Friday, October 02, 2009

Finally- A Realistic Review of Jamie Dimon's Tenure At Chase

About two years ago, I wrote this post, amidst a business media groundswell of adoration over Jamie Dimon's first three years at Chase. I ended the post with this passage,

"Personally, I doubt that Dimon knows much that he did not learn from Weill. His signal achievement since being tossed out of Citigroup consisted of giving BancOne the "Weill treatment." It is not yet clear he's done anything more at Chase, nor that he is capable of more, either.

It would take at least four years of consistently strong revenue growth at Chase, with corresponding NIAT growth, before I would believe that Dimon is capable of leading a financial services conglomerate to consistently superior performance, either fundamentally or technically."

Of course, at that time, nobody foresaw a shrinking 2008. As a matter of fact, Chase's revenues and profits did shrink that year. But these things are relative, so I won't be unfair and criticize Dimon for not achieving the impossible last year.

However, a quick look at the nearby price chart for Chase and the S&P500 Index for the past five years shows that the bank has not been significantly better than the index. And to the extent it's marginally outperformed after five years, which is now Dimon's tenure as CEO, it clearly underperformed for 2007 & 2008.

So, simply by looking at equity prices, you can see Dimon hardly merited all the accolades.

Now, we have a "Heard On the Street" column in yesterday's Wall Street Journal calling attention to the reality of Chase's performance. It read,

"Much has happened over the past two years that will benefit J.P. Morgan's earnings. However, going into the crash, the bank showed lackluster returns in several areas.

Once rivals reassert themselves, J.P. Morgan mightn't look so impressive.

Even so, investors need to track closely how the once-mediocre investment bank and once-patchy retail-banking franchise are doing."

I could not agree more.

As the nearby price chart, with BofA, Wells Fargo, Citigroup and Goldman added, shows, Chase still operates in the shadow of the newly-baptised commercial bank, Goldman Sachs.

Leaving aside the hapless Citi and BofA, Chase's one-time international, US-based money center bank competitors, only Wells and Goldman remain as viable, healthy rivals.

Wells Fargo's performance actually apes that of Chase. But the real class act in a badly-hit sector is still Goldman Sachs. Over the five-year period, Goldman rose further and fell less-far than any of the other commercial banks. Granted, Goldman hasn't even been a commercial bank for more than a year.

Never the less, the former investment bank remains poised to outperform as the sector is revived by somewhat healthier credit markets. Meanwhile, Chase and Wells Fargo will continue to grapple with the typical large commercial bank woes of credit card and mortgage delinquencies and defaults.

It's no surprise to me, and other friends who were once Chase executives, that the bank fared well in bad times. Simply put, it's been a laggard ever since David Rockefeller's attempts to diversify the bank in the 1970s and '80s were rebuffed. Few now remember David's attempt to buy Dial, a consumer loan business.

Since then, Chase has been late to every lending party, and sustained a few self-inflicted wounds, as well. It's very ineptness at financial innovation is what kept Dimon from racing into the mortgage-backed securities party like Citigroup.

As the Journal column astutely notes, Chase has never been a banking sector performance leader in healthy, growth-oriented times. At best, it's been hurt less badly in downturns.

I don't think Dimon's slash-and-burn style has changed that. Sure, he scooped up a few other banks which the markets and FDIC obligingly set before him. Having not blown out a huge hole in Chase's own balance sheet with ill-advised SIVs and such, Dimon had some powder left to take on the branches and deposits of WaMu. Bear Stearns was basically a gift from the federal government.

It remains to be seen, once more, whether Dimon is capable of besting the sector's other competitors, and the S&P, over a longish term in healthy markets.

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