Crisis management

Felix Salmon

Felix Salmon talks to New York’s most senior commercial banker, Citibank chairman Bill Rhodes, about the origins of the current crisis – and profiles two other major players, Jamie Dimon of JPMorgan Chase and Ken Lewis of Bank of America

Weathering the storm

Jamie Dimon, JPMorgan Chase
In a crisis sorely lacking in leadership, JPMorgan Chase’s Jamie Dimon (below) has done his best -- quite successfully -- to prove himself a worthy heir to the eponymous Morgan of his bank. He stepped in during the Bear Stearns debacle to rescue the beleaguered bank and save its bondholders from harm -- with the help of $29 billion in government funds, which seemed like a lot of money at the time. And he was surely happy to submit to the Treasury department’s order to issue $25 billion in new preferred stock, and curb executive pay, in order to show that even healthy banks can and will make use of the latest iteration of the US government’s bail-out plan.

For JPMorgan, more than any other bank, has weathered this crisis well: its share price is off less than 10 per cent from where it was a year ago, compared to falls of almost 60 per cent for Bank of America and almost 70 per cent for Citigroup. The highly levered JPMorgan has even outperformed the staid and boring Wells Fargo, saviour of Wachovia.

Since his opportunistic rescue of Bear Stearns, Dimon has kept quiet. He might be surviving, more than leading, but that alone is an almost unique achievement in these markets.

Ken Lewis, Bank of America
Bank of America’s Ken Lewis, like Jamie Dimon, opportunistically bought an investment bank in trouble -- in his case, Merrill Lynch. But he also bought an almost certainly insolvent mortgage lender -- Countrywide -- in a decision brutally punished by the markets. He has ambitions of being a major player in both investment banking and mortgage lending, and reasonably reckons that buying best-in-class expertise on the cheap is easier than trying to build it in-house.

On the other hand, that best-in-class expertise didn’t serve either Merrill or Countrywide particularly well: both were destined for bankruptcy had they not been rescued by Lewis. And there is a mild whiff of desperation to Lewis’s acquisitions, as though he understands that the market is mentally sorting America’s banks into winners and losers. If he doesn’t prove himself one of the survivors by buying outfits in distress, goes the thinking, he’ll be considered to be in distress himself.

Lewis is both culturally and geographically a very long way from the patrician banking roots of New York City: based in Charlotte, North Carolina, he built Nationsbank into a nationwide behemoth through aggressive acquisition of such renowned franchises as Bank of America and BankBoston. He’s a master of the bull-market M&A game, but now he’ll need to prove himself capable of weathering a severe recession. And that takes a very different skillset.