Too Big to Fail [45]
By 2008 JP Morgan Chase was being hailed as just about everything that Citigroup—the bank Dimon helped build—was not. Unlike Citi, JP Morgan had used scale to its advantage, rooting out redundancies and cross-selling mortages to checking account customers and vice versa. Dimon, who was paranoid by his very nature, understood the intricacies of virtually every aspect of banking (unlike many of his CEO peers) and also reduced risk; profits were literally squeezed out of each part of the company. Most important, as the credit crisis began to spread, Dimon showed himself to be infinitely more prudent than his competitors. The bank used less leverage to boost returns and didn’t engage in anywhere near the same amount of off-balance-sheet gimmickry. So while other banks began to stumble severely after the market for subprime mortgages imploded, JP Morgan stayed strong and steady. Indeed, a month before the panic erupted over Bear Stearns, Dimon boasted of his firm’s “fortress balance sheet” at an investors’ conference. “A fortress balance sheet is [sic] also a lot of liquidity and that we can really stress it,” he said, adding that it “puts us in very good stead for the future.
“I don’t know if there are going to be opportunities. In my experience, it’s been environments like this that do create them, but they don’t necessarily create them right away.”
An opportunity came sooner than he expected.
On Thursday, March 13, Dimon, his wife, and their three daughters were celebrating his fifty-second birthday over dinner at the Greek restaurant Avra on East Forty-eighth Street. Dimon’s cell phone, the one he used only for family members and company emergencies, rang early in the meal, around 6:00 p.m. Annoyed, Dimon took the call.
“Jamie, we have a serious problem,” said Gary Parr, a banker at Lazard who was representing Bear Stearns. “Can you talk with Alan?”
Dimon, in shock, stepped out onto the sidewalk. Rumors had been swirling about Bear for weeks, but the call meant things were more serious than he realized. Within minutes, Alan Schwartz, the CEO of Bear Stearns, called back and told him the firm had run out of cash and needed help.
“How much?” a startled Dimon asked, trying to remain calm.
“It could be as much as $30 billion.”
Dimon whistled faintly in the night air—that was too much, far too much. Still, he offered to help Schwartz out, if he could. He immediately hung up and called Geithner. JP Morgan couldn’t come up with that much cash so quickly, Dimon told Geithner, but he was willing to be part of a solution.
The following day, Friday, March 14, the Federal Reserve funneled a loan through JP Morgan to Bear Stearns that would end its immediate liquidity concerns and give the firm twenty-eight days to work out a long-term deal for itself. Neither the Fed nor the Treasury, however, was willing to let the situation remain unsettled for that length of time, and over the weekend, they urged Dimon to do a takeover. After a team of three hundred people from JP Morgan installed themselves in Bear’s office, they brought their findings to Dimon and his executives.
By Sunday morning, Dimon had seen enough. He told Geithner that JP Morgan was going to pull out; the problems with Bear’s balance sheet ran so deep as to be practically unknowable. Geithner, however, would not accept his withdrawal and pressed him for terms that would make the deal palatable. They finally arrived at an agreement for a $30 billion loan against Bear’s dubious collateral, leaving JP Morgan on the hook for the first $1 billion in losses.
These final negotiations, not surprisingly, were of intense interest to the Senate Banking Committee. Had JP Morgan, realizing the leverage it had, driven an excessively hard bargain with the government, at taxpayer expense?
Dimon, looking almost