A Recap Of JPMorgan Chase CEO’s Letter To Shareholders

In Jamie Dimon’s annual letter to shareholders, published at the beginning of April and stretching to 32 pages, the chief executive and chairman of JPMorgan Chase tackles the fighting in the Middle East and the fighting spirit of the European Union before he gets into the ramifications for the bank of post-crisis litigation and the burden of increasing US regulation. 

‘The European Union is one of the great collective endeavours of all time,’ Dimon writes, before declaring: ‘We believe that the Eurozone… will work through its problems.’ 

Jumping across the Mediterranean Sea, he becomes heartfelt about the conflicts in countries such as Egypt and Libya, evidently freed up to express his compassionate side by the JPMorgan Chase’s limited economic exposure to the Middle East (outside of rising oil prices causing another global recession, obviously). ‘[W]e hope, first and foremost, that the outcome of these historic movements will enhance the life and rights of the people in the region,’ Dimon continues. 

Even his outlook for the American economy has a distinctively global feel. ‘The US economy was, is and will remain for the foreseeable future, the mightiest economic machine on this planet,’ Dimon stresses, encouragingly, listing stellar universities, a great work ethic and ‘the most entrepreneurial population on earth’ as a few of the qualities that will keep America competitive against the economic threat from China – although Dimon does refrain from mentioning the Asian country by name. This primary focus on recent global events, a consistent theme running through the letter, is perhaps a reflection of the expanding concerns of the bank’s shareholders, who in last year’s letter were simply told how the bank fared in 2009. 

The recipients of the letter may be thankful for the distraction; it is difficult for the grass to be greener on the other side when it’s on fire. To ward off US complacency, however, Dimon also highlights the threats to US economic supremacy he sees coming from abroad. In a rallying call deserving of a soapbox, he warns: ‘America does not have a divine right to success.’ 

Bringing it all back home 

The threats to American dominance abound. On the one hand, Dimon suggests the signs are positive for the global recovery: ‘Global investment will amount to $24 trillion in 2030, compared with $11 trillion in recent years. Banks will play a vital role in financing these investments and in connecting savers and borrowers around the world.’ 

On the other hand, he provides a stark reminder of the changing world order: ‘In 1989, US banks represented 44 of the 50 largest financial firms in the world (by market capitalisation). More than 20 years later, American banks now number only six of the top 50.’ 

Nor is the foreign threat to US dominance content to simply battle it out on overseas soil. In the new normal, the reemerging old world wants a larger piece of the American pie. ’20 years ago, US investment banks dominated US investment banking, occupying all of the top 10 positions,’ Dimon points out. ‘Last year, US investment banks held only five of the top 10 slots.’ 

Fortunately, Dimon, the recipient of a $23 million pay packet, has a few ideas on how to keep America on top. Firstly, his company is doing its bit to boost the presence of US banks overseas. JPMorgan’s clients in Brazil, China and India have increased threefold in five years. To keep ahead of the competition, Dimon is equally eager to spot the economies at the forefront of the chasing pack, picking out Turkey, Indonesia and Malaysia for special mention. 

Interestingly, however, it is sub-Saharan Africa rather than Asia that generates most of his excitement. ‘Economic activity in the region is expected to grow annually by approximately 4.7 per cent over the next 20 years, from $800 billion to $2 trillion, as its population grows by 370 million to 1.2 billion,’ writes Dimon. ‘We estimate that more than 80 per cent of our top multinational clients are doing business in sub-Saharan Africa.’ 

His second suggestion is that the US has room to improve. Its ‘exceptional legal system’, for instance, could be made even better if the losing party in litigation was required to pay the winner’s costs. This would deter ‘outrageous claims’, Dimon argues, and restore balance and fairness to class-action suits, many of which his bank will continue to face, he tells shareholders, ‘for years to come’, following its acquisition of Washington Mutual and Bear Stearns. 

Dimon is also concerned about Dodd-Frank. The new regulations must take account of the already altered landscape, he says, if the US is to achieve economic recovery and a level playing field and avoid negative consequences. ‘The extensive reforms introduced by this legislation represent the most wide-ranging changes to the US regulatory framework for financial services since the 1930s, and we likely will have to live with these reforms for the next 50 years,’ he warns. 

The overall effect of Dimon’s round-the-world wordy trip is to give his letter to shareholders more of a personal feel. Talking about numbers and percentages all the time rarely sounds any less intimate than a press release. As Dimon demonstrates, however, penning a personal letter to millions of recipients is clearly both difficult and incongruous. 

He begins with the salutation ‘Dear fellow shareholders’ – an obvious nod to his own status as a shareholder of the bank. Almost immediately, however, he begins to struggle with reconciling being outside of the company as a shareholder looking in, and being the ultimate insider as the company’s CEO. His alternating use of ‘your company’ and ‘our company’ mixed in with ‘we’ ‘you’ and ‘us’ is initially fine, but when he starts describing a trip to Ghana with ‘our’ daughter he opens up a whole world of possible interpretations. 

Man of many talents Obviously, a personal letter from the CEO to shareholders is nothing new. Warren Buffet, CEO of Berkshire Hathaway, has famously been putting his thoughts down on paper since 1977. But one simple letter from the chief executive is no longer enough for Dimon, a man who believes ‘quality business means… constant innovation.’ Which is perhaps why this year he is pushing the envelope by requiring five of his top lieutenants – the CEOs of five business lines – to each write their own letters to shareholders as well. 

Most of these begin with a testimonial from the relevant CEO. ‘In late 2009, I rejoined the investment bank after 10 years in asset management,’ recalls Jes Staley, CEO of JPMorgan’s investment bank. ‘Obviously, there were many changes during that decade as world GDP nearly doubled and the digital revolution hit consumers, businesses and countries on a global scale.’ There is also a Q&A on the topic of mortgages with Charlie Scharf, head of retail financial services, containing the answers to hard-hitting questions such as: ‘Why does the firm foreclose on a homeowner?’ 

Below chief executive level, the letters from senior management are restricted to a maximum of three pages per letter. Nevertheless, the cumulative body of work still adds an additional 14 pages to the JPMorgan annual report, pushing the 2010 edition to more than 300 pages, up from 250 the previous year – an achievement Dimon can write about in next year’s letter to shareholders, no doubt. 

Move over, Warren Buffet – Jamie Dimon is the new American businessman of letters.

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