"Big jobs usually go to the men who prove their ability to outgrow small
ones," Teddy Roosevelt once said. JPMorgan Chase (NYSE: JPM ) chairman and CEO
Jamie Dimon a history buff who often quotes TR likely would agree. These days,
the man who built Citigroup (NYSE: C ) with mentor Sandy Weill back in the 80s
and 90s, captains a global financial services company with a $130 billion market
cap and total assets of $2.3 trillion . Not a bad run for a guy who learned the
brokerage business from his father and grandfather, and whose first job out of
college was an internship at Goldman Sachs. But as the euro zone debt crisis
continues to roil global markets, Dimon's biggest job yet will be balancing
the risks of his bank's growing exposure to the region against the potential
market-share coup JPM can score by rushing in, as Alexander Pope would say,
"where angels fear to tread." The stakes are high. JPMorgan has bought and
sold derivatives on a massive amount of debt held by the five most troubled euro
zone economies. The total is "$100 billion by $100 billion," Dimon told a
Goldman Sachs (NYSE: GS ) investors conference on Wednesday, adding: "I forgot
the exact number." And Dimon is still buying. While competitors like Bank of
America (NYSE:BAC) and Citigroup have cut their quarter-on-quarter exposure by
13% and 38%, respectively, JPM has done the opposite, the Financial Times
reports . On June 30, JPM's derivative exposure stood at $14 billion on the
so-called PIIGS (Portugal, Italy, Ireland, Greece and Spain). By mid-November,
it had increased by nearly $2 billion. That's surely a contrarian way to play
a crisis of this magnitude. But Dimon has never been one to follow the pack.
Indeed, in 2009 Brendan Wood International named Dimon a Top Gun CEO. He still
deserves those shiny gold wings (even if he does espouse some flimsy logic about
income taxes on the rich ) for these reasons: He Believes in His Industry .
Despite the headwinds facing investment banking whether from Europe or from
complex regulations that boost banks' capital requirements he's still
confident the industry in general (and JPM in particular) will roll with the
punches and rise stronger. Still, Dimon said at Wednesday's conference that he
expected "flat" investment banking revenue for the current quarter, with the
possibility of a slide in mortgage banking. Credit card operations should show a
small increase. Dimon also is convinced that the industry's current trough is
cyclical, not structural meaning the sector is a victim of bad timing more than
bad practices. He Views Challenges as Opportunities . When Weill fired the
Citigroup heir apparent in 1998, Dimon took up boxing to work out his anger.
After tearing both rotator cuffs, he gave that up for running then walked away
from New York to run Bank One in Chicago. He axed managers, cut $1.5 billion in
costs and shaped up sagging credit card operations. At the end of three years,
Dimon had turned a half-billion dollar loss into a $3.5 billion profit. One year
after that, he orchestrated JPMorgan's $58 billion acquisition of Bank One
merging Bank One's retail and credit card strengths with JPMorgan's asset
management and investment banking savvy. By the time Bear Stearns crashed and
burned on the subprime mortgage pyre in 2008, JPM not the once-dominant Citi
was the only bank the government deemed strong enough to step in and take over
Bear Stearns. He's Kept His Bank in Good Shape . Dimon has often characterized
JPM, the largest U.S. bank holding company, as having a "fortress balance
sheet" that can withstand shocks that crop up with little or no warning, while
remaining agile enough to make the best deals in the worst times. That
"fortress" focus kept JPM out of dodgier investments like structured
investment vehicles and collateralized debt obligations that later came back to
bite rivals like Citi and Merrill Lynch. As a result, JP Morgan Chase took a
smaller hit than its peers during the financial meltdown. It also repaid the $25
billion in TARP money early. On Wednesday, Dimon changed that term to
"battleship balance sheet" to illustrate JPM's financial strength. The
company has a whopping $120 billion in Tier 1 capital, which includes disclosed
reserves and equity capital. Dimon told the Goldman Sachs conference that by the
end of 2012, JPM hopes to meet tougher Basel III requirements of bank capital
equal to 9% of its risk-weighted assets. JPM also wants to repurchase stock and
make a "modest" increase to the dividend. At $34, JPM is trading 22% above
its 52-week low of $27.85 in October. The stock has a price/earnings-to-growth
(PEG) ratio of 0.84, indicating it may be undervalued, and a current dividend
yield of nearly 3%. Bottom Line: The clock is ticking on whether Dimon's bold
move in Europe wins out and whether the history he loves casts him as
investment banking's heroic first responder, or one of Pope's proverbial
fools. In the wake of S&P's dire warning on Monday that it could downgrade the
credit ratings of 15 euro zone countries if leaders can't reach agreement on a
fix for the crisis, Dimon's bold bet will be tested soon. EU leaders will
start discussing a "fiscal compact" at a critical EU summit on Thursday, a
change to existing treaties that reportedly would "fast-track" member
approval and restore much-needed confidence to global markets. But that's
hardly a done deal. Fitch Ratings recently reported that U.S. banks could be
"greatly affected" if Europes debt crisis continues to spread beyond the
PIIGS because "exposures to large European countries and banks are sizeable"
and greater than their exposure to "stressed markets." While Fitch noted
that the U.S. banking industry is stable, and that most banks' fundamentals
have improved, "unless the euro zone debt crisis is resolved in a timely and
orderly manner, the broad outlook for U.S. banks will darken." Despite the
odds, I wouldn't bet against Jamie Dimon. He's shown an uncanny ability to
see light through the darkest skies and that's a huge edge in a business that
stands or falls on confidence. "Confidence is like a secret sauce," Dimon
told CNBC back in August. "When you go to sleep at night, think about the
following before you get depressed and you see the market down 500 points: The
strength in the system will blow your socks off when it comes out of this
malaise were in." As of this writing, Susan J. Aluise did not hold a position
in any of the stocks named here.
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