JPMorgan's Wall-Street-Savvy Dimon Maps A Conservative Route

John Tobey, CFA profile picture
John Tobey, CFA
1.25K Followers

Straight country roadSimilar to Alcoa’s (AA) earnings report, JPMorgan Chase’s (NYSE:JPM) has more meat in the comments than in the numbers. Contrary to Alcoa’s focus on growth, however, JPMorgan CEO Jamie Dimon discussed the bank’s conservative, steady-as-she-goes approach, even cutting back on the previously announced aggressive branch expansion.

The reaction? Apparently, surprise and disappointment that Dimon wasn’t pressing to taking advantage of JPMorgan’s superior competitive position. What happened to Dimon’s Wall Street savvy and aggressiveness? Instead, he’s talking about reducing investment banking and even sounding apologetic for using capital to buy back stock.

So, in spite of the quarterly earnings exceeding expectations, the bank declined almost 5% in today’s market and likely aggravated the broad financial sector decline. For example, the four financial companies in the Dow Jones Industrial Average produced the largest declines, and they produced 28 points of the DJIA’s 40-point decline.

JPM stock chart

(Stock chart courtesy of StockCharts.com)

Therefore, the overriding question is “What gives?” Why isn’t the Dimon of today acting more like the Dimon of yesterday? I think the answers are found by not tying success to aggressiveness.

How being conservative can be a winning strategy

Compare the banking industry today versus five years ago. No longer is financial cleverness viewed as a growth industry. Now the focus is on safety and survivability.

What does JPMorgan need to do to win in this environment? Rule #1, like in investing, is control risk. This control is not about hedging or risk avoidance. Rather, it means acting when there is a good opportunity at hand, and it means staying realistic and not overreaching. Moderating branch expansion and shrinking investment banking given today’s environment are examples. Each decision can be altered later if conditions warrant doing so.

Now think about JPMorgan’s competition. Citigroup (C) and Bank of America (BAC

This article was written by

John Tobey, CFA profile picture
1.25K Followers
I am the founder and editor of Investment Directions. My career has been managing and consulting to multi-billion dollar funds. Using the widely accepted “multi-manager” approach, I have worked with top investment managers throughout the country, gaining a high level of expertise. My career has spanned many market environments, and I have hands-on experience searching out opportunities and avoiding risks in all of them. I now devote my time to Investment Directions, with the goal of helping investors further their understanding and improve their investing skills. I am currently serving on: The AAUW Investment Advisers Committee and The City of Vista Investment Advisory Committee.

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