JPM's Dimon Is a Smart Guy, Well Sort Of
I like Jamie Dimon. Don't get me wrong. As chairman and CEO of JPMorgan Chase he's a survivor who steered his institution clear of the worst excesses on Wall Street, poising his $2.1 trillion baby to grow stronger and more powerful as competitors collapse in the wake of the nation's housing/credit crisis.
I may be pushing it, but one day he may even be considered the equal of JPMorgan, the man, whose many accomplishments include bringing together bankers back in 1907 to stem a financial panic that threatened the U.S. banking system.
In short, Mr. Dimon is now the voice of reason and rationality for the financial services industry (if there can be such a thing). Then again, he also has a case of selective memory when it comes to how we as a nation arrived at the doorstep of financial calamity. In a recent op-ed column in The Wall Street Journal he seems to lay the blame of the credit crisis on the payment-option ARM.
He notes, "A big chunk of the activity that led to the current crisis took place in the shadows at financial institutions that weren't as carefully watched as banks."
OK, he has a point on payment-option ARMs. A few years back now I remember interviewing Tom Wind, the head of Chase Home Finance, who, very admirably, refused to let the JPM-owned mortgage banker finance such insanity.
In late 2005 Mr. Wind, speaking about POAs, told me, "I look at what our competitors are doing in the industry and I'm really concerned."
He was particularly disturbed by the POA Pick-a-Pay option allowing consumers to choose the lowest monthly payment possible. Mr. Wind saw a disaster in the making.
He was right. And I assume that he told Mr. Dimon about his concerns.
In Mr. Dimon's op-ed - whose main topic is the question of a unified bank regulator - when he mentions events that took place in the "shadows," the JPM chief is pointing his finger at both non-depository mortgage bankers like Ameriquest, Argent, First Franklin, Option One, WMC (take your pick) and independent loan brokers who (as readers well know) he clearly loathes and wishes he'd tossed overboard long ago.
He also mentions "how sectors once deemed too insignificant to regulate have grown in size and importance." Mr. Dimon doesn't offer much detail on that last statement but historians should keep in mind that non-bank subprime wholesale lenders would never have grown so large without warehouse lines and securitization provided by Wall Street. Which leads me back to JPM.
If anyone thinks that JPM was on the sidelines during the go-go subprime boom of 2000 to 2007, wagging its finger at the industry, saying, "You're playing with dynamite," then I have some Enron bonds I'd like to sell you.
As recently as 2007 the subprime wholesale division of Chase - based in Woodcliff Lake, N.J. - was the third largest funder of A- to D loans using those morally challenged loan brokers.
In 2007 Chase table funded $7.2 billion in subprime mortgages using brokers, a 12% gain from 2006 and the only wholesaler among the top five to show again that year. (Figures are courtesy of the Quarterly Data Report.)
Chase Home Finance, to boot, ranked third nationwide among subprime retailers in 2007, and fifth overall. And just what type of loans was Chase willing to table fund during the go-go years? Funny, you should ask.
Here's the answer: FICOs as low as 575 on C- loans, reduced doc loans for self-employed consumers with LTVs up to 90%, and no cash-out limits with LTVs up to 85%. A mortgage banking friend was kind enough to keep Chase's offerings including the marketing materials.
Here's one phrase the bank's B&C wholesale department used: "It's like money falling from the sky! Call your Chase B&C account executive today."
Here's another phrase: "Chase B&C Lending: Even More Borrowers Qualify with Chase."
Keep in mind that Chase entered the subprime business in 2001 by purchasing Advanta Mortgage, then one of the largest players in A- to D lending/servicing. And there's one other angle to this as well: JPM - according to Thomson Financial - was one of the largest Wall Street underwriters of asset-backed securities (including subprime or as the Street used to call it - "home equity") in 2006 and 2007. Without mega-banks/investment banks like JPM, subprime would never have boomed. It's all about liquidity.
Cut off the head of the Wall Street beast and the money doesn't trickle down to the firms operating in the shadows. Like I said, Jamie Dimon is a smart guy. He just needs to brush up on his history.
Paul Muolo can be e-mailed at Paul.Muolo@SourceMedia.com.