Jamie Dimon and a Stellar Decision Making Team

Loss Stains JPMorgan’s Chief, One of Banking’s Top Risk Managers

By NELSON D. SCHWARTZ and JESSICA SILVER-GREENBERG

Jim Young/ReutersJamie Dimon, chairman and chief executive of JPMorgan Chase.

Days before revelations of JPMorgan Chase’s $2 billion trading loss rocked Wall Street, the company’s always-confident chief executive, Jamie Dimon, was his usual exuberant self.
When the bosses of six of the largest banks gathered at the Federal Reserve Bank of New York in downtown Manhattan to meet with a top Fed governor, the others used the underground garage and avoided the cameras. Mr. Dimon came and went through the front door, and even chatted with a CNBC reporter.
It was a stance familiar to Mr. Dimon. He had steered his bank successfully through the financial crisis, and was known as Wall Street’s best risk manager, not to mention the most influential banker in the country when it came to writing new regulations in Washington.
He was so well regarded by the administration that the White House chief of staff, Rahm Emanuel, was even tapped to appear at the bank’s board meeting back in 2009 before the appearance was scuttled. More recently, Mr. Dimon has visited Washington numerous times, seeing both allies and sparring partners like Representative Barney Frank.
Now, though, Mr. Dimon’s reputation and possibly his influence have been cut down to size.
The trading loss disclosed late Thursday is a rare misstep by a man who prides himself on having his fingers on the pulse of his 270,000-employee company, and it suggests his vaunted confidence edged toward hubris.
Mr. Dimon said in an interview on Friday that he got a call from the company’s chief risk officer about the trading problem in late April. He had been briefed about once a quarter on the complicated credit derivatives position and more recently had been looking into the size of the credit bet after press reports in early April.
“Of course I was angry,” he said in an interview Friday. “I said, ’Stop, let’s learn and get the other people involved,’ ” he recalled.
“We were meeting constantly,” he added. “Believe me, for the past couple of weeks, it was the primary thing going on in my world.”

In a statement, Mr. Frank said that JPMorgan “has lost, in this one set of transactions, five times the amount they claim financial regulation is costing them.”And that reality may cost Mr. Dimon in Washington. He has been marshaling the firm’s considerable resources to help sway the regulators who are writing many of the rules in the Dodd-Frank banking reform bill passed in 2010. So far this year, JPMorgan has spent $1.92 million on lobbying. In 2010, it topped the industry in lobbying dollars with $7.41 million.
Mr. Dimon has also been a frequent visitor to Washington to further make his case to lawmakers. According to the Sunlight Foundation Reporting Group, he has made 10 visits to regulators over the past two years to discuss Dodd-Frank, principally at the Treasury Department.
Known as a blunt executive not afraid to raise his voice, Mr. Dimon has been one of the few bankers who still commanded respect from analysts and investors as well as regulators. Mr. Dimon routinely grills executives to make sure they are prepared for a variety of contingencies, according to employees at the New York bank.
New York born, Mr. Dimon was the heir apparent at Citigroup, where he was mentored by Sanford I. Weill. But, in 1998, he abruptly left in a management shake-up by Mr. Weill. It was that move that catapulted him to Chicago, where he took over the top job at Bank One in 2000, then a midsize bank considered a basket case. Under his leadership, the bank’s health improved sharply, and he merged it with JPMorgan Chase in 2004.
Since then, JPMorgan Chase’s shares have vastly outperformed those of troubled giants like Bank of America and Citigroup. In 2011, Mr. Dimon’s overall compensation totaled more than $23 million, an 11 percent increase from 2010.
Mr. Dimon was also known for warning how dangerous one misstep could be. In April 2007, just as the first signs were emerging of what would become the subprime mortgage crisis, Mr. Dimon had a message for 200 new managing directors assembled at the company’s headquarters at 270 Park Avenue.
“One deal doesn’t make or break us,” he said, according to one banker who was present. “But the implications of one bad deal on our franchise are significant.”
And while the mortgage mess helped take down Bear Stearns and Lehman, once formidable rivals, JPMorgan Chase largely sidestepped the worst.
So while other bank executives emerged from the 2008 market turmoil more chastened, Mr. Dimon became more confident, emboldened by his successful navigation of the financial crisis, rival bank executives said.
Former JPMorgan employees said that Mr. Dimon’s swagger was infectious. “It made everyone more confident,” a former JPMorgan trader said. “Maybe too confident because there might not be as much neurotic double-checking of everything.”
Just weeks before the blowup, that confidence was evident. Doug Braunstein, JPMorgan’s chief financial officer, dismissed concerns about the trading that would later blow up in the bank’s chief investment office. In an interview, Mr. Braunstein said he was “very comfortable with the positions we have.”
Under Mr. Dimon’s leadership, the chief investment office — which was responsible for the outsize credit bet — was retooled to make larger bets with the bank’s money, a former employee said. Bank executives said the chief investment office expanded after JPMorgan Chase’s 2008 acquisition of Washington Mutual, which added riskier securities to the company’s portfolio. The idea behind the strategy was to offset that risk.
One part of that expanded strategy — the losing credit derivatives bet — was starting to go against the bank by early April, but it wasn’t until after quarterly earnings were released on April 13 that the magnitude of the problem became apparent.
Immediately, Mr. Dimon assembled an eight-person team under John Hogan, the company’s chief risk officer, to assess the risks and defuse what had become a ticking time bomb. “I said, ‘Let’s go get the A-Team.’ ”
While he was aware of the broader intent, he said he was not aware of the intricacies of the complicated and ultimately dangerous bet until then.
Mr. Dimon has been a prominent critic of elements of the Volcker Rule, which would impose strict limits on the kind of trading risks banks are permitted to undertake with their own money. The measure, passed in 2010, is now being completed.
With a seat on the board of the New York Federal Reserve, Mr. Dimon had a strong voice in the rule-making process.
Now Mr. Dimon, a skilled master of relations with the media, is having to do some fancy footwork. He taped a segment on NBC’s “Meet the Press” on Wednesday, one day before he revealed the disastrous trade. On Friday, he went back to apologize again for the losses. In recent days, he has been characteristically blunt but unusually contrite.
“We never said we never make mistakes,” Mr. Dimon added Friday. “Hopefully, the smaller the better, but this one is not so small.” Despite the trading blowup, many of the same regulators Mr. Dimon has tangled with over the years were quick to defend him.
Sheila Bair, the former chairwoman of the Federal Deposit Insurance Corporation, said “even very good management can miss stuff.” She added that Mr. Dimon did have “a very stellar record of good decision-making.”

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Sure, stellar record of good decision making....really spectacular.