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JPMorgan Chase CEO Jamie Dimon

JPMorgan Chase Profile Upped by Strong First-Quarter Results, Shareholder Letter

April 16, 2009 02:00 PM
by Anne Szustek
JPMorgan Chase reported better-than-expected results for first-quarter 2009 on the back of insulating itself against toxic debt, a business practice highlighted in CEO Jamie Dimon's feted shareholder letter.

JPMorgan Reports 48 Percent Revenue Increase During First Quarter

JPMorgan Chase reported Thursday a 10 percent year-on-year fall in profit during the first quarter to $2.1 billion. But what the company lost may be overshadowed by its gains in revenue and stature.

The financial institution's revenue grew by 48 percent during the three-month period to $25.03 billion. "The investment banking division posted earnings of $3.6 billion, reversing a $3 billion loss in the fourth-quarter," writes The Wall Street Journal.

But in terms of being able to cover losses, JPMorgan Chase said that it is resilient enough to be able to pay back the Treasury Department, despite having to add another $4.2 billion to its coffers to insulate against "toxic debt," exposures that CEO Jamie Dimon said in his most recent shareholder letter are managed "name by name—like a hawk."

This year’s edition of JPMorgan Chase CEO Jamie Dimon’s letter to shareholders went beyond the typical numerical breakdown of the company’s performance during the past year. It was 29 pages of policy analysis, a diagnosis of the world’s financial ills and suggestions to get the world out of its economic funk.

Among Dimon’s assertions is that derivatives, financial instruments that include the now-infamous credit default swaps, were not to blame for the recession that officially began in December 2007. Rather, Dimon argued, greater consumer borrowing during the earlier years of this decade, in addition to hedge funds and private equity, played roles in pushing up asset prices.
“Basically, the whole world was at the party, high on leverage—and enjoying it while it lasted,” he asserts.

Dimon also casts blame on the U.S. trade deficit; namely, how it bolstered demand for U.S. Treasury and mortgage-backed securities, and kept interest rates low: “Excess consumption could be financed cheaply. And adding fuel to the fire, in the summer of 2008, the United States had its third energy crisis—further imbalancing capital flows.”

He continues from his analysis of trade gaps to calling out risk regulatory gaps, arguing that hedge funds and private equity firms of a certain size should be required to file auditing reports and disclose major trades. A systemic “regulator might have been in the position to recognize the one-sided credit derivative exposures of AIG and the monoline insurers and do something about it,” he writes. The CEO also insists that his company watches its derivatives exposures “like a hawk.”

Under Dimon’s tutelage, JPMorgan Chase, worth some $2.2 trillion in assets, “has escaped much of the debilitating fallout affecting other financial institutions,” reports Bank Investment Consultant magazine. This has lent Dimon credence as a financial sector guru—and garnered comparisons to Berkshire Hathaway chief Warren Buffett, who includes economic analysis and candor in his shareholder letters.

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Opinion & Analysis: Is Dimon a Baby Boomer Buffett?

Wall Street analyst and hedge fund founder Tom Brown made a particularly strong Dimon-Buffett comparison in his Seeking Alpha article, “What Buffett Should Have Written but Didn’t.” He calls Dimon’s message to shareholders “just the sort of letter … that a lot of us hoped Warren Buffett might write this year, but did not. As far as that goes, it may be the best shareholder letter I’ve ever read, from any CEO, ever.”

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