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.
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