Good King Jamie

By
One of these men is taller than the other. Photo: Getty Images

If there were not a God, Voltaire famously said, we would have had to create him. With the empirical evidence still out on the Big Guy, the financial press built a pretty strong case for Jamie Dimon as an adequate replacement during last week's bank earnings reports.

In a week when four big banks — Bank of America, Citigroup, Goldman Sachs, and JPMorgan — announced profits, only Dimon's shop, JPMorgan, was greeted with pure, unadulterated adoration. It's a good lesson in Wall Street brand management. Goldman Sachs earned more money — $3.44 billion to JPMorgan's $2.72 billion — and, like JPMorgan, it paid back its TARP money. But Goldman, alas, has that whole "vampire squid" thing to contend with now, which means a public profile that defines any profits by the firm as downright ostentatious. Goldman's profitability seems almost supernatural — the New York Times gleefully noted that rivals call the firm's traders "orcs" — which made the firm a target of mockery by everyone from The New Yorker ("don't wear your crowns outside the office") to Jon Stewart ("The bailouts are working ... for Goldman Sachs").

JPMorgan's profits appeared politely restrained in contrast — but more important, its charismatic, press-friendly chief executive, Jamie Dimon, enjoys a reputation as the biggest hard-ass on Wall Street. Who wants to mess with Jamie? Just to make the distinction clear, the Times featured a picture of Dimon towering a full head above Blankfein as they strode across the White House grounds. The caption, "one bank chief holds sway," strongly implied that the other didn't.

Bank of America and Citigroup's profits may have been an unexpected delight for investors — Citigroup! Profitable! Just like the stories our parents told us! — but a skeptical press immediately dismissed those earnings as the flukes that they were, built on onetime events like selling assets. Dimon and JPMorgan, on the other hand, turned in not only profits, but good profits — moral profits. "Congratulations on a great quarter," gushed CNBC's Melissa Francis to JPMorgan chief financial officer Mike Cavanagh. BreakingViews claimed that the bank, like a finishing-school maiden, had identified all its previous faults and learned from its mistakes. The Times called earnings "stellar" and handed in a Sunday profile on Dimon's friendship with Rahm Emanuel. It's not surprising that Dimon knows how to manage up — he maintained a close relationship with prickly Citigroup architect Sandy Weill for years — but the coup de grâce is the Times anecdote in which Richard Parsons, the chairman of Citigroup, tried to explain the business of banking to President Obama. He was apparently unsuccessful, since Obama interrupted to quip, "All right, I'll ask Jamie." Play again next time, Dick.

It's easy to see why the elevation of Dimon is a good narrative. It bridges the cognitive dissonance of a group of banks that were bloodsucking government-welfare villains three months ago and now appear to be healthy. For the layman, it's hard to tell what changed to make that happen (the real answer is boring: accounting laws and government subsidies for bank debt). The canonization of Dimon helps us put the "good" and the "bad" back into the story.

But make no mistake: Banks are still contending with a host of troubles, and they're still pretty much all in this together. Underneath the profits are a boiling cauldron of troubles with mortgages, consumers, and companies; even the most optimistic pundits concede that things are only less bad, not good.

For his own part, Dimon predicted that unemployment will continue to rise, as will home foreclosures once government moratoriums end. The struggling consumer is supposed to be the source of many of these troubles — JPMorgan lost $1 billion on consumer loans and $4.6 billion on credit-card costs — but that is only part of the story. Many banks — including JPMorgan — are flirting with trading in mortgages again to get to profitability. JPMorgan's big revenues in investment banking — $2.7 billion, or more than any bank in history — came mostly from a one-quarter boom in helping other banks raise money (a factor that also helped boost Goldman Sachs's profits).

More troubling, midsize corporations — a major lending customer for banks — are suffering badly and will continue to. Bank of America's nonperforming commercial loans tripled over the past year and jumped 23 percent just over the past three months. The default rate on corporate leveraged loans — loans held by companies with weak credit ratings — is over 9 percent, a record high according to Standard & Poor's. The ones that aren't defaulting are dropping in market value; JPMorgan is valuing its $3.3 billion of leveraged loans at a pitiful 42 cents on the dollar, down from 80 cents on the dollar a year ago.

What will Dimon do with his power? So far he's used it to advance his bank's cause, arguing against tough accounting laws. But as economist Simon Johnson pointed out, if Dimon continues to oppose the administration's last stand for reform of the banking sector — the creation of a consumer protection agency — he is likely to become less sympathetic to Main Street. More important, the deification of Jamie Dimon leads investors to believe that the bank crisis could end just through good management. Unfortunately, it can't. JPMorgan, like its rivals, turned its fortunes around in large part by accepting government debt subsidies, enabling it to take on risk far more cheaply and save more than a few pennies on sky-high interest rates. It also scored primo, inexpensive deals for Bear Stearns and Washington Mutual, whose businesses boosted JPMorgan's profitability. But the economy as a whole is weak, and any victory that an individual bank enjoys can only be marginal while its debt is still backed by the government. Until we accept that banks — all banks — will continue to struggle, we can write this off as our Quarter of Magical Thinking.