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False Praise for Jamie Dimon

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You know the saying: Repeat a lie often enough, and it becomes the truth. I feel that way every time I hear praise gushed upon JPMorgan Chase (NYSE: JPM  ) CEO Jamie Dimon.

Three years ago, President Barack Obama endorsed Dimon by name, praising him for "doing a pretty good job managing an enormous portfolio." The New York Times says he's "perhaps the most credible voice of a discredited industry." Last week, Sen. Bob Corker, R-Tenn., flattered Dimon by calling him one of the "best CEOs in the country for financial institutions." He was named CEO of the Year in 2011, and has been on Institutional Investor's Best CEOs list for the last three. An entire book is devoted to his success, titled Last Man Standing. It goes on and on and on. The world can't get enough of Jamie Dimon.

Let me say from the outset: Dimon seems like a man of outstanding character. He's candid, devoted, and clearly understands banking. This isn't a personal attack. But dig into the numbers, and JPMorgan's record with Dimon at the helm is, objectively, not that great. It's not bad, but I can't help but think the cult of Dimon is somewhat detached from reality.

The most common praise given to Dimon is that JPMorgan navigated the financial crisis better than its two largest rivals, Citigroup (NYSE: C  ) and Bank of America (NYSE: BAC  ) . This is true. But is that the definition of success these days? "They stumbled more than I did" may grant you a pass on criticism, but it's hardly a cause for praise.

Here's the scorecard. Since Dimon became CEO in late 2005, JPMorgan shares have returned -7%, including dividends. Dimon was paid $148.9 million during that time, according to S&P Capital IQ. An S&P 500 index fund returned 14.9% over the same period, and the average CEO earned a cumulative $71.9 million, according to Forbes.

Several banks did far better. Wells Fargo (NYSE: WFC  ) shareholders have enjoyed total returns of 12% since late 2005. US Bancorp (NYSE: USB  ) shares returned 18.5%. Tiny Bank of the Ozarks saw a cumulative return of 67% over the period.

Of course, shareholder returns aren't always the best way to measure CEO performance. But even judged by internal metrics the results are mixed. JPMorgan has posted an average return on assets -- arguably the most complete measure of a bank's performance -- of 0.8% under Dimon's lead. Wells Fargo earned an average of 1.1% on assets during that period. US Bancorp earned 1.5%; PNC, 1.3%; BB&T, 0.9%; M&T Bank, 1.04%. A collection of the 50 largest public banks shows the group's average return on assets since 2006 is 0.8%. Sort them in order, and JPMorgan ranks as the 31st best. Dimon may be one of the industry's best CEOs in people's minds, but on paper he's distinctly middle of the pack.

Even those figures likely overstate JPMorgan's performance. With a balance sheet equal to 15% of the nation's gross domestic product, JPMorgan is too big to fail. The market knows it will be bailed out by the government if it hits a rough patch, and thus likely views its bonds as lower risk than smaller banks that would be allowed to go bankrupt. That lets JPMorgan artificially borrow cheap, increasing its profits. A recent study by two economists estimates that this implicit subsidy reduces big banks' borrowing costs by 0.8% a year. Plug that number into JPMorgan's financial statements and, as Bloomberg recently pointed out, JPMorgan reaps a windfall of "$14 billion a year, or about 77 percent of its net income for the past four quarters." Without an implicit government subsidy, in other words, JPMorgan would barely be profitable at all.

Meanwhile, dividends per share are lower today than they were when Dimon took over. After exhausting a share repurchase plan last year before shares fell to much cheaper levels, Dimon was contrite. "We're sorry" he said on a conference call. The feat was repeated earlier this year: A big share-repurchase campaign was authorized in March only to be suspended after shares plunged. More than $12 billion of stock was repurchased from 2006 to 2007, when shares traded for an average price almost a quarter higher than they currently do.

And do I need to mention the recent $2 billion trading blowup?

Running a bank is hard. Running one of the world's largest banks is really hard. Here's what's important: I think Dimon is one of the smartest bankers in the industry. His brilliance hasn't shown up in the bank's performance in part, in my view, because he's running such an unwieldy, unmanageable colossus. It's implausible to think anyone managing $2 trillion can expect to achieve anything greater than average returns over time. They can, however, destroy a lot of it.

Bank analyst Mike Mayo estimated earlier this year that JPMorgan's parts would be worth one-third more than current market value if broken up. Citing the danger "too big to fail" poses to the financial system, St. Louis Federal Reserve President James Bullard argued in March that large banks, including JPMorgan, should be broken up. If Dimon wants to prove his worth as the nation's best CEO, he'd take that advice.

Check back every Tuesday and Friday for Morgan Housel's columns on finance and economics.

Fool contributor Morgan Housel owns preferred shares of Bank of America. Follow him on Twitter @TMFHousel. The Motley Fool owns shares of JP Morgan Chase, Citigroup, and Bank of America Corporation Com. The Fool owns shares of and has created a covered strangle position in Wells Fargo. Motley Fool newsletter services have recommended buying shares of Wells Fargo. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

Read/Post Comments (14) | Recommend This Article (40)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 26, 2012, at 1:33 PM, TDRH wrote:

    Why was he not sworn in before testifying to Congress? They did not give the Rocket that option.

  • Report this Comment On June 26, 2012, at 2:08 PM, TrojanFan wrote:

    Capitol Hill answers to Jamie Dimon, not the other way around, that's why.

    All it takes is a couple of phone calls from Dimon and he can ruin any lawmaker on the Hill and they know it so they give him lots of cover and plenty of room to maneuver.

    Look at the way those turkeys handled Jon Corzine. Same garbage.

    It sucks, but that's the situation.

  • Report this Comment On June 26, 2012, at 3:11 PM, TMFAleph1 wrote:

    <<All it takes is a couple of phone calls from Dimon and he can ruin any lawmaker on the Hill and they know it so they give him lots of cover and plenty of room to maneuver.>>

    Do you have any evidence to support this bizarre statement?

  • Report this Comment On June 26, 2012, at 3:13 PM, dcrednek wrote:

    Jamie Dimon definitely gives the Goldman gnomes a run for their money for the title of Puppetmaster of Capitol Hill.

  • Report this Comment On June 26, 2012, at 4:09 PM, gottask8 wrote:

    First off you are writing this after the CIO issue that has been recently reported, what was the return this past Feb, I don't think it was anywhere near is always easy to bash after a misstep that brings down the share price and say we should have seen this coming a while ago... driving in the rear view mirror never gets good results.

  • Report this Comment On June 26, 2012, at 4:12 PM, lovesaves wrote:

    JPM is as scuzzy as the others. Dimon must wear strong cologne to mask the smell.

  • Report this Comment On June 26, 2012, at 4:33 PM, cmfhousel wrote:

    <<First off you are writing this after the CIO issue that has been recently reported, what was the return this past Feb, I don't think it was anywhere near -7%>>

    From the time Dimon took office until the beginning of this year the cumulative return was -3%. Also, I think measuring a CEO's performance sans mishaps like the CIO incident is worse than driving in the rear view mirror. What's Citigroup's record without Q4 2008?

  • Report this Comment On June 26, 2012, at 6:04 PM, xetn wrote:

    Why pick on Dimon? He is really no different that the CEO's of all the banks; partners with government and the Fed to extract as much from the taxpayers as they can.

  • Report this Comment On June 27, 2012, at 5:24 AM, mrpraxis wrote:

    I am no great supporter of Dimon...but really...having those hypocritical people in Congress daring to call out Dimon on HIS behavior when Congress is equally culpable for creating the circumstances upon which derivatives could flourish...namely the repeal of Glass Steagall during Clinton's administration and it's subsequent bipartisan support during Bush 43. Let's not blame the child for its bad behavior when we should look first at the irresponsible parents who failed to monitor their "children".....

  • Report this Comment On June 27, 2012, at 8:51 AM, NEMnyWtch wrote:

    @mrpraxis - right on! Our gov't needs to stop trying to control the banks, and the fed. They are not supposed to be political entities. Capitalism, anyone?

    What people like about Mr. Dimon is his character. I have worked for brokers who sell themselves on being less-bad, so of course the large institutions will do the same. Suggesting JPM should be broken-up, is a slippery slope Mr. Housel. Why not CIT, BAC, and every other large cap financial too? All have made mistakes.

  • Report this Comment On June 27, 2012, at 11:54 AM, TMFAleph1 wrote:

    <<Suggesting JPM should be broken-up, is a slippery slope Mr. Housel. Why not CIT, BAC, and every other large cap financial too?>>

    Why not, indeed? What is wrong, per se, with the notion that every financial institution that is "too big to fail" should be broken up? [Large-cap is not the criterion.]

  • Report this Comment On June 27, 2012, at 6:02 PM, hicknhixville wrote:

    Jamie Dimon’s big bucket shop will go bust when Europe and the derivatives market blow up in the next year or so.

    The spectacle of paid off political hacks falling all over him with praise recently when he appeared before them will be eclipsed soon with that of President Romney groveling before the House Tea Party caucus and Senate Democrats (as they glare over at that old queen, Mitch “one term” McConnell) and begging both not to block his “comprehensive" bailout of Europe, and Dimon.

  • Report this Comment On June 28, 2012, at 10:59 AM, NEMnyWtch wrote:

    <<Why not, indeed? What is wrong, per se, with the notion that every financial institution that is "too big to fail" should be broken up?>>

    Do you really think breaking up every institution dubbed "too big to fail" will help our current economic situation? If so, please tell me so I can start storing canned goods and build a chicken coop. I believe that stability is such a global problem right now that "restructuring" Americas big banks would bring catastrophic failure and a full blown global depression. If you think Lehman was fun, go ahead, break 'em all up.

    I have to go outside and build a bunker now...

  • Report this Comment On September 05, 2012, at 12:57 PM, andreapsoras wrote:

    Remember Jamie Dimon was not brought up, as the analogy above comes along, through commercial banking. And although there was some investment banking at both Chase and JPM, it was not SmithBarny-Travelers his home for many years with Sandy Weil, nor were Chase or JPM investment banks.

    Moreover, what's happening can't be blamed on him. One has to look at things like German reunification, the Germans in 1991 at Maastricht proposing the EU 'free' trade zone, the Euro and Fiscal Union and thank God not being able to obtain the last one and should have been denied the other 2, but then obtaining appeasement from the US, our complicity and ah, compliance to the demands of the G20 Transatlantic Agreements, by the US having been signatory to what was calling for the de-industrialization of the US...

    If we violate our Constitution's fiscal revenue model found in Article 1 Section 8, and also part of what contributed to framing our commercial environment in the US by going into non tariff'd trade agreements in order to deindustrialize the US to comply with the Germans' and the Club of Rome's (with its 1% and foreign royals and the Vatican) interest to constrain the US economy to meet the EU's 'managed competition' again code for shrinking the US economy, our banks including JPMC will not have a healthy economy into which to lend.

    Making performing loans is the business of a bank and there are large foreign banks out there lending into where our Banks are not. In part also because of BIS- Basel guidelines which 'punish' banks for making commercial and industrial loans our banks have been somewhat shy to make those sorts of loans although these can be done and put into CDOs although again the new Basel guidelines will punish banks using CDO structures.

    Some of the Large foreign banks in their attitude and practice ridicule these 'guidelines' which are right from their own 'regulatory' bodies, not from ours. As it were, I have urged our large and small banks to reject Basel and see no reason for us to use a 'framework' which we'd had already under legislation and regulation that needed to be applied and complied with - without our using or needing Basel agreements in any form.

    Although explaining that is a complex and time consuming dogleg, again, JPMC is only a part of the problem in that it hasnt rejected the flawed multilateral agreements to which the US has become signatory and is somewhat dissolving our economy in order to 'comply' when 'compliance' has been to suit our ignorant, beguiled 1% here and the foreign royals and their corporate interests globally.

    In order to be healthy banks operatings need to have a healthy commercial/economic environment into which to lend. There isnt a disconnect with this from reality and thus, is why we are where we are.

    I cannot say Dimon is responsible for this entirely although as chairman of one of the world's largest banks and that bank is a Rockefeller-Morgan bank, the board and senior management there have the access and power to improve things for the US,and thus improve things for themselves ie, their bank.

    I suppose in part because they really don't feel the 'pain' of so many other domestic constituencies, they don't really know what to do, or don't really know how to push back against the undertow and beleagering interests for multilateralism.

    That doesn't mean they stay in denial. It means they need to harken to or what it takes in the right come-to-Jesus that will help clean up their houses. Dimon can benefit from this.

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