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…quickly realized that Bank One had more U.S. corporate credit risk than Citibank did. The way they accounted for it was unbelievably aggressive. So they had less capital, less reserves, less of this. They were calling these things profitable; they were basically losing money on loans. In a lot of businesses, you've got to be very careful about the credit business. Once I found that out, I kind of panicked a little bit. I went through every single loan in the books, marked them all down, put up more reserves, told the board about it, and then wanted to earn more revenues per dollar of risk. I always stress-tested and showed the board that if we were to have a recession (and we were about to have one), how much money we'd lose in credit. So I hired a woman called Linda Bamman, who said, "Okay, if you're going to let me do credit, are you going to let me sell loans?" They said yes. "Are you going to let me hedge loans?" "Yes." "Can I do 10 billion?" I said, "Yes." She said, "Okay, I'll join." And we probably reduced the balance sheet by $50 billion. Then we did have a recession, but we were kind of okay by then, with one big bad one, which was United, which went bankrupt, and we basically owned it for a small period of time. There seems to be a fundamental Jamie Dimonism, which is "Don't blow up." I mean, a lot of other people have gotten decent at pricing risk, but everyone else seems to be willing to get closer to the line than you. Where did you develop this "don't blow up at all costs" mentality? "Everyone's doing it, everyone's okay, this is going to work. This time is different." And history teaches you a lot. And I always say, my dad was a stockbroker, so I bought my first stock when I was 14. In 1972, the stock market hit 1,000. It had hit 1,000 in 1968. I was already helping a little bit with stuff. By 1974, it was down 45%. All the limousines on Wall Street were gone; restaurants were being closed. Markets move violently. Then we had a kind of recovery. In 1980, you had a recession. Then in '82, you had another recession. It was lower than it had been in 1968, and it hit 800. Then in '87, the market was down 25% in one day. In 1990, all these banks—JPMorgan, Citi, Chase, Chemical—were all taken to their knees by real estate losses. They were all worth about a billion dollars. I think Citi was $3 billion at the time, and the other ones were about a billion dollars. Then you had the '97 (also real estate-related) thing. You had the 2000 internet bubble, and then you had the Great Financial Crisis. And if you go through history, there are tons of these things. Andrew Ross Sorkin is in here, and I just read his book. He was nice enough to send me his book on 1929. And man, history does rhyme. Too much leverage, too much risk. Everyone thinks it's going to be great. No one thinks it can go down a lot. That stock market went down 20% one year, 30% the next year, and 20% the year after that. At one point, it was down 90%. Shit happens. hinks it's going to be great. No one thinks it can go down a lot. That stock market went down 20% one year, 30% the next year, and 20% the year after that. At one point, it was down 90%. Shit happens. "The worst thing will happen, so just plan for it." The. Don't say, "Oh, we're good, as long as this crazy, insane four-sigma event doesn't happen." You're like, "No, that will happen, and it happens often." Yeah. So when I look at it, I always ask—like when I do stress-testing at risk for high yield... I remember getting to JPMorgan and going through the risk books; their stress test was that high yield would move 40%. The credit spread at that time was at 400 (or whatever it was), meaning 560. Okay. And I said, "No, our stress test is going to be worst ever." Worst ever was 17%. And they said, "That'll never happen again. The market's more sophisticated." Well, in '08, it hit 20%, and you couldn't have sold a bond. There was no market. So those things do happen. The point isn't that you're trying to guess; the point is you can handle them. So you continue to build your business. So I always look at what I call the "fat tails" and manage that. We can handle all the fat tails—not just the stress test the Fed gives us, but all the fat tails. Market's down 50%, interest rates up to 8%, credit spreads back to worst ever. Of course, your results will be worse, but you're there. And the thing about financial services: leverage kills you. Aggressive accounting can kill you, which a lot of companies do. And, you know, the goal should be... Also, confidence: if you lose money as a financial company... I always knew this, too. The headlines are... people read that, and they're relying on putting their money with you. They look at that difference, they lose trust. They lose trust. And that was because you've seen runs on banks—and you saw some recently—because people run to take their money out. There's a thing that you just said, which is that you might do worse, but you're there. There's this trade-off that you make where you're less profitable in the short term, but at least you stick around. If you look back at the companies that you've run, including JPMorgan Chase... Is that true in the good years that you've actually been less profitable than those who are "risk-on"? Yeah, a little bit. He's saying that if you look at the history of banks up until 2007, a lot of banks were earning 30% equity. Most of them went bankrupt. We never did that much. But in '08 and '09, we were fine, and they weren't. But you want to build a really strong company with real margins, real clients, and conservative accounting where you're not relying on leverage. It's very easy to use leverage to jack up returns in any business. But in banking, it can be particularly dangerous. So it seems like a core part, if not the entirety, of this distilled into your operating strategy is the "fortress balance sheet." When did you first hear about the "fortress balance sheet"? I've been talking about it; I go way back to Primerica. I used to talk about that: you've got to be able to survive. Early '90s, probably the 1990s. you first hear about the "fortress balance sheet"? I've been talking about it; I go way back to Primerica. I used to talk about that: you've got to be able to survive. Early '90s, probably the 1990s. And like I said, my father and I went through those market things. I remember how hard it was on people on Wall Street. But the "fortress balance sheet" is... you run a company serving clients well. You have good margins, good liquidity, good capital. I'm as conservative an accountant as you can find. I don't upfront profits, but I can spread them over time in accounting. Of course, accountants hate it when I say this. You can drive a truck through accounting rules, and accounting itself—certain things are considered expenses, but they're good. They're an investment for the future, but they're called an expense. And then revenues... if I make bad loans, they are bad revenues; they will kill you. But for a while, they look pretty good. So it's all those things: margins, clients. In the banking business, the character of the clients you have will reflect in your bank. So the first thing is: who are you doing business with? And how are you doing business? And also making sure your compensation plans aren't paying people for stuff that's stupid or unethical. And you always have to review these things to make sure you have them right, because they change all the time. All right, David, catch us up to the merger. So you ran Bank One for four years from Chicago, and then in 2004, you merged with JPMorgan Chase in what was termed at the time a "merger of equals." I think JPMorgan Chase referred to it as that; Bank One shareholders got 42% of the combined company. I mean, I think people don't realize how much of JPMorgan Chase is Bank One today. That's why it's a little irritating when they say you've been running it, since I was running JPMorgan, I was running 40% of the company for the whole time. When I got to Bank One—and I'm not working around the clock—I already knew that a logical, strategic merger might be JPMorgan. I know all these companies. And that's the other thing about a "fortress balance sheet": you also have real strategies that survive the test of time. You're not flipping and flopping. And then I'm sitting there, and of course the tape comes: "JPMorgan Chase to merge." So we're worth like $25 billion. They're now worth like $80 billion or $90 billion, or whatever the number was. I'm like, "Well, there goes that dream." But four years later, our stock had doubled or something like that. It had actually come into the target range. And I had been meeting with Bill Harris, who was the chairman of JPMorgan at the time. We were talking about it; we both knew it made business sense. They were looking for a CEO. So we were... We had been talking probably for a year and a half before that. They're looking for a CEO. Did they give Bank One shareholders 42% because they were looking for a CEO? So we got the premium; they got the name and location. And I effectively had control from day one because, inside the merger agreement (and this is almost unheard of when we get the premium), it stated that for me not to become CEO...…

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