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Duff McDonald's 'Last Man Standing'

by Robert Teitelman | Published August 2, 2010 at 11:15 AM

Last Man Standing: The Ascent of Jamie Dimon and JPMorgan Chase
by Duff McDonald

Anyone who has ever covered banking knows the line that the bank to short is the one run by last year's Banker of the Year. Awards and praise get heaped up for earnings growth and share appreciation. And the very fact that you've won such an award suggests you're running on the ragged edge. Less obviously, it also speaks a truth about the public and the media, which is always eager to anoint a hero, if often for the wrong reasons. And then, realizing the error of its ways, it's just as eager to destroy and demonize.

All this comes to mind as Duff McDonald's "Last Man Standing: The Ascent of Jamie Dimon and JPMorgan Chase" arrives. McDonald has written a pleasant, readable, if adulatory biography of Dimon, the CEO and chairman of J.P. Morgan Chase & Co. (NYSE:JPM), suitable for a general audience. He talked to a lot of people, including Dimon, his family and colleagues. Nearly everybody seems to love Dimon, including McDonald who turns even his annoying habits -- a sort of smart-ass aggressiveness bordering on the boorish -- into lovable virtues like confidence, smarts and fellow-feeling. He craves wealth, but he has a nice family. He may humiliate people, but he's nearly always right. More importantly, McDonald amps up the popular (meaning the media) view of Dimon that arose after J.P. Morgan stepped in to take out Bear Stearns Cos., which is that Dimon is the only "good" big banker out there. Indeed, McDonald uses as evidence for Dimon's bankerly virtues that by 2008 non-Wall Streeters knew whom he was, meaning he had been embraced by the media:

After years of being considered a glorified number-cruncher who only knew how to cut costs, he was finally acknowledged as a leader who knew how to make a company grow. What's more he was recognized as a creative thinker and a man with the ability to shape the culture not just of his company but also his industry and even the country itself. It says something about Wall Street today that only a few people command both the respect of their peers and the genuine curiosity of the outside world. ... Although from an early age he preferred wealth to the intellectual pursuits of his brothers, Dimon evolved into a financial philosopher in the spirit of Warren Buffett.

A financial philosopher? The last new Warren Buffett was Eddie Lampert before getting mired in Sears Holding Corp. (NASDAQ:SHLD). McDonald's evidence for that last statement seems to be Dimon's letter to shareholders in 2008 where he raised questions about leverage, and the use of short-term financing to support long-term assets, particularly in real estate. If that sounds a little obvious it is: It's the kind of practice that produces most bank crises. But what really made it go was Dimon's writing style. "Most impressive of all may have been the understated eloquence of his prose -- simple and direct, just like Buffett's." Even better, Buffett wrote Dimon a fan letter, one financial philosopher to another.

Enough. The fact is Dimon is an extremely skilled and disciplined manager of financial services, though he is not yet (as McDonald argues) the reincarnation of J.P. Morgan, who combined the powers of the Federal Reserve and vast control over American industry, or even Buffett, who's been "philosophizing" for decades. Skilled management is not as high-flown as philosophy, but in the banking business it's damned rare. Indeed banking virtues are, in the main, humble and prosaic: Watch the money, don't reach too far, be miserly about costs and paranoid about the future; be above all else skeptical and realistic. Dimon learned a lot from Sandy Weill, he did a nice job fixing up Bank One, and at J.P. Morgan (at least temporarily) he has a true powerhouse, albeit one that's too big to fail. I accept McDonald's argument, and the testimony of his friends, that Dimon is a good guy, if mouthy, who tries to keep his work and personal life balanced and who hasn't changed over the years (actually, the latter is a little scary if it's true). And Dimon does deserve credit for shepherding J.P. Morgan through the crisis. But Dimon is not a hero, not the last man standing, not a figure that is reshaping Wall Street, banking or America. And to tell you the truth, if I was Dimon, I'd be crazy with fear right now that I was being inflated to such levels. You know, Banker of the Year.

Consider a few things. As McDonald admits, Dimon is a Weill disciple, despite their falling out, and shares with his now retired and ritually abused mentor a belief in the universal banking model. Many of Dimon's finer operational instincts -- his knowledge of the business, his emphasis on costs and his conservatism about risk -- were Weill traits. It raises again the hypothetical question about how different (or not) things would have been at Citigroup Inc. (NYSE:C) had Weill remained. The truth is, Weill hated risk and, at his best, he was paranoid enough to sniff it out. Would he have pulled Citi back from all those bad mortgages? Would he have had the clout to dial back on those businesses, which were making so much easy money? Could Weill, like Dimon, pull together the management of such an enormous institution?

We'll never know. Toward the end of his Citi tenure, Weill was more concerned with his own legacy than he was the deep operations of a global bank, and he lived and died off the share price, which was fueled by mortgage earnings. And he lost some very talented managers, like Dimon (for all his legal skills, Charles Prince wasn't one of them). But it's worth asking because the debate still rages over the universal bank -- of which Dimon is now a major proponent. There are other jarring oddities here as well. Dimon is a hero in the media (McDonald's bio was excerpted in Newsweek and Fortune, the latter of which has its own tradition of lionizing Buffett and Dimon), despite the fact that the universal bank is as popular as dirt. He was long an intimate of Weill, who is blamed for the universal bank, for the repeal of Glass-Steagall and for all but inventing greed. He is a Wall Streeter as much as a banker. He gets big bonuses. His institution remains highly leveraged, is a derivatives dealer and trader and is clearly TBTF. Dimon took TARP money and paid it back. He "rescued" Bear and Washington Mutual out of institutional self-interest, negotiating tough deals that profited his bank. He did not save the economy in doing so -- for all their flaws, Ben Bernanke, Henry Paulson and Tim Geithner get most of that credit -- though thank God he was around.

Compare Dimon's image to Lloyd Blankfein of Goldman, Sachs & Co. (NYSE:GS). The youthful-looking Dimon is portrayed as a hero; bald and low-profile Blankfein is characterized as the head of a blood-sucking conspiracy. Dimon engaged in "rescues," although it was J.P. Morgan's demand for collateral that may have nudged Lehman Brothers Holdings Inc. into the abyss; Blankfein's firm famously shorted the imploding mortgage business. Dimon is the head of an institution with deep historical insider connections (J.P. Morgan and Chase Manhattan), vast lobbying operations and a direct line to the Fed; Goldman has Robert Rubin, Steve Friedman, Jon Corzine, Paulson and a host other influential alumni scurrying around the halls of power. Both firms are now minting money on low interest rates and the debility of their rivals. And J.P. Morgan may well have more exposure to bad loans and the recession than Goldman, although that's unclear. Both pose systemic risks if they go down.

The point here is that Dimon is not an angel and that Blankfein is not a demon; both are highly skilled managers running hugely influential institutions. The truth, in other words, lies in the middle. On Sunday in The New York Times, Harry Hurt III reviewed McDonald's bio, asking: "In the end, the question remains: Is Jamie Dimon the selfless savior of American capitalism or is he just another self-aggrandizer who benefited by going against the prevailing industry trends?" The answer, which few seem willing to offer, is undoubtedly neither. And the fact that those are the two choices suggests as clearly as anything I know why we tend to live from bubble to bust.

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