In his New Year's Eve DealBook column, Too Big Too Fail author Andrew Ross Sorkin name checked the best and worst dealmakers of 2012: the movers and shakers of the business world who either totally screwed things up, or got things totally right.
According to Sorkin, one of the people who got at least one thing totally right was JPMorgan Chase (NYSE:JPM) CEO Jamie Dimon. "You did something most executives would not have done," wrote Sorkin, in reference to Dimon's behavior after the London Whale trading debacle, "you admitted to the mistake." I'd like to second Sorkin's sentiment, and offer two more reasons why the house that Dimon built is a great home for your investing dollars.
1. Jamie Dimon and his team
Once the London Whale surfaced in all its terrifying magnificence, Dimon wasted no time getting on television and into the papers to come utterly clean on the matter. He used phrases like "sloppy" and "bad judgment" to describe what had happened in his bank's chief investment office, and talked about how JPMorgan had made an "egregious mistake" in not spotting and turning around this massive derivatives bet sooner.
I saw him at least twice on television news programs talking about the London Whale, and I came away very impressed that this master of the universe would completely open himself up to whatever questions came his way. At the time, I hadn't been writing about financials for very long, and I held a typically unbalanced -- and therefore low -- opinion of Wall Street.
Dimon's response to what would turn out to be a $6 billion plus blunder for the world's biggest bank gave me cause for hope in the sector that I had mentally written off: one that had almost single-handedly destroyed the U.S. economy just four years earlier.
2. A great performance against all odds
Leadership counts: That's what Dimon demonstrated with his intense and, so far as I can tell, unprecedented mea culpa. Had Dimon not shown a strong hand during the crisis, the stock might not have recovered from the free-fall it entered not long after the scandal broke.
At the beginning of the year, shares of JPMorgan were trading for $34.95. By March 28, they were trading for $46.27. But even then there were rumors that the bank was making big derivatives trades too complex for it to understand and control. By April, fears of something amiss at JPMorgan began to drive the bank's share price down. By May 1, the price was $43.79. By the end of May, it was $33.15. And by June 4 it had bottomed out at $31.
From that yearly low, however, investors in JPMorgan saw the price of their shares rise generally steadily, finally closing out the year at $43.97: just 5.2% off its pre-London Whale high of $46.27. Past performance is no guarantee of future performance, but coming back strong from a shock like the London Whale incident, I believe, speaks tomes for the fundamental strength of JPMorgan Chase.
3. Making hay while the mortgage market shines
By most accounts, there's a housing recovery under way in the U.S. This is good news for the economy. The National Association of Homebuilders estimates that housing and related services contribute up to 18% to GDP. Getting the housing market moving means, to a large extent, getting the economy as a whole moving.
And since banks lend money to people to buy homes, a housing recovery is also good news for the banks: JPMorgan in particular. In the third quarter of 2012, JPMorgan made $50 billion in home loans, up 29% year over year. While banks like Citigroup (NYSE:C) and Bank of America (NYSE:BAC) are holding back, or even decreasing, their exposure to the mortgage market (still gun shy from their balance-sheet rending experience as the country's housing bubble burst), JPMorgan is intelligently stepping up its home-lending game.
The mortgage market has changed. It was subprime lending that blew up the banks, but that's not happening right now. As such, JPMorgan is primed to make money in a sector that, if Fed chairman Ben Bernanke has his way with QE3, is only on the upswing.
JPMorgan is also a bargain right now
Great leadership, a year of premium performance even in the wake of an unprecedented disaster, and a demonstrated knack for making money in a growing lending sector: three compelling reasons the house that Dimon built is a good place to be for 2013 and beyond.
Fool contributor John Grgurich owns no shares of any of the companies mentioned in this column. Follow John's dispatches from the bleeding heart of capitalism on Twitter @TMFGrgurich. The Motley Fool owns shares of Bank of America, Citigroup, and JPMorgan Chase. The Motley Fool has a delightful disclosure policy.