Bankruptcy

Insider View of Wall Street

By J. Michael McBride

Here is a great story which provides an inside look at the Bear Stearns bail out by focusing on the Chairman of JPMorgan Chase, Jamie Dimon.

Quote:

The Monday after a long working weekend, Jamie Dimon looked a little tired. His collar was unbuttoned, his tie loosened, and he was slouching slightly in his office chair. The week before, he had turned 52 years old—a bunch of balloons was still tethered in the corner of his office—and his hair was whiter than most recent photos show. But he was far from worn out. Dimon, the chairman and CEO of JPMorgan Chase, had just won the biggest game of his life.

Sunday, March 16, 2008, will go down in history one way or another. Depending on how things develop from here, it might be considered the day Dimon helped save Wall Street. While he certainly wouldn’t put it that way, his shocking triumph that evening—an agreement, brokered by Ben Bernanke, the Federal Reserve chairman, to take over Bear Stearns, a Wall Street institution, for the pretty-much-laughable price of $2 a share—may have in the process helped avert a financial panic the likes of which hasn’t been seen since 1929. Or maybe Dimon will have to settle for the trophy for best deal ever, spending just $260.5 million for a company whose last reported net worth was $11.7 billion and whose lavish Madison Avenue headquarters alone is estimated to be worth more than $1 billion.

...
Then, last summer, the credit markets seized up, and the banks had no way to fund their obligations without dipping into their own capital. Citi had to take $58 billion of SIVs onto its balance sheet, crippling the company.

JPMorgan lost nothing in the SIV debacle. After conferring with Bill Winters and Steve Black, JPMorgan Chase’s co-heads of investment banking, in 2005, Dimon agreed to sell the single SIV the bank had on its books. Why? “Because no matter what kind of equity we might have had to commit toward it, we still considered it an unacceptable return,” Winters told me in late February.

Here another of Dimon’s most referenced character traits—his tendency toward micromanagement—came into play. Did deposed Citigroup chairman Chuck Prince (who got the job that would have been Dimon’s) have conversations with his bankers about whether Citigroup was overexposed to SIVs? If he did, he obviously made the wrong call.

Dimon also steered the bank mostly clear of CDOs, or collateralized debt obligations, another fancy bit of financial gimcrackery that purported to turn risky investments into safe ones, as if by magic. CDOs were one of Merrill Lynch’s great profit centers—in 2007, the firm underwrote $31 billion worth of them, compared with just $4 billion for JPMorgan, and then made the fateful decision to hold on to some of the highest-yielding (and riskiest) portions thereof. You can think of these Wall Street firms as drug dealers who forgot the cardinal rule of the trade: Don’t start taking the junk yourself.

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More to the point: In contrast to the chatter about Citigroup, no one is talking about breaking up JPMorgan Chase. While the cross-selling synergies have proved more elusive than originally anticipated, one clear benefit of a financial conglomerate is the sheer size of its balance sheet—JP Morgan has $1.56 trillion in assets, the kind of heft that allows it to absorb, say, an imploding investment bank with only a couple of days’ notice.

Here is a link to the entire article: http://nymag.com/news/features/45320/

Michael

Full post as published by Texas Lawyer Blog on March 28, 2008 (boomark / email).