There are barely disguised smirks emanating from the canyons of Wall Street and the business press over the fact that Jamie Dimon has had to admit a mistake — and a whale of one, for that matter.
For years, the JPMorgan CEO (and America’s least-hated banker, as he was known) has worn a halo over those pinstripes. Dimon has been called President Obama’s “favorite banker”. Institutional Investor magazine has called him the country’s best CEO for two years running. And his actions during the financial crisis have been painted in patriotic terms: Press reports said he “answered the call” from then-FDIC chairman Sheila Bair to buy Washington Mutual, one of two banks he scooped up during the financial meltdown, and he has cited a patriotic duty to a country in crisis as why he took in $25 billion in government aid.
Yet now, Dimon is in the hot seat as JPMorgan confronts a $2 billion trading loss and the early stages of a criminal probe by the Justice Department.
Dimon had long been regarded as a detail-oriented, risk-focused manager who understood his business and practiced fiscal restraint. He has called his balance sheet a “fortress.” In a New York Times profile from 2010, respected business writer Roger Lowenstein praises Dimon’s due diligence. He quotes Jay Fishman, the CEO of Travelers: “Jamie has a healthy regard for the idea that we will go through crises and that we will be lousy at predicting them. The flip side is he will run his businesses more carefully.” Dimon, Lowenstein writes, “demanded to see the raw data” rather than reviewing summaries, “put himself through a tutorial, so that he would understand the complex trades the bank was exposed to,” rather than trusting his traders, and “reined in lending earlier than did others.”
Add to that saintly reputation Dimon’s penchant for bluntness and his outspoken criticism of certain regulations, and it’s little wonder some are enjoying watching him squirm, even if they shouldn’t. He has called the Basel Committee’s capital standards “anti-American.” He has been one of the most vocal critics of the Volcker rule — a proposal to restrict banks’ proprietary trades, or bets with their own capital.
Of course, he is now facing huge losses from one of the bank’s own risky bets. Whether or not the Volcker rule would have prevented the trade is being debated (JPMorgan has called it a “hedge”), but it’s sure to now be Exhibit A for regulators who want to see tighter rules. As Ezra Klein writes in a good synopsis of what happened: “Given how exquisitely it blew up in JP Morgan’s face, now regulators are going to make sure that the Volcker rule would stop trades like this one from happening.”
So what’s the lesson for leaders? Who knows how much Dimon knew about the trade, or whether his detail-oriented, much-lauded approach to managing risk failed in some preventable way. More likely, this is evidence that when it comes to highly complex institutions and systems like global banks, there are no saints or white knights — just humans.
Still, it’s a reminder of how precarious the pedestal can be. How much Dimon did to burnish his halo and how much it was created for him by others is debatable, but either way he seemed more than happy to wear it. When you’ve become the poster boy for your industry and embraced your role as one of its most outspoken voices, prepare yourself to eventually eat some humble pie.
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