Hero or Goat? Jamie Dimon Inspires No Consensus

Jamie Dimon should be fired.

That seems to be the conclusion of some in the pundit class about JPMorgan Chase’s chairman and chief executive. Writers, editors and bloggers have made it clear that they want his scalp: “NOW Are We Allowed Talk About Firing Jamie Dimon?” the Huffington Post blared after news that the bank set aside $23 billion to pay legal fees and fines last week. “I have trouble wrapping my head around the positive aspects of paying a multibillion-dollar fine,” an article on TheStreet.com said of the prospect of an $11 billion settlement with the Justice Department.

When I called Dennis Kelleher, president of BetterMarkets, a nonprofit Wall Street watchdog (he was playing golf when I reached him), he put it this way: “By any objective measure, Jamie Dimon should be fired. The compliance failures are egregious and systemic.”

Yet there is an almost bizarre disconnect between the headlines and what the people who matter â€" the investors, analysts, board members and, yes, even regulators â€" are seeking. None of them want him fired.

“Are you crazy?” Marvin C. Schwartz, a managing director at Neuberger Berman and a longtime investor in JPMorgan, asked me when I mentioned the possibility of ousting Mr. Dimon. “Jamie Dimon is one of the best C.E.O.’s of any company in the world,” he said. “It doesn’t mean you can’t have an accident. It’s totally unfair to say he inflicted this upon himself.”

Daniel Loeb, the activist investor who has made a career out of targeting troubled companies and ousting their chief executives, also sided with Mr. Dimon. “In my experience, they are meticulously ethical, and nobody has a more rigorous compliance effort.” He added, “It’s a very large and complex company, and things will happen.” But he said that Mr. Dimon was now “being used as a scapegoat and piñata to satisfy some kind of bloodlust.”

Laban P. Jackson, the head of the audit committee of JPMorgan’s board, said at a conference last week, “He’s the best manager I’ve ever seen, and I’m old.” (Mr. Jackson is 71.) Mr. Jackson acknowledged that Mr. Dimon “has, as we all do, flaws,” but added, “People get to smoking their own dope.”

At an event earlier in the week, Mr. Jackson went so far, somewhat surprisingly, as to accept responsibility for some of the firm’s problems. “We’ve got these things that we actually are guilty of, and we’ve got to fix them,” he said. Then he blurted out, “I don’t know what else we could have done, because we’re not allowed to shoot people.”

Mr. Dimon, however, was not on his list of those to shoot.

So what is Jamie Dimon’s supposed firing offense?

JPMorgan’s legal troubles stem from a series of problems: the multibillion-dollar trading loss from what’s become known as the London Whale, the sale of flawed mortgage-backed securities without fully warning investors of the risks, accusations it manipulated energy markets in California and Michigan and a continuing inquiry into the bank’s hiring of the sons and daughters of political leaders in China.

The largest problem from the perspective of fines is the mortgage-backed securities, which could cost the bank $11 billion or more. But many problems stemmed not from bad behavior at JPMorgan but at Bear Stearns and Washington Mutual, two firms that the government encouraged JPMorgan to acquire in 2008 to help avert a market panic.

In a footnote in a document that JPMorgan released on Friday, the bank estimated that more than 80 percent of the mortgage-backed securities involved in the legal losses were from those acquisitions. Without those acquisitions, JPMorgan would probably have been looking at a fine of $2.2 billion, or perhaps less, since the government has sought an extra-large punitive penalty given the magnitude of the problems.

In an analyst report after JPMorgan’s earnings announcement, Oppenheimer wrote: “We have been asked by reporters whether this damages JPM’s reputation, and our response is, ‘No.’ ” The report went on to say that the government’s action against the bank was more damaging to the government’s reputation, adding that the lesson for Wall Street was that it’s “more trouble than it’s worth to do business” with the government.

In a letter to Mr. Dimon on March 16, 2008, the day that JPMorgan acquired Bear Stearns, the head of enforcement for the Securities and Exchange Commission wrote that while the agency couldn’t guarantee that it wouldn’t seek any penalties if it discovered bad behavior related to Bear Stearns, it would probably be lenient in its consideration of bringing a case. “Among the factors that would necessarily weigh into that analysis would be JPM’s role (or more accurately, lack of a role) in the underlying conduct, JPM’s role as acquirer of BSC, the cooperation of JPM (which you have already indicated would be forthcoming), harm to investors and others and remediation efforts,” the S.E.C. official, Linda Chatman Thomsen, wrote.

It is hard to suggest that the Justice Department, in seeking an $11 billion penalty, is following the spirit of Ms. Thomsen’s letter. (Of course, the letter came from the S.E.C., not the Justice Department.)

Of course, there remains some debate about whether Mr. Dimon was handed a gift by the government when JPMorgan Chase acquired Bear Stearns and Washington Mutual.

But Henry M. Paulson Jr., then the Treasury secretary, told me recently that he had indeed strongly encouraged Mr. Dimon to buy the companies to help the country and that Mr. Dimon had little time to conduct diligence.

Still, none of this persuades Mr. Kelleher to change his position. “The firm’s claim of great compliance is window-dressing,” he said, adding that if he were a director he would push the bank to “occasionally comply with the law, which would be an improvement.”

He dismissed the views of investors and analysts. “Stockholders are the last place you should look,” he said. “Investors are never a good barometer of whether a management is good or not.”

To which Mr. Schwartz, the investor, replied, “That’s a very foolish statement.”