61 year old Jamie Dimon, who has been chief executive since 2005, is one of the longest serving bosses on Wall Street. Last night, he announced he plans for another five years at the top, while appointing Daniel Pinto and Gordon Smith co-presidents and co-COOs. He's not to everyone's taste, but he seems to have the magic touch.
JP Morgan has been a house of superlatives for much of its history. It was JP Morgan that bailed out the US financial system in 1907, before the Federal Reserve existed. It was JP Morgan that spawned two of its greatest rivals when forced to break up in the 1930s — the firm’s brokerage arm became Morgan Stanley, while its UK arm became Morgan Grenfell, and forming the core of Deutsche Bank’s European operations from 1989.
Today the bank’s size is more stupefyingly vast than ever. Half a year’s revenue at JP Morgan is more than the market cap of many European G-SIFIs. When Dimon described Bitcoin as a fraud in September, prompting one of the many crashes in value for the cryptocurrency, JP Morgan’s market cap was five times that of Bitcoin. Even now, JP Morgan’s Core Equity Tier One (CET)1 is about the same size as the cryptocurrency which is supposedly set to take over the world.
League leader
But from an investment bank perspective, it’s the firm’s dominance of the league tables that stands out.
From Dealogic’s FY 2017 tables alone, the firm was top of Americas investment bank revenue with 10.5% share; Top of EMEA IB revenue with 7.9% share; Second place, only $1m behind first placed Credit Suisse, in Asia Pac (ex Japan).
In the products where JPM isn’t first, it’s usually second, and in the rare occasions it is further down the table, in Nordics IB revenue, for instance, where it came fifth , it’s usually one of the top institutions headquartered outside the region.
Another capital markets publication recently saw fit to name JPM its bank of the year. The shock, and the difficulty of writing the accompanying article, was not that JPM won, but that it hadn’t won the previous five years.
Goldman Sachs is probably the only firm with a comparable aura and dominance albeit in a few products, particularly mergers and acquisitions and in the boldest, most aggressive and interesting structured deals.
But aspects of Goldman’s culture and practice are different from many of its peers. The firm ruthlessly pushes its partners through disparate divisions, ensuring loyalty to the bank, not the division, and breaking up fiefdoms when they start to appear.
Senior Goldmanites have frequently sat in far more different seats than their counterparts at other firms, who typically rise through the ranks before breaking into the C-suite. It’s also far more willing to act as a principal risk taker than its rivals, taking large directional bets — and dragging its heels on disposals of its Volcker-unfriendly private equity and hedge fund stakes. That earned it a reputation as more of a hedge fund than a bank; an investor not a market maker.
JP Morgan, though, operates more traditionally. It takes risk, underwrites, makes markets and does everything else you’d expect from an investment bank. But rivals aren’t queueing up to claim that it’s a just a hedge fund with a banking licence, even after the firm’s central hedging and liquidity book, the Chief Investment Office, managed to generate $6bn in losses in the “London Whale” scandal.
The dominance effect
Mostly, it’s just a very large, very successful bank. There are certain qualities that it seems to share with other banks that have occupied the higher reaches of the league tables recently — stable management, senior executives with long track records at the firm, and a headquarters in the United States. But none of these factors quite explains the sheer dominance JPM has displayed recently.
Most investment banking and trading businesses have a winner-takes-most effect. The top trading desks see the most flow, which translates into the best information, the keenest prices, the most accurate directional calls, further trading flows.
In advisory businesses, the old chestnut that “no one ever got fired for hiring Goldman Sachs” holds roughly true (and applies just as much to JPM). The bigger and more complicated the business, the less inclined corporate executives are to take a risk on an upcoming firm, however hungry its bankers or generous its balance sheet. Hiring a cut-price provider won’t win any plaudits if it helps scupper a multi-billion merger.
The number and names of the firms in this elite group might fluctuate, depending on the exact sub-market or product type under discussion, but the principle holds firm: being at the very top confers an outsized reward for a similar cost-base.
Frustratingly, though, this doesn’t really explain JPM’s success either.
It hasn’t always been this dominant, even since the crisis. It was helped by the troubles of its US megabank competitors, Bank of America and Citigroup, but it has never had a clean field of competition.
It has used all the same buzzwords and organisational mantras common across investment banking and markets (it now wants you to believe it is a tech company, for example). No doubt it has been “client-oriented” since time immemorial, but it’s a very unsatisfying explanation.
Still, whatever’s happening there seems to be working well. Consistently good banking is an empty and platitudinous explanation for JPM’s success — but the magic of Morgan shows no sign of slowing down.