Jamie Dimon, the chairman and CEO of JPMorgan Chase (NYSE:JPM), is one of this era's greatest bankers. Whom does he have to thank for this? I believe considerable credit goes to Warren Buffett.
If you're familiar with Dimon, then you know that his formative years had little to do with traditional banking. After business school, he joined forces with Sandy Weill, one of the most prolific dealmakers of the 20th century. The two proceeded to transform a down-on-its-luck, hard-money consumer finance company into Travelers Group, a massive financial conglomerate that later merged with Citicorp to form Citigroup.
Dimon gained experience in an array of businesses along the way. He oversaw brokerage units, trading divisions, investment bankers, and asset management operations. But it wasn't until much later -- after he left Travelers in 1998 -- that Dimon ran a bona fide bank. At the beginning of 2000, he became CEO of Chicago's Bank One, which JPMorgan subsequently acquired in 2004 -- he was promoted to CEO of the latter one year later.
This lack of experience didn't dampen Dimon's banking acumen. As Duff McDonald pointed out in Last Man Standing: The Ascent of Jamie Dimon and JPMorgan Chase, during the financial crisis of 2008-2009, "Dimon was quite literally the only chief of a major bank to have properly prepared for the hundred-year storm that had hit Wall Street with such vengeance."
So why is this? Why is it that a banker with less than a decade's worth of actual banking under his belt was able to navigate the crisis while many of his more experienced peers weren't?
The answer to these questions is twofold. First, Dimon always embraced the importance of a "fortress" balance sheet. "A fortress balance sheet was just what it sounded like," says McDonald -- "it consisted of ample 'high-quality' capital paired with a strong liquidity position that would protect the firm from the assault of an economic downturn, which also provided the ability to launch an attack on weakened competitors."
Second, by religiously reading Buffett's letters throughout the years, and the sections on Berkshire Hathaway's insurance operations in particular, Dimon came to appreciate that a good banker must flout the crowd and act independently. Insurance companies and banks are two sides of the same coin. The key to maximizing long-term profitability in both cases is to avoid the temptations that get others into trouble. In insurance, it's refusing to write overly risky policies when the economy is roaring. In banking, it's refusing to chase short-term revenue growth by originating loans with a higher risk of default.
Acting counter-cyclically is indispensable when it comes to running a successful bank. And acquiring the fortitude to do so is less about extensive training and tutelage than it is a deep-seated appreciation for the inevitability of cycles. Make no mistake about it: Dimon was born with immeasurable skills. But when it comes to banking, Buffett's annual letters almost certainly guided them in the right direction.