so much. Thank you.
Ladies and gentlemen, welcome back. I'm Andrew Ross Sorkin, and this is a late-night edition of DealBook Meets Squawk Box Meets Acquired. Please welcome back to the stage Ben and David. Gentlemen, [music]
Hello. Hello. It's so great that you're here. We're glad to have you here. But why are you...
Yeah, we've got this whole...
I'm at the desk here. I'm used to being behind the desk.
But we've got this like late-night talk show with iconic New York company CEOs. Like, we're going to be at the desk.
Yeah. I had heard that you might be doing something with The New York Times, and I grew up there, you know, and so I just wanted to help you with, you know, notes, questions, research, whatever you were working on.
Yeah. That's why I sat down.
No, no, I mean, I think we got it. We...
We did a whole three-hour episode a few years ago about The New York Times.
But I really appreciate you coming, though. I mean, it means a lot.
Okay. If you know so much, can we just do a little quiz?
Yeah, let's do a little quiz.
Little New York quiz. We'll have everybody participate. Here's a big question for you. What year was The New York Times founded?
Okay, that's one. Question two. Who once defended The New York Times building from the rooftop with a gun?
Nope. Nope. Nope. Nope. Nope. That was the original co-founder of the paper, Henry Raymond. But Ochs gets you style points. He bought the paper, by the way, from Raymond. Okay, this one. I wonder if this whole room is going to know this one. What iconic New York location is named after The New York Times?
Oh, Times Square. Of course, we have a billboard there.
And then final question, who is the most iconic CEO in The New York Times Company's modern history? And that person might be backstage as we speak.
Yes, we do. New York City, please welcome the CEO of The New York Times Company, Meredith Kopit Levien. [music] [applause]
A huge thank you to Andrew Ross and everybody. Andrew Ross. [applause]
I'll go anywhere Andrew Ross Sorkin goes.
And he is out late for a taping at 6 a.m. on CNBC. So...
Got to go get some sleep.
I think he is. I think he is.
Well, Meredith, it is great to have you here today. If there is one Acquired episode in the canon that is quintessentially, iconically New York, it's The New York Times Company, of course. And you guys, you're killing it. As we talked about in our episode, in 2008 the company was on the brink of death. You had sold your headquarters building. And here, in the few short years since then, you are the largest digital subscription newspaper in the entire world. You are the only standalone global newspaper company left, market cap of almost $10 billion, an all-time high.
Publicly traded. Things are going great.
Is that what... [laughter] So tonight, I mean...
