Why JP Morgan Dominates Wall Street

The name of the game in American capitalism, especially American financial capitalism, is being big. And no one is bigger on Wall Street than JPMorgan Chase. How big is it? With a $4.6 trillion balance sheet, it holds around 20% of all the money in the U.S. banking system. JPMorgan is more valuable than its three biggest rivals combined. Last year, JPMorgan earned the highest profit in the history of American banking. They became the only bank to ever crack $50 billion in profit. There are a few different ways that you can measure a bank's success. You can look at profit, market value, asset size. But there's also staying power. There is essentially no figure in the history of modern finance who has won power and kept it, like Jamie Dimon. Jamie Dimon is a great banker. I think he's been the head of JPMorgan for 17 years, something like that. This country is a lot better off because Jamie Dimon has been running JPMorgan. But the success of Jamie Dimon and JPMorgan casts a long shadow. When you think about it, it's more of a question mark than an exclamation point. What is going to happen to this gigantic bank after its longtime CEO leaves? No one really knows. For 20 years, Dimon has led JPMorgan's ascent of Wall Street. It's financial dominance that manifests itself like this. Its new headquarters on Park Avenue. JPMorgan is about to get essentially its own little mini-neighborhood, a kind of Jamie Dimonville, if you will. This was a labor love to have a physical embodiment which represents our company. JPMorgan has something like 17,000 employees in New York City, making it one of the city's largest private employers. So they have their new building, which will hold about 10,000 of them. Then you look across the street to 383 Madison. That's the old Bear Stearns headquarters. And then they bought 250 Park. And despite his noted opinions on work from home. And don't give me this s**t that work from home Friday works. People join JPMorgan because they want to work for Jamie Dimon, this legendary CEO, dean of Wall Street. He just wants his people and his organization to be the best. And so he brings his A-game and he expects the people around him to do the same. All of this adds to the Dimon aura, unfaltering Wall Street confidence, mixed with at times unpredictable candor. The debt ceiling is potentially catastrophic. That hurricane is right out there down the road coming our way. I probably shouldn't say this, but when you see one cockroach, there's probably more. He just says what he thinks. Absolutely not. And that would be the road to hell for America. Over the years, as Jamie Dimon has evolved into this more statesman-like role that he's taken atop the finance industry, he wades further and further into policy and things that aren't directly touching banking. Jamie Dimon had a long-running joke that he would be there five more years, no matter when asked. You know, I love what I do. He was 69 years old. He's had a couple health issues over the years, including throat cancer more than a decade ago and more recently a heart issue in 2020. And JPMorgan actually had to appoint temporary co-CEOs while he recovered. Though he keeps coming back for more, eventually he will retire. But when and who will fill his shoes is anyone's guess. There have been some iterations of potential successors that have ended up all leaving to go take, you know, another big job or leaving to retire. The three current likeliest contenders to take over for Jamie Dimon when he eventually retires are Troy Rohrbaugh and Doug Petno, who run the Commercial and Investment Bank, and Marion Lake, who runs the Consumer and Community Bank. But they're the latest in a series of likely contenders, and there are always more coming up the chain at JPMorgan. At the same time, for JPMorgan investors, there really is this Jamie Dimon premium where they're most interested in more Jamie. Historically, this sort of cult of personality in business is often called the key man risk. Where would Amazon be without Bezos or Tesla without Musk? So too is Dimon to JPMorgan. While it's certainly true that Jamie Dimon's tenure atop JPMorgan overall has been very successful by a lot of measures, it hasn't been all rainbows and butterflies. For example, in 2012, there was a $6 billion trading loss called the London Whale. Jamie was called to testify in front of Congress a couple times. In some cases, he actually thrived in the congressional hearings. He had some lawmakers asking him for advice on the economy. I would like to come away from the hearing today with some ideas on what you think we need to do, what we maybe need to take apart that we've already done. Another episode involved the acquisition of Frank, a financial planning platform for students that led to its founder being convicted of defrauding the bank. But when all is said and done, they paid $175 million for it, which amounted to three hours of revenue that year. So that's a great example of how these kind of missteps become more embarrassments than anything else. JPMorgan has been able to survive these missteps, whether big or small, because of its Fortress Balance Sheet. Fortress Diamond is always about the balance sheet. Fortress Balance Sheet is a term that Jamie Dimon has been using throughout his entire career. It's constant stress tests. It's looking across a range from best possible outcome to worst possible outcome and making sure that JPMorgan can weather that storm. When you think about risk, think about things that can go terribly wrong. Can you survive them? Still, when it comes to the government's annual stress tests and other regulations JPMorgan is subject to, Diamond is a critic. There are a lot of rules that Jamie Diamond does not like. It's just more regulations and more rules and more requirements. One of his governing principles on the topic of regulation is that it should not be so complicated. He has this famous spaghetti chart, which is a graph of all the overlapping regulators that JPMorgan deals with. And he often will carry around a paper version of that, especially when he's in D.C. But despite all the regulations, government hasn't kept the bank from growing. We can look at the financial crisis when much of the building blocks of the modern JPMorgan were built. JPMorgan rescued Bear Stearns, which gave them a far larger trading business. They scooped up Washington Mutual after it failed. So the JPMorgan that came out of the great financial crisis was a much different, much larger JPMorgan than the one going in. Are you too big to fail? I don't know what that word means anymore. One irony of the global financial crisis is that the thing that we associate it with, being too big to fail, ended up resulting in a landscape where the biggest banks got even bigger. At the time, Jamie Dimon had only been CEO of JPMorgan for a couple of years, but he did warn about the excesses in subprime mortgage lending in an annual letter to shareholders. Looking back at that letter now, he was clearly right. A year ago, we were worried about banks that were too big to fail. But in the last year, big banks have gotten bigger. It is sort of the tragic failure about the regime we came in with. For all the unrest, the regime would remain largely unchanged. Years later, JPMorgan would benefit from a crisis yet again in a government-led deal. The U.S. is pushing First Republic to be rescued with banks after the stock slump. First Republic was a regional bank based in California that really focused on serving wealthy clients until it failed in 2023. The United States government literally had rules on the book to stop JPMorgan from getting an even bigger portion of deposits in this country. And then when First Republic got in trouble, that same government allowed JPMorgan to buy it. First Republic will now be taken over by JPMorgan. Between that and Silicon Valley Bank's failure paved the way for JPMorgan to dial up their desire to be the go-to bank for the venture capitalists and startup ecosystem. The bank also constantly assesses the competitive landscape. What is Block doing? What is Citadel Securities doing? What is Apple doing? And really, you know, try to make sure that someone like Apple doesn't come in and eat their lunch. Because JPMorgan is pretty much everywhere, Diamond's successor will inherit not only the firm's vast empire, but a pivotal role in the stability of the U.S. and global economy. You think about the Fortress balance sheet concept and practically what that's meant for JPMorgan and Jamie Diamond over time. And it's JPMorgan constantly emerging bigger and stronger from crises that have taken other firms down. The rules of Wall Street, informally speaking, are to make as much money as you can legally and to lose money as infrequently as possible. JPMorgan has been very, very good at that playbook.