J.P. Morgan Chase Chief Executive Officer Jamie Dimon told employees that his takeovers of failed banks and billions of dollars in loans made during the 2008 financial crisis were done to support the country.
“Counter to what most people think, many of the extreme actions we took were not done to make a profit; they were done to support our country and the financial system,” Dimon said in a Friday memo obtained exclusively by CNBC.
Dimon, 62, revisited the causes of the 2008 calamity and the moves the bank took in a memo sent on the 10-year anniversary of the Lehman Brothers bankruptcy.
The purpose of his message was seemingly to point out that, while his moves have benefited J.P. Morgan — now the world’s biggest bank by market capitalization — at the time they were calculated risks.
J.P. Morgan acquired investment bank Bear Stearns and the retail banking assets of Washington Mutual during the tumult of the crisis. Those takeovers later lead to billions of dollars in litigation costs tied to mortgages, and Dimon has said that in hindsight he wouldn’t have done the Bear Stearns deal for that reason.
In the decade since that seismic, once-in-a-generation upheaval, Dimon has pressed his advantages, winning a top market share in areas from credit cards to bond trading and plowing billions of dollars into technology. The company produced an industry-best $24.4 billion in profit last year.
Message from Jamie Dimon
A decade has passed since the collapse of Lehman Brothers, so now is a good time to reflect on the financial crisis that was raging 10 years ago this month. A lot has been written — and far more is still to be written — on this crisis, but I would like to share a few thoughts with you on that extraordinary period of time and everything that all of you at JPMorgan Chase did to try to help.
The gathering storm hit with a vengeance
While the collapse of Lehman in September 2008 was the epicenter of the crisis, it was actually far more complex than that — the roots go back before 2006. By late 2006, we already saw problems in subprime mortgages, leveraged lending and quantitative investing. With the onset of Basel II, leverage at investment banks (not commercial banks) more than doubled, as did shadow banking (think structured investment vehicles, collateralized debt obligations, money market funds, etc.). This was often funded by unsecured, undependable short-term wholesale borrowing. Then the biggest problem of all presented itself: It was not just subprime mortgages that were flawed, but all mortgages. This happened, in hindsight, by bad underwriting, government policy that fueled and fostered inappropriate mortgage lending (higher and higher loan-to-values, less and less cash down, weaker appraisals and income certification), unscrupulous brokers and cavalier investors. The banks, though not the worst actors in mortgages, joined the party, too. When the world realized that $1 trillion would ultimately be lost in mortgages, panic ensued. There were multiple failures — mortgage brokers, savings and loans (S&Ls), including WaMu and Indy Mac, as well as Fannie Mae and Freddie Mac (which were the largest financial failures of all time) — culminating in the dramatic failure of Lehman, followed by the extraordinary bailouts of AIG and other major financial institutions.
JPMorgan Chase did everything it possibly could do to help during this time
On March 16, 2008, we announced our acquisition of Bear Stearns, a company with $300 billion of assets, which had collapsed and had fatal problems (we were essentially buying a house … but it was a house on fire). And we did this at the request of the U.S. government (thinking at the time that this could help head off a terrible crisis). On September 25, 2008, 10 days after the collapse of Lehman Brothers, we bought the largest S&L, Washington Mutual, another company that had $300 billion of assets.
We took other extraordinary actions — often at calculated, but great risk to JPMorgan Chase — to support clients, including governments, and to support the markets in general. We loaned $70 billion in the global interbank market when it was needed the most. With markets in complete turmoil, we were the only bank willing to single-handedly lend $4 billion to the State of California, $2 billion to the State of New Jersey and $1 billion to the State of Illinois. Additionally — and frequently — we loaned or raised for our clients $1.3 trillion at consistent and fair rates, in many cases far below what the market would have demanded, and we provided more than $100 billion to local governments, municipalities, schools, hospitals and not-for-profits over the course of 2009. Many other banks did the same. You probably will be surprised to find out that we lent a tremendous amount of money to Lehman before the crisis — and even more after the crisis. In fact, at the request of the Federal Reserve, we took extraordinary risk to lend more than $80 billion (on a secured basis) to Lehman after its bankruptcy to help facilitate sales of assets in as orderly a way as possible to minimize disruption in the markets.
This was a traumatic, historic period of time for not just the financial system, but for the world as a whole. We endured a once-in-a-generation economic, political and social storm, and because of you, we have emerged 10 years after this crisis as a company that we can all be proud of.
The aftermath and lessons learned
Many people still ask me about TARP, a government program that provided funding to banks in the midst of the crisis. JPMorgan Chase did not want or need TARP money, but we recognized that if the healthy banks did not take it, no one else could — out of fear that the market would lose confidence in them. And while it helped create the false rallying cry that all banks needed support, the government, both the Federal Reserve and Treasury, was trying everything it could in addition to TARP. And they should be applauded for the extraordinary actions they took to stave off a far worse crisis. In hindsight, it is easy to criticize any specific action, but in total the government succeeded in avoiding a calamity.
There were many lessons learned from the crisis: The need for plenty of capital and liquidity, proper underwriting, and regulations that are constantly refined, fair and appropriate. In fact, the regulators should take a victory lap because Lehman, Bear Stearns, AIG and multiple other failures effectively could not happen today because of the new rules and requirements.
We entered the crisis with the capital, liquidity, earnings, diversity of businesses, people and risk management culture that enabled us to avoid most, but unfortunately not all, of the issues exposed by the crisis. These strengths also helped us to weather the economic crisis and to continue to play a central role in supporting our clients and our communities and rebuilding the U.S. economy. Counter to what most people think, many of the extreme actions we took were not done to make a profit; they were done to support our country and the financial system.
What stood out most was your character and capabilities — which make JPMorgan Chase what it is today
When the global financial crisis unfolded in 2008, the people of JPMorgan Chase understood the vital role our firm needed to play and felt a deep responsibility to those who rely on us. It was this sense of responsibility that enabled us to move beyond the challenges we were facing at that time and maintain a focus on what really matters: Taking care of our clients, helping the communities in which we operate — all while under extreme pressure from both the markets and the body politic — and protecting our company.
How we managed through the crisis is a testimony to the collective strength of character and commitment of you — our people. During those chaotic days throughout the crisis and its aftermath, many of our people had to work around the clock, seven days a week, for months on end. And they did it without complaint. The biggest lesson of the crisis: The quality, character, culture and capabilities of your partners is paramount.
Looking back and when I look around at the company we are today, I am filled with awe and admiration. For JPMorgan Chase, these past 10 years have been part of a challenging, yet defining, decade. Today, JPMorgan Chase is among the leaders in most of our businesses. I can’t tell you how proud I am to be your partner and to witness your extraordinary performance. I can’t thank our current and former employees enough for helping us get through those turbulent times and for the company we have become.
Your friend and partner,