How JPMorgan won

Rob Armstrong (0:06)

PUSHKIN Last week, JPMorgan Chase made more than a billion dollars. It did the same thing the week before that, and the week before that, and the week before that. It is hard to think of any company that towers over its industry the way that JPMorgan towers over American banking.

Today on the show, what is JPMorgan's special sauce, and how long will it last? This is Unhedged, the Markets and Finance podcast from the Financial Times and PUSHKIN. I am Rob Armstrong coming to you from Unhedged World Headquarters in beautiful New York City, and I'm joined today by Josh Franklin, the FT's US banking editor. Welcome, Josh.

Joshua Franklin (0:55)

Hi, Rob.

Rob Armstrong (0:56)

So let's just talk about what this bank is. I'll start with two statistics that stick out for me.

About two trillion in deposits. I think I have that right. Inter-bearing deposits here, over two trillion in deposits, total assets, five trillion. Just to give a scale of how big this thing is. What else would you add to the description, Josh?

Joshua Franklin (1:23)

No, it's an institution that's bigger than most countries.

If you think of what the modern day JPMorgan is, it's basically three businesses. You've got the chase side of the business, which is kind of, it's like the coal room, in terms of just churning along this profit engine. That's kind of the retail deposits, the chase branches. You've got the JPMorgan investment bank and trading business, which is kind of the glitzier brand-enhancing side of the business that works on the SpaceX IPO and has Ken Griffin and Millennium and Citadel as clients.

Rob Armstrong (2:03)

Yeah. If the retail business is the engine room that just kind of churns along, lends higher than it borrows and just makes money steadily, I guess the Wall Street business, when it's good, it's really good. Right. It has these immense peaks and it has some valleys. But when it's jamming like it's jamming right now, it is just a profit.

Joshua Franklin (2:26)

When we're in this mode of animal spirits, there's a lot of money to be made and it really gives you this nice upside. We'll see how long it lasts for. But right now, people are making hay while the sun shines. And then the kind of smaller business is the asset and wealth management business that they have, which is about 20 percent of profits. And that's kind of this money management business that doesn't move the needle every quarter, but it's also another kind of growth industry that JPMorgan wants to be a part of.

Rob Armstrong (2:56)

I mean, I would think, you know, someone was saying to me the other day that we're having the wealthiest cohort of retirees in the history of the world that are kind of hitting retirement right now. And JPMorgan wants to be at the middle of that wave, and it seems like they are.

Joshua Franklin (3:13)

Yeah, exactly, and the funny thing is, on the asset and wealth side of business, for almost any other company, the money that it puts up every quarter would be a standout performer size-wise. But in JPMorgan, because it is so big, it almost gets obscured a little bit by these two other huge businesses.

Rob Armstrong (3:30)

So let's go back now and talk about how did we get here?

How did it, it wasn't always the case that JPMorgan was the most dominant bank in the United States and possibly the world. How did we get here?

Joshua Franklin (3:44)

So the key protagonist of the story is Jamie Dimon, who's the CEO for a person who's familiar to a lot of listeners. He takes over JPMorgan in the start of 2006 And at that time, we call these guys forever CEOs for a reason. They stick around for a long time.

When he took over, there were actually a few bigger banks than JPMorgan. You had Bank of America and Citigroup, and Dimon had previously worked at Citigroup under his mentor, Sandy Weil. We're both bigger than JPMorgan.

Rob Armstrong (4:15)

But of course, 2006 is a momentous year. Because the next year is 2007

Joshua Franklin (4:21)

Yes.

Rob Armstrong (4:21)

And we all know what happens then. Yes.

Joshua Franklin (4:24)

Then there's the early signs of this brewing financial crisis that comes ahead in 2008 And JPMorgan really maneuvers that better than anyone else.

Jamie Dimon manages to sidestep the worst of the mortgage crisis for JPMorgan. And then not only emerges in decent financial health, but also takes advantage of the crisis to opportunistically buy a couple of companies.

Rob Armstrong (4:51)

Let's take those one at a time, maneuvering the mortgage stuff. Was it as simple as just owning less crap than the other banks owned?