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America's traditional strengths will win out

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By Jamie Dimon, CEO, J.P. Morgan Chase
Last Updated: April 22, 2009: 12:01 PM ET

'We all have to be humbled,' says Dimon, 'by the mistakes we made.'

(Fortune Magazine) -- I believe that in five years this country - and most banks - will be fine overall. This crisis will be a memory, and the traditional strengths of America will show through: its ability to come together and to innovate, and its work ethic. This is a country that likes to work, which I think is a good thing.

Fundamental parts of the banking business will not change. Serving corporations and customers with financial needs, ranging from loans to debt to M&A - that will still be taking place. Some may be happening in boutiques and investment banks, and some may be a part of bigger companies. That's fine - that's what competition is all about. Other things will change forever. Some of the structured products will never come back. Securitization markets will be smaller. And leverage will be lower forever. That's a good thing.

Another change will be in the way some banks pay people. There is no question that the compensation system on Wall Street helped distort the way financial companies defined risk. At J.P. Morgan Chase (JPM, Fortune 500) we already operated under best practices on compensation - paying a large portion in equity and rewarding people for sustainable, long-term performance. A lot of companies are now putting in place more stock-based systems and more clawbacks; they'll be doing a lot more looking at performance over an extended period. This will not get rid of all the problems, but it certainly will mitigate them.

In my whole life, I've never hired someone who was taking the job simply for money, not once. I wanted them to join because they wanted to build a great company over a long period of time. You certainly can sleep at night when you believe that you are building an institution by serving clients. I think that companies with too many people trying to make as much money as they can in the short run are the same companies that are no longer around.

I'm not a psychologist, but if you ask me whether there has been a sea change in consumption in society, I would say yes. Having two cars instead of three or going out to dinner less and turning the lights off - those are not sacrifices the way you would traditionally mean sacrifices. If people are a little more thoughtful, more conservative, and if their fundamental values are more important than how much money they make, those are all good things. These changes are not going to destroy our country; they're good for our country.

In order to address the public anger and outrage over what has happened to our financial system, I think we in the banking community need to take some responsibility. Banks, including ours, should acknowledge that they made mistakes. We all have to look at the past 24 months and be absolutely humbled at the mistakes we made - and we made plenty of them. Yet it is also painful for our people to be vilified.

J.P. Morgan Chase was asked to buy Bear Stearns for the sake of our country and financial system, and people here worked around the clock for six months to do the transaction. Then we accepted TARP money because we were asked to. But I think that TARP at this point has become a scarlet letter for some firms. Banks have also been criticized for improving lending standards. Yes, lending standards have gotten tougher, and that's reasonable. What is unreasonable is to say that the current crisis in part was a result of bad lending standards, and then to say we should keep standards that way.

I do believe that Ben Bernanke and Hank Paulson and Tim Geithner and John Dugan and Sheila Bair acted bravely and boldly in completely uncharted waters. I give them a lot of credit for doing that. It would have been far easier to be bureaucratic. And while it hasn't all worked out perfectly, they did their best. Now what we really need is a systemic regulator who can anticipate weaknesses in our financial system rather than react to them, spotting the next problems, not the current ones.

Ultimately, however, it is up to us to manage our own companies wisely. That is why we have what I call a fortress balance sheet. What that means is a significant amount of capital; high quality of capital; strong liquidity; honest, transparent reporting; and excellent risk measurement and management. We have more common tangible equity than many large financial institutions. We've always been that way, keeping plenty of liquidity. We have to balance risk taking with doing what's right for our customers and shareholders. I always say my grandma could have made those crazy profits by taking more risk. But are you building a better business?

We also need the fortress balance sheet so that we can seize opportunities and continue to invest in our businesses. It's not only about the quality of earnings; it's also about the quality of growth. The lesson here is a basic one: Management has to have the fortitude to do the right thing for shareholders. It can't be goaded and pushed into seeking out excessive growth that can't be justified.

Jamie Dimon is CEO of J.P. Morgan Chase. Essay based on a conversation with Fortune's Jennifer Reingold.

Next: Indra Nooyi: Business has a job to do - rebuild trust To top of page

Company Price Change % Change
Ford Motor Co 8.29 0.05 0.61%
Advanced Micro Devic... 54.59 0.70 1.30%
Cisco Systems Inc 47.49 -2.44 -4.89%
General Electric Co 13.00 -0.16 -1.22%
Kraft Heinz Co 27.84 -2.20 -7.32%
Data as of 2:44pm ET
Index Last Change % Change
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Treasuries 1.73 0.00 0.12%
Data as of 6:29am ET
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