Now here’s a shareholder letter!
Jamie Dimon’s letter to JPMorgan shareholders, published last week, isn’t just good. It may be the best shareholder letter I’ve ever read, from any CEO, ever. And yes, that includes Warren Buffett’s letters.
The letter is so thoughtful, it should be required reading for any bank employee-not just large banks but any bank. It should be required reading, too, for anyone who invests in financial services companies. For that matter, every banking regulator and every member of Congress should read it, as well. President Obama should take a look, too.
Jamie’s letters are always, good of course. He clearly relishes the intellectual process that goes into writing them, and never fails to be thoughtful and blunt. And he’s not reticent. His topics typically range from specific issues faced by JPMorgan to broad industry and economic subjects.
This year’s letter runs a full 32 pages; I’m not even going to try to summarize the highlights (there are too many). Besides, you really ought to go through it all for yourself. Here, though, are some words that popped into my mind as I read the letter last week:
1. Innovative. As I say, Jamie clearly sees value in the process of writing his annual letter. You can tell this isn’t a document that’s been churned out by IR or some public relations shop. He apparently finds the process so worthwhile, in fact, that he had the heads of Chase’s six main business units write their own letters to shareholders, as well, and included them along with his own at the front of the company’s annual. I haven’t seen a company do that before. It’s a great innovation, especially for a company of JPMorgan’s size and complexity. Not only do holders get an insight into how the CEO thinks, but they also get a look at the thinking of the company’s key business leaders and pool of potential Dimon successors.
2. Honesty. Just before I read Jamie’s letter, I happened to read a brief (two-page) letter from the CEO First Midwest Bancorp., in Illinois. As it happens, First Midwest has had its share of credit problems over the past three years (the company hasn’t made money since 2008). But if you read the CEO’s letter, you’ll get the impression that the problems were caused entirely by the economy. No bad underwriting admitted here!
Not so with Dimon-whose institution actually stayed profitable throughout the crisis. I suspect Dimon uses the word “mistake” (as in “we know we have made and will continue to make mistakes”) more than you’ll likely find in all this year’s other bank shareholder letters combined.
Not only does he admit the institution makes mistakes, he is specific about the more egregious ones–such as Chase’s practices related to servicing the mortgages of military families. What’s more, he discusses the principles the company follows in dealing with mistakes. It is very refreshing.
3. Insightful. All of Jamie Dimon’s letters to shareholders are full of insight about the company, the banking industry, and the world. This year’s is no exception. For example, it includes a review of how the Washington Mutual acquisition has performed financially versus the company’s projections, and an excellent discussion of how financial system really works and how things can go awry. There’s also a very worthwhile take on the shadow banking system.
4. Humorous. I don’t think of Jamie as being an automatic laugh riot, but when he commented that, “Today, people see a black swan with a fat tail under every rock,” I couldn’t help but chuckle. It’s comments like that that tell you he really means what he’s saying.
5. Personal. About halfway through the letter, in the course of a discussion of underwriting discipline, Jamie relates an interesting conversation related to the topic he had with one of his daughters during a trip to Ghana. Most CEO letters are strictly business. But it’s details like the Ghana story that provide helpful insights into how Jamie’s mind works. It’s not a big deal, but it can be very telling.
6. Leadership. A distinguishing feature of many bank CEO letters this year is a ritual complaint about the Dodd-Frank bill and the associated increase in regulation. Jamie’s not a fan of everything that was passed last year, but he does acknowledge the need for such regulation and legislation. He then discusses with specificity which parts of the legislation and regulation he objects to, and why.
He reserves his harshest criticism centers for the Durbin Amendment and the new, higher capital standards regulators have imposed on large, systemically important financial institutions such as JPMorgan Chase.
Jamie is both blunt and (in my view) totally correct on both counts. Of the Durbin Amendment, he writes “it’s a terrible mistake and also bad policy for the government to get involved in price-fixing and regulating business-to-business contracts. The Durbin Amendment is price-fixing at its worst.”
Perhaps the best part of Jamie’s letter is his discussion of bank capital and capital standards. He makes a strong case that the capital standards should be higher than they were before the crisis. He then talks about what the optimal levels should be, and why, and discusses the need to build a resolution process that can handle even the largest failures. Regulators and legislators would do well to understand his key point: we can’t build a banking system that is fail-safe without destroying credit creation in the economy, but we can and should build one where even large institutions can fail without imperiling the entire economy.
7. Specific. Unlike many CEOs, on issue after issue Jamie offers many specifics, rather than taking refuge in broad generalities. His discussion about the impact of the proposed liquidity requirements, on page 10, is a great example. Similarly, he’s very concrete in discussing where he sees the company’s best growth opportunities over the next five years, and the reasons why.
Must read. I don’t care if you’re a student of the banking business, a financial services investor, or the CEO of a bank, you owe it to yourself to read Jamie Dimon’s letter to shareholders this year. It will be time very well spent.
What do you think? Let me know!