Business Blog: Hoover’s Business Insight Zone

Today’s Company of the Day is JPMorgan Chase. Since the Company of the Day link will take you to something else tomorrow and the next day, I’ll reprint myself here:

A hundred years ago, J. Pierpont Morgan bestrode the financial world like a Colossus, even bailing out the US Treasury when necessary. The modern-day successor to the House of Morgan operates under the watchful eye of Jamie Dimon, a man widely hailed as one of the ablest bankers in the world. Dimon rose to prominence as Sandy Weill’s right-hand man in the 1990s, when Weill was building the Citigroup empire. After a falling-out between the men, Dimon left Citi, and later became the CEO of BANK ONE. He cleaned house at the Chicago-based bank, then helped to mastermind JPMorgan Chase’s purchase of BANK ONE — and his own return to the New York financial scene — in 2004. This $60 billion deal came just three years after the blockbuster merger between retail banking giant Chase Manhattan and stalwart investment bank J.P. Morgan

These days, JPMorgan still trails Citigroup (as well as the acquisition-happy Bank of America) in size, but Dimon has steered the bank to solid profitability on the back of strong earnings in investment banking. But signposts of a downturn loom. When it announced quarterly earnings last month, JPMorgan’s share price fell even though profits were up 20% compared to the same quarter last year. Why? To protect itself from borrowers who might default, JPMorgan boosted its credit-loss provision, which is the amount of money it sets aside to cover bad loans. Reflecting an abrupt decline in enthusiasm for private equity deals, Dimon also warned about “a little freeze in the marketplace” for the financing of leveraged buyouts. While his bank is big enough to weather all sorts of storms, it has to find profits somewhere. But if the buyout market gets as bad as the housing market, the question is, Where will it find them?

Since I wrote that, the Wall Street Journal’s “Deal Journal” blog posted an informative item that talks about Mr. Morgan’s role in stemming the 1907 credit crisis. The piece also considers parallels between the situations 100 years ago and today. It’s short and well worth reading:

Breaking Credit Market News . . . From 1907

My own historical studies* suggest that history seldom repeats itself exactly enough to allow us to predict the outcomes of complex processes. No doubt life would be easier if we could literally follow the old saw that “History has a way of repeating itself” or Santayana’s dictum that “Those who cannot remember the past are condemned to repeat it.” What we need, instead, is an adequate understanding of the past combined with the flexibility of mind to apply those lessons to the present and future. When you think about it, that’s a pretty good formula for what we call wisdom. Here’s hoping enough movers and shakers in the financial markets know their history (not just 1907, but the Oil Embargo era of the 1970s, the bubble-and-crash scenarios of 1987 and 2000, and the Asian market crises and Long-Term Capital Management collapse of the late 1990s) and understand how to apply it to the curious mix of circumstances that affect the markets now.

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* Heaven help me, I’m pursuing a Ph.D. in US history at my beloved alma mater alongside my work for Hoover’s.