Monday, October 13, 2008
A Banker With Brains?
"It was the second week of October 2006, William King, then J.P. Morgan's chief of securitized products, was vacationing in Rwanda, visiting remote coffee plantations he was helping to finance. ... Jamie Dimon [said] ... 'We need to sell a lot of our positions. I've seen it before. This stuff could go up in smoke!" ... Dimon and his team are on top today because they took a daring stance at the height of the credit bubble. ... And reports are a key element of Dimon's system. Once a month Dimon holds meeting that can last from three hours to a full day with the management of each of six operating businesses. The discussions center around extraordinarily detailed, inch-thick booklets called executive management reports, or EMRs. ... One goal of the reviews is to make sure that each card, or any other product, is profitable on its own and not being subsidized by other products. Says [Jay] Mandelbaum: 'Jamie wants all corporate costs, from legal to marketing allocated to all the businesses in relation to how much they use them, to ensure that the businesses are truly profitable after all the overhead expenses.' ... Second, if the data show that a business is really far riskier than it looks, get out--no matter how lucrative it appears. ... [Bill] Winters and [Steve] Black saw that once they bought credit default swaps to hedge AAA CDO paper J.P. Morgan would have to hold, the fees from creating CDOs would vanish", Shawn Tully at Fortune, 15 September 2008.
These must be the last days, I'm about to compliment a banker. Apparently Dimon, unlike most of his contemporaries, understands the need for good cost accounting. He avoids products cross-subsidizing each other. Way to go Dimon. He even has the good sense to get out of risky businesses.