(c) 2013, The Washington Post.
(c) 2013, The Washington Post.
WASHINGTON — On a mild evening in early September, Jamie Dimon welcomed guests as they streamed onto a rooftop venue known as the Flying Bridge overlooking Union Station and the Capitol. The chief executive of JPMorgan Chase was hosting a reception for clients, philanthropic partners and government officials, including five members of Congress.
Yet there was little cause for celebration.
Weeks earlier, JPMorgan had revealed in a Securities and Exchange Commission filing a list of state and federal inquiries that covered nearly every corner of its business empire. On the very day that Dimon's guests were taking in the intoxicating view, the bank was negotiating a series of costly prestige-damaging settlements.
Dimon, who lives in New York, had come to Washington to speak at an annual meeting for investors held by the private-equity firm Carlyle Group. But he also met with reporters and visited the Office of the Comptroller of the Currency, which was pursuing at least three investigations into JPMorgan.
When it comes to Washington, Dimon rarely performs on a single stage. In his three-decade career, the 57-year-old banker has played the roles of adviser, savior, shrewd negotiator, lobbyist and victim. Variously described as brilliant and condescending, forceful and abrasive, astute and cunning, he is a powerful — but not invulnerable — presence.
The record-breaking settlement he is expected to reach soon with the Justice Department — including $4 billion already announced by the Federal Housing Finance Agency_ will do little to alter his multifaceted relationship with Washington. Dimon still seeks and commands the attention and respect of most lawmakers, while battling regulators, haggling over settlements and trying to mold legislation.
The arc of Dimon's relationship with Washington appears to have brought him to a point not so far from where he stood five years ago — sorting through the wreckage of financial wrongdoing and bargaining for the best deal possible for the bank. Gone, though, is the formerly common talk — however unfounded, according to administration insiders — of him being Obama's favored banker or a candidate for a Cabinet office.
Dimon declined to comment on the record for this article. But Peter Scher, global head of corporate responsibility at JPMorgan, said Dimon and the bank remain important Washington actors. "We're continuing to play the role we think we should play in terms of being a constructive part of policy discussions," Scher said. "Jamie and our management team do a lot of outreach with our regulators and continue to spend time on the Hill. We have not waned at all in our activity in D.C."
That includes reaching out to key members of Congress. In the crowd at the Flying Bridge reception were Sens. Charles Schumer, D-N.Y., Max Baucus, D-Mont., John Boozman, R-Ark., John Cornyn, R-Texas, and Rep. Carolyn Maloney , D-N.Y. Maloney, the number two Democrat on the House financial services committee, attended even though Dimon's wife backed her 2010 primary challenger, Reshma Saujani.
The bank, whose $8 million in lobbying expenses last year outstripped those of every other commercial or investment bank, has a long laundry list of concerns. In filings about lobbying for the 112th Congress, JPMorgan said it has focused on the Business Risk and Price Stabilization Act of 2011, trying to make sure that Dodd-Frank financial legislation isn't applied to swaps between bank affiliates, shaping fair debt collection procedures and fighting the Volcker rule, which would restrict banks' latitude to engage in trading.
Yet a string of events has overshadowed much of that and put Dimon on the defensive. In addition to a prospective $9 billion Justice Department civil settlement over mortgages, the bank has paid a $920 million fine for reckless trading of the "London Whale" securities, $410 million to settle charges of manipulating electricity prices and $4 billion over misleading investors in mortgage securities. To improve compliance operations, the bank has spent $1 billion and added 4,000 employees.
Among other things, it still has to resolve criminal charges with Justice involving the allegedly deceptive sale of low-quality mortgage securities in California, as well as a probe of allegations that the bank ignored red flags about swindler Bernard Madoff in order to make more fees and commissions. The bank denies wrongdoing.
At the Flying Bridge reception, Dimon told a few guests that until JPMorgan proved to regulators that it was as good at managing the bank as it was at making money, the bank would continue to face problems.
Yet many banking experts say JPMorgan is not only too big to fail but also too big for anyone — even Dimon — to manage.
"If it were anyone other than Jamie Dimon, the board would probably have replaced him a long time ago," a former Treasury official said. "But he's generally viewed as one of the best managers in the business. Now what does that tell you about the business? These businesses are so big, so sprawling that it is hard for any one executive or board of directors to know everything at any one time."
Dimon has long understood the value to his bank of Washington regulators and lawmakers.
Scher's predecessor, Rick Lazio, who ran JPMorgan's government relations department from 2004 to 2008, said Dimon used to host elected officials once a month at the bank's New York headquarters. The chief executive, he added, encouraged senior management on the operating committee to become acquainted with policymakers.
"Jamie intellectually understood the importance of engaging with Washington," Lazio said. "I never got the sense that anybody was doing anything exceptional to help JPMorgan, it was more about creating a dynamic where there was a good exchange of ideas and some level of trust."
Ever since the 2008 Democratic National Convention — which he attended — Dimon has been consulted regularly on the large financial reform and economic questions of the day. He was, after all, a Democrat who, along with his wife, has given more than half a million dollars to the party's candidates since 1990. He gave $50,000 to Barack Obama's inauguration committee and attended the ceremony in the bitter cold. And Dimon's bank looked strong compared with others battered by the financial crisis; in 2008, it bought up the ailing Washington Mutual and Bear Stearns.
Moreover, he was a familiar face. Back when he was chief executive of Chicago-based Bank One before its acquisition by JPMorgan, Dimon made the acquaintance of Illinois state Sen. Barack Obama and backed his run for the U.S. Senate.
"Jamie got this perceived special status because he was from Chicago and knew the president when there were so few people in the business who knew Senator Obama," said Chicagoan William Daley, former commerce secretary, former JPMorgan executive and later President Obama's chief of staff. But he also said: "I think there has been a bit of over-hyping about Jamie and his relationship with the president."
Between Inauguration Day 2009 and Sept. 27 this year, Dimon visited the White House 22 times — including a state dinner for Chinese leader Hu Jintao, a lunch with Obama and five other executives, and a dozen individual meetings with top administration officials, including Obama.
"Coming out of the financial crisis and especially during the writing of Dodd-Frank, he pretty much got most of whatever he wanted on the important issues," said Ted Kaufman, a former Democratic senator from Delaware. "Time and again, he was able to get Dodd-Frank written so there were not bright-line laws, but that [rules would be] sent to the regulatory agencies [for interpretation]. He was confident, based on his past experiences, that he could slow down or stop any of the big things from getting done at the agencies."
Lately, the seat Dimon occupies is distinctly less comfortable. Critics say the bank has earned billions from acquiring Washington Mutual and Bear Stearns, and that even after counting the recent penalties linked to those two entities, JPMorgan will have come out ahead. Dimon's defenders say he has been singled out for big penalties because his bank is one of the few that can afford them.
"It seems he's trying to wring every penny out of the transaction that he can, which is what he should do for shareholders," said Joshua Rosner, a banking analyst at Graham Fisher & Co., a research firm that advises policymakers and institutional investors. "But many people in the public have bought into the 'poor Jamie' meme, and that is really a distortion of reality."
In this environment, Dimon, who once said some regulation was "anti-American" and who complained that policymakers were "beating up on everyone," has dialed back some of his confrontational rhetoric. He acknowledges privately that he and the bank failed to treat regulators as partners, according to people familiar with his thinking. In July, Dimon told Jim Cramer on CNBC that "a lot of rules and regulations will make [the financial system] a lot safer and sounder."
Shareholders and the board have been supportive of Dimon, even after the London Whale fiasco. Analysts applaud his efforts to put the bank's legal troubles to rest. And though a Wall Street watchdog group and various commentators have called for his ouster, people close to Dimon say he has no intention of stepping down.
"He has become a very polarizing figure, either he's being lionized or demonized," said Barney Frank, the former Massachusetts congressman, who met with Dimon every six months or so while in office. "He is very smart, thoughtful and focused. And it seems he'll survive all of this."
One sign of Dimon's recent notoriety is that he and the bank were featured on "The Daily Show With Jon Stewart." On Oct. 23, Stewart played recent news clips of sycophantic television commentators rushing to denounce the government for persecuting JPMorgan even though Dimon had done the country a huge favor in 2008 by coming to the rescue of WaMu and Bear Stearns. Buying them meant acquiring the legal liabilities that are now coming due.
"The government did put a gun to their head," said Stuart Varney of Fox News in October. Officials "begged Jamie Dimon to do it," said another commentator. "The government came to JPM hat in hand," said Cramer of CNBC, accusing the Justice Department of waging a "jihad" against the bank.
Stewart then played five-year-old clips of an effusive Cramer saying how clever Dimon had been to get the government to let him make these lucrative acquisitions for so little money.
In fact, these were good deals for both JPMorgan and the government. As the credit crisis began to spread in 2008, the bank stood out as one of the few that was not loaded with debt or burdened by massive losses on loans. Dimon boasted of its "fortress balance sheet" at an investor conference a month before the collapse of Bear Stearns.
"There were not 17 different choices for Bear Stearns," recalled Robert Steel, who was undersecretary for domestic finance at Treasury at the time. "JPMorgan's strength made it the logical choice. Jamie and his team were very helpful."
Helpful, but still looking out for the bank's interests. Dimon persuaded the Federal Reserve to absorb $29 billion of Bear Stearns's worst mortgage securities, while JPMorgan took the remaining $370 billion in assets. The bank paid a meager $1.5 billion for Bear Stearns, which had a market value of more than $11 billion. It was unheard of for a company to be sold for less than its stock market value.
Later, as government and private litigation mounted, Dimon became indignant that the government wasn't more grateful.
"We did them a favor," he said to the Council on Foreign Relations on Oct. 10, 2012. "We were asked to do it. We did it at great risk to ourselves." Had JPMorgan not stepped in, he said, "There'd be no lawsuits . . . because there'd be no money."
Dimon said JPMorgan has lost upwards of $10 billion between all the litigation and unwinding Bear's troubled business. "And, yes, I put it in the unfair category," he said. "Hey, I'm a big boy. I'll survive."
But in a recent call with analysts, he took a less combative tone. He called the legal fallout "painful" but added: "We just have to deal with the reality as it is. It will abate over time."
Buying Washington Mutual out of receivership was a better deal and helped seal JPMorgan's position as America's number one bank. JPMorgan paid just $1.9 billion. While it bought Washington Mutual's legal problems, including a protracted dispute with the Federal Deposit Insurance Corp. over mortgage securities liabilities, it also acquired a nationwide banking network it lacked. Last year, JPMorgan earned a record $21.3 billion in profit, compared with $15.3 billion in 2007 before the financial crisis.
"I'm not saying that WaMu wasn't a good bid," Daley said. He said that JPMorgan "did get a tremendous number of branches in California and elsewhere that were very helpful for the bank to expand. On the other side, it got this big pile of doo-doo."
Much of the damage to JPMorgan's reputation in Washington has been self-inflicted, many observers agree. As the bank's scandals mounted, Dimon's blunt manner looked more imperious and his managerial skill looked less formidable.
When the bank revealed it had suffered a multibillion-dollar trading loss in April 2012, Dimon dismissed it as a "tempest in a teapot." The damaging bets on derivatives initiated by the trader known as the London Whale ultimately cost the bank about $6.2 billion; Dimon eventually conceded that it showed failure on the part of the bank, which trimmed his salary for the year.
When he appeared before the House Financial Services Committee in June 2012 to explain how the country's biggest bank could lose billions on bad bets, Democrats led by ranking member Frank interrogated Dimon about his compensation and the need for greater prudential regulation. The questions touched a nerve.
"He got a little testier than I think he should have," Frank recalled. "After the hearing, he called and wanted to have a conversation. He was interested in not allowing disagreements over specifics to become warfare."
The mood was warmer in a Senate hearing the same week, with lawmakers actively seeking his advice. At one point , Sen. Bob Corker, R-Tenn., asked Dimon, "What would you do to make our system safer?" Later, Sen. Michael Bennet, D-Colo., asked the chief executive to opine about "the political risk" of Washington not accomplishing long-term fiscal reform.
As details emerged, Dimon became contrite about the trading blunder, calling it "the stupidest and most embarrassing situation I have ever been a part of" in his annual letter to shareholders this year. He said it was "a real kick in the teeth" and one of the ways in which the bank has "let our regulators down."
By March of this year, the deference paid to Dimon and JPMorgan had waned. A 300-page report from the Senate's Permanent Subcommittee on Investigations suggested that Dimon and his team were less than forthright with regulators about the botched trades. It accused the bank of hiding losses for three months last year, overstating the value of its trading positions and ignoring red flags.
The report painted Dimon and other bank executives as dismissive of regulators. A senior bank examiner told the subcommittee that it was "very common" for JPMorgan to push back on findings and recommendations by regulators. He recalled one instance in which bank executives even yelled at the examiners and called them "stupid."
People close to Dimon say he remains as opinionated as ever — but he is more careful about speaking his mind to avoid creating an adversarial relationship with regulators.
"He's a direct guy," Daley said. "That's what's charming about him, though some people interpret it as arrogance."
Though he may be an adversary of the government on some days, no one denies that his experience, resilience and position at the pinnacle of the complex financial world make him someone whose counsel and cooperation are worth having in difficult economic times.
"The good relationship that the institution [JPMorgan] had in Washington has been damaged to some extent by Dimon's occasional criticism of the government," said Rep. Spencer Bachus, R-Ala., former chair of the House financial services committee. But, he added, "any knowledgeable person on the Hill or in the administration or any of the regulators — I don't think there is anyone who would say Dimon is not one of the most competent, skilled and most credible CEOs in the financial industry."