J.P. Morgan is right now the biggest bank in the United States.
Probably in the history of the United States.
J.P. Morgan
Over the last century of the notable bank mergers that have taken place,
J.P. Morgan and its predecessors have been involved in almost one fourth.
It's the largest bank in America.
More than $2 trillion dollars in assets.
Right now, they're also the biggest bank in the world by market capitalization.
From the panic of 1907 to 2007,
the subprime mortgage crisis and the financial collapse thereafter,
J.P. Morgan Chase has been at the center of American banking for over a century.
The company has an unabashed CEO not afraid to speak his mind.
He weighs in on you know on politics on a pretty frequent basis.
I would also tell the president that his two of his advisors told him
and I'm not gonna name them
but they told him there would be no retaliation.
We said there actually will be and they were wrong.
This man is a criminal..
Probably the most notable banker of the past 25 years.
The company helps finance the largest economy on Earth.
And even after millions were hit by the Great Recession,
J.P. Morgan came out bigger and stronger.
That's likely just how J.P. Morgan himself would have done it.
So let's start at the beginning.
The man behind the Empire J.P. Morgan was born John Pierpont in 1837
to a prominent New England family.
After traveling Europe,
Morgan returned home to launch his financial career.
His father was in many ways the most important person in his life
and his father Junius was a very straight shooter.
Very moral, very convinced that in a in the high risk
high stakes business of investment banking
your word is your bond, your reputation is everything.
In 1871, J.P. Morgan along with the help of a former banker
Anthony Drexel created a private merchant
partnership called 'Drexel Morgan and Company.'
It later became J.P. Morgan and Co.
The U.S. was the emerging economy in the 19th century
Booming
Busting.
Just going through all the growth patterns of what was becoming
a major industrial economy.
What they were doing was funneling investments from Europe
to these American companies,
not putting their own capital into the railroads.
A little bit, they did.
When Morgan died, he had very minor investments
in the companies that he had brokered.
Morgan became heavily involved in reorganizing and consolidating railroads.
If a railroad manager was suddenly playing fast and loose,
cheating his investors really getting his company
into trouble, Pierpont Morgan would step in
and fire the managers, hire new ones.
Morgan was trying to monitor and discipline the companies whose had sold securities to his clients.
Morgan's next target?
The steel industry. Andrew Carnegie had built the best steel company in the world.
He figured out about economies of scale.
He was able to out-produce an under-price all of his competitors.
Morgan decided in 1900, 1901 that essentially
he would do for the steel industry what he'd done for the railroad industry,
which was consolidate a lot of smaller companies into one giant
And he put together U.S.
Steel capitalized at $1 billion dollars in 1901.
That was an unheard of sum for that time and people were staggered or horrified, were skeptical.
He did revolutionize the financial markets.
And it wasn't only railroads and steel.
J.P. Morgan was influential in creating what would later become AT&T
and he helped finance America's electrification.
His own house was the first private house ever illuminated entirely by electricity.
His own private study caught on fire the couple of days after they installed the system.
And he said do it again.
I'm not giving up.
Morgan combined Edison Electric with one of his chief rivals
and that became General Electric in 1892.
Morgan was not without controversy.
What he was doing was very good for lenders from Europe, for wealthy people who had money to invest.
It was very good for the growing American economy overall.
It was not good for farmers and small businessmen who had to borrow money.
He was basically keeping the dollar really strong.
It cost them more to pay back their loans than what they had borrowed.
And that was really painful.
And there was a huge populist opposition to Morgan.
It was very controversial and continued to be controversial.
Then came the panic of 1907.
It's regarded as the first worldwide financial crisis to hit the modern world.
The American economy was growing so fast
and with so little supervision so little government regulation.
So few people who really knew how to govern it.
There was a panic or a devastating crash in depression just about every 10 years.
Despite reporting strong, corporate earnings, the stock market crashed and stocks plummeted on foreign exchanges.
The U.S. government lacked the funds to stop the bleeding and there was no central bank.
Morgan delegated two groups of men: one, young lieutenants who would stay up all night and assess the
health of these trust companies to see whether they were worth saving or had to be let go.
And then two other senior bankers along with himself who would be making the top level decisions.
The group functioned as the country's unofficial central bank.
The New York Stock Exchange didn't have enough money to complete its trades and the head of the exchange came out across
the street to Morgan and said we're going to have to close before 3 o'clock because we can't keep the trades going.
Morgan said you can't do that in this in this climate it will make things so much worse.
We've got to keep the stock exchange open.
So he called several of the leading bankers to his office and said we need $20 million dollars in 20 minutes
to send across the street to stock exchange.
And these guys without flinching put up that money.
It's evidence of how much they trusted Morgan
that they knew he was the guy who could stop this and he wasn't
going to do anything tricky with it.
Later that week New York City couldn't pay meet its payroll.
It went on like this for two harrowing, terrible weeks.
And finally it began to subside.
One of the headlines in the middle of this.
Something like stocks stabilized for the moment and J.P.
Morgan has a cold.
He did he had a terrible cold.
He was as some of this was going on he was just sneezing and coughing
and making calculations on a piece of paper.
But it was just he was totally exhausted and not young.
While Morgan was celebrated on Wall Street for saving the economy, people quickly realized that perhaps one
banker shouldn't have so much power.
For about a minute after the end of the panic,
Morgan was an international hero.
But the minute after that the idea of that much power residing with one private banker really was not OK.
It's set in motion a number of financial reforms including, eventually, the creation of the Federal Reserve.
But Morgan never got to see the Fed.
J.P. Morgan died on March 31, 1913 in Rome.
The New York Stock Exchange was closed until noon on the day he died to honor his memory.
His son J.P. Morgan Jr. took over.
And the company continued to play a prominent role in financing major American projects.
In 1915, the bank facilitated the largest foreign loan in history.
$500 million to the English and the French to support the war effort during World War I.
When the Depression-era Glass-Steagall Act of 1933 forced banks to split from investment banks,
J.P. Morgan and Company was broken up.
Grandson Henry Sturgis Morgan went on to found Morgan Stanley.
But that is the history for only half of what became today's J.P. Morgan Chase.
The other side has an interesting history too that goes back even further to the 1700s.
Aaron Burr, famous for winning a duel against Alexander Hamilton and exiled after being tried for treason,
but he is also credited with creating the earliest predecessor to J.P. Morgan Chase.
He founded the Manhattan company in April 1799.
It sought out a charter that would enable the company to supply purified water to New York City residents
in an effort to stave off yellow fever.
It also got a banking charter to take on Alexander Hamilton's Bank of New York.
In fact, J.P. Morgan Chase to this day has the pistol that Aaron Burr used to shoot Alexander Hamilton.
After a slew of mergers over 150 years, it became Chase Manhattan Bank in 1955.
While J.P. Morgan and Company floundered as a major player in finance, another company emerged:
Chemical Bank.
What started as a chemical company in New York City in the 1800s became one of the foremost banks in the Northeast.
In 1969, it created the first cash dispensing machine that was installed in the Rockville Centre branch on Long Island.
Now we call these ATMS.
And all of that brings us to the major banking consolidation,
of the 1990s that created the behemoth that is J.P. Morgan Chase today
The global economy, technology and the rise of Wall Street's political power got Washington to change the rules.
Deregulation from the 1990s came in two parts:
One would be a national banking in the ability to have greater efficiency.
I still remember you had to take traveler's checks if you went from the east coast to the west coast.
I mean how inefficient it was that.
Chemical Bank merged with Chase Manhattan in 1996.
A huge bank merger is in the news this morning.
Chemical Bank and Chase Manhattan are joining forces to become the biggest banking company in the nation
with assets of nearly $300 billion dollars.
Then in 1999, the law that originally split up J.P.
Morgan and Company in the 1930s was repealed.
Today, we proved that we could deal with the large issue facing our country and every other advanced economy in the world.
Now the elimination of Glass-Steagall, that was much more controversial.
I believe this legislation in its current form will do more harm than good.
In 2000, Chase merged with J.P.
Morgan to create the country's largest bank.
Chase had a very good brand name but we think J.P. Morgan is a better brand name.
That gave a little extra cachet.
J.P. Morgan a good brand name, long legacy.
But you know despite the vision,
the vision was to better compete against like Goldman Sachs and
Morgan Stanley, Merrill Lynch.
You know the banks they were second tier.
Size didn't equal success in the early years.
I mean these were big bureaucratic error prone lumbering giants.
But the consolidation didn't stop there.
The company merged with Midwest giant Bank One in 2004.
It's the biggest financial deal to hit Wall Street in six years.
J.P. Morgan buying Bank One for roughly $58 billion dollars in stock.
We negotiated and I think we did it to be great for our shareholders.
Jp Morgan wow look how far they've come.
Five of the eight money center banks of the 1980s are in J.P. Morgan.
In fact, over the last century of the notable bank mergers that have taken place, J.P.
Morgan and its predecessors have been involved in almost one fourth.
That set up Jamie Dimon to be the next CEO of the company.
To me as a bank analyst who has covered the space for three decades that was a defining moment.
That was when J.P. Morgan and its legacy firms got a new religion.
And at some point the platitudes got pretty heavy I mean fortress balance sheet this, fortress balance sheet that and you know
he's a fast talker and a lot of good signs from Jamie Dimon but there is also a degree of OK the jury is out on this leader Jamie Dimon.
While there are lots of external factors we cannot control, we must expect increasing tough competition around the world.
I would say a defining moment also happened during the financial crisis and that would be the acquisition of Bear Stearns.
The firm that I keep hearing
that's most likely to buy it will be J.P. Morgan Chase
obviously helping with the bank, helping with the financing the bailout.
And that showed the value of having a fortress balance sheet.
It showed the value of having strength when others are weak.
Just like one hundred years before, J.P. Morgan
had to grapple with a collapsing financial system.
I called up my whole operating committee.
I told them we're about to have a catastrophe take place.
All hands on deck the next day.
I think I called my board that Saturday and said we have a national emergency.
And when you told them how bad it could get what did you tell them?
That you're going to see the worst week ever in American financial history since the Great Depression.
That in my opinion Lehman is going to go bankrupt.
That AIG is a possibility and that might be a domino effect after that.
But the company kept playing a role as a buyer.
J.P. Morgan Chase followed up with the acquisition of WaMu.
And the company emerged in the crisis stronger.
If you made one move more than any other if you're investing in bank stocks since 2004, it should have been to own J.P.
Morgan Chase as an investment.
Since the bank one merger of the last 15 years
J.P. Morgan Chase has outperformed the bank stock index by an average of 600 percentage points each year.
That's tremendous outperformance versus the banks.
Despite the company's relative strength, Dimon was called in front of Congress to defend the bank's actions
after the industry received more than $700 billion dollars in government bailout money.
The question that I, nor any one, will ever be able to answer is what would have happened had that not been
injected when and how was injected.
He even called for more systemic regulation.
I think would be a tremendous benefit to have one regulator looking at anything
that could cause systematic risk.
Well you know I would make a distinction between regulation and red tape.
So thank you regulators for making the banking industry stronger than it's been in a few decades
and they've done it with very clear rules.
OK. You won't have as much leverage which means more capital
and capital protects banks from unexpected problems during tough times.
But it hasn't always been completely smooth sailing for Dimon at the helm of J.P. Morgan.
The annual shareholder letter from JP Morgan Chase CEO Jamie Dimon.
It addresses the London Whale issue right off the bat.
He says it was an extremely embarrassing episode.
The most embarrassing episode that he has ever dealt with and it also cost the firm money.
The company lost more than $6 billion dollars on the trade and Dimon was marched in front of Congress again.
Well I went to the annual meeting after J.P. Morgan had the London Whale incident.
It was down in Tampa, Florida and I went to ask questions of the lead director to find out how much the
board was overseeing Jamie Dimon in the rest of the management team.
So it was certainly an issue.
And you know J.P. Morgan Chase said you know what,
we still earned money that quarter.
Yeah that's kind of like OK you're you're texting while driving, never do that.
You hit the guard rail and you cause like you know $500 hundred dollars worth of damage to your car.
See it was only $500 dollars.
No. The point is you could have gone off the edge and killed a few people.
OK. Could have been much greater damage than it was.
And in 2013, J.P. Morgan settled with the Department of Justice.
The charges were that the company overstated the quality of mortgages it sold to investors in the run up
to the financial crisis.
It cost the company $13 billion dollars.
Overall. J.P. Morgan Chase has settled more than a dozen government cases and private lawsuits in
connection with the financial crisis.
That's according to a CNBC analysis of KBW's litigation tracker.
Some of the settlements were liabilities from the Bear Stearns and WaMu acquisitions.
In total, though they've cost the company more than $30 billion dollars.
While there still is some outstanding litigation for the most part the company has put the crisis behind it.
J.P. Morgan Chase has gained market share.
they're now ranked number one in global investment banking and trading activity.
That's from a second and third class status a couple of decades ago.
Now they're number one.
On the retail side, J.P. Morgan Chase especially Chase, the retail brand name,
you know they ranked number one, two or three in most categories and
they're ranked number one in digital banking an area of you know tremendous growth.
So now you look at it and for the last 10 years despite flat market share, J.P. Morgan has improved its deposit
market share nationally from 7% to over 10%.
Who is using JP Morgan Chase more than ever before?
Young people. Millennials.
They're taking all these processes that used to be very paper heavy
or very sort of people heavy like you had
to go to a to a branch and they're turning that digital.
And they're putting it so that if you wanted to
if you want to apply for a mortgage you could do it through your mobile phone.
If you wanted to trade stocks easily for free,
you could do it through the mobile phone.
You also have something called Sapphire Reserve.
It's a hugely popular credit card that they rolled out in 2016.
Tons of millennials have bought into that
primarily because they get extra points, reward points for things
like dining out and travel. Things that millennials supposedly like to do a lot.
This is a play to get people relatively early on in their in their financial lives.
I mean is it do you think millennials wake up say
"oh we want to do business with a big institution, a big bank?'
That's not the thought process.
The thought process is hey they better digital banking.
They've better online banking.
They make our lives easier.
Let's go to J.P. Morgan Chase.
You're seeing this some other banks too.
But J.P. Morgan Chase certainly is a leader in that category.
And what would JP Morgan think of the company bearing his name
being back at the top of banking?
He'd think that was perfectly appropriate.