December 2, 2023 / VOLUME NO. 290

Building a Fortress

Jamie Dimon faced serious challenges in his first year leading a bank. 

“We lost $511 million after taking $5 billion in charge-offs, reserve additions, write-downs and various adjustments,” Dimon wrote in Bank One Corp.’s 2000 annual report. “We faced management changes, customer service problems, litigation, incompatible computer systems, costly and inefficient operations and a rapidly deteriorating credit climate.” The Chicago bank’s credit card operations had lost customers, negatively impacting earnings. Those troubles, along with boardroom infighting, led to former CEO John McCoy’s departure. 

Dimon wanted his bank to succeed through good times and bad. To do that, he set about building what he called a fortress balance sheet. Bank One increased loan loss reserves by almost $2 billion, and it focused on credit quality. The bank also improved its capital ratios, bringing its Tier 1 capital ratio from 7.3% in 2000 to 8.6% in 2001. He reduced Bank One’s dividend by 50%.

“Cutting the dividend, as tough as that decision was, has greatly enhanced our capital retention,” Dimon explained in the letter. “It has allowed us to reclaim our ability to actively decide what to do with our capital. … we will try to deploy it wisely and in the shareholders’ best interest, whether by retaining it, investing in our businesses, acquiring other businesses or buying back our stock.” 

Of course, that’s exactly what capital does — it allows a bank to choose its own destiny, no matter the environment. Capital communicates strength, and it helps a bank fuel growth. Many veteran bankers think a lot like Dimon when it comes to building a fortress balance sheet, and in today’s uncertain economy, even more bankers find themselves in capital preservation mode.

Almost two decades later, Dimon still extols the virtues of a fortress balance sheet. He, of course, went on to lead JPMorgan Chase & Co. after Bank One merged with the big bank in a $58 billion deal in 2004. 

In JPMorgan’s third quarter earnings presentation in October, management emphasized the “fortress” balance sheet and noted a common equity tier 1 (CET1) ratio of 14.3%. 

If Dimon is a prophet for the fortress balance sheet, then he’s created evangelists out of JPMorgan’s executives, who also see high capital as a way to position the company to make the most of tough times. 

“No matter how much we analyze things, no matter how much we dig, there will always be surprises,” said JPMorgan CFO Jeremy Barnum at a November analyst conference. “And that's why we talk about [our] fortress balance sheet … Often as a company, we have seen opportunities during difficult times.”

• Emily McCormick, vice president of editorial & research for Bank Director

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