Jamie Dimon and JP Morgan are the big winners on Wall Street since Lehman, tripling investors' money

Key Points
  • Under CEO Jamie Dimon, J.P. Morgan outmaneuvered rivals during the 2008 financial crisis to eventually become the world's biggest bank by market capitalization.
  • Investors more than tripled their money in the lender's shares if they bought the day before Lehman failed, walloping the performance of the five other big U.S. banks.
  • Now, with an end in sight to the Dimon era, investors wonder if his successor can grow the bank as well as he did.
Jamie Dimon, chairman, president, and chief executive officer of JPMorgan Chase & Co., center, waits for the start of a hearing before the Financial Crisis Inquiry Commission in Washington, D.C., U.S., on Wednesday, Jan. 13, 2010. 
Jay Mallin | Bloomberg | Getty Images

A decade ago, a J.P. Morgan Chase executive stood up before a roomful of investors and appeared to commit career suicide.

The manager, a retail banking head named Charlie Scharf, had bad news. Mortgages were imploding at a rate far worse than expected, especially among the bank's $95 billion in home equity loans, Scharf told the audience in February 2008. Mea culpas came fast and hard: Scharf hadn't anticipated how bad the housing downturn would be and didn't act quickly enough as signs emerged, he said.

"Some of us in the audience were like, `This is the end of Charlie's career,'" said Mike Mayo, a veteran bank analyst now working for Wells Fargo. "He's leading off their investor day by spending an hour on how much his business messed up."

But the episode showed Mayo that at J.P. Morgan, led by Jamie Dimon since 2005, managers owned their mistakes rather than sweeping them under a rug. The history of American finance is littered with examples of executives who delay recognizing errors until it's too late, as the collapse of Lehman Brothers later that year attested to. Under Dimon's watch, here was a lender who prized independent thought and taking responsibility for mistakes.

"That culture," Mayo said, "allowed J.P. Morgan to be prepared for the crisis and navigate it far better than the others."

Instead of getting fired, Scharf went on to spearhead J.P. Morgan's acquisition of Washington Mutual's banking units six months later. (He later became CEO of Visa and now runs Bank of New York Mellon.) That crisis-era takeover, along with that of Bear Stearns, helped create a juggernaut: A national bank with branches from coast to coast melded to a top Wall Street trading and advisory firm.

Nearly any way you look at it – stock performance, revenue, share in businesses from deposits to bond trading – Dimon, 62, has outdone his rivals among big U.S. banks.

Watch CNBC's extended interview with Jamie Dimon on the 2008 financial crisis
Watch CNBC's extended interview with Jamie Dimon on the 2008 financial crisis

Now the most valuable bank

In the decade since that seismic, once-in-a generation upheaval, Dimon has pressed his advantages, winning a top market share in most businesses he competes in and plowing billions of dollars into technology. From millennials with a few dollars in savings to trillion-dollar technology companies – and everyone in between – J.P. Morgan wants to bank them.

That has helped J.P. Morgan leapfrog competitors from China and the U.K. in the total value of its stock. Dimon's bank is now the world's most valuable by market capitalization at $383 billion. The company produced an industry-best $24.4 billion in profit last year.

(L-R) Lloyd Blankfein, CEO of Goldman Sachs Group, Inc.; James Dimon, CEO of JPMorgan Chase & Company; John Mack, chairman of the Board of Morgan Stanley; and Brian Moynihan, CEO president of the Bank of America Corporation testify during the first public hearing of the Financial Crisis Inquiry Commission hearing on January 13, 2010 on Capitol Hill in Washington, DC. The Financial Crisis Inquiry Commission (FCIC) is a ten-member commission appointed with goal of investigating the causes of the financial crisis of 2007�2009. 
Tim Sloan | AFP | Getty Images

The single biggest reason J.P. Morgan won the post-financial crisis era, according to Charlie Peabody, an analyst at Portales Partners, dates back to the crisis itself. Despite Scharf's mishap, J.P. Morgan had mostly steered clear of the excesses of his competitors. It retreated from the Wall Street business of turning shoddy subprime mortgages into bonds while competitors were ramping up. When the full force of the crisis hit, inflicting tens of billions in losses for banks including Citigroup and Merrill Lynch, Dimon had been able to preserve his balance sheet.

"That meant they were able to invest in their businesses from Day 1," Peabody said. "J.P. Morgan generated revenue growth whereas Citi and Bank of America had to dilute the balance sheet by issuing new stock, which haunts them to this day."

As a result, in the most important measure to investors, share return, J.P. Morgan has surged about 180 percent since the day before Lehman failed and returned more than 246 percent when including dividends. Wells Fargo has returned 115 percent, Goldman Sachs has returned 71 percent and Morgan Stanley has posted a total return of 50 percent. Citigroup shares are still much lower than a decade ago, and Bank of America stock has returned only 1 percent.

Source: FactSet

Those, of course, are the survivors. Lehman Brothers failed in spectacular fashion, while Wachovia, Washington Mutual, Bear Stearns and Merrill Lynch were swallowed by competitors.

It's possible that, years from now, Dimon's post-crisis reign will be seen as the high-water mark for the industry. Thanks to a web of post-crisis regulations, banks are better capitalized, less risky and better managed. They're likely to endure the next recession in far better shape than the last, analysts said.

"The entire industry is looking more J.P. Morgan-like in terms of the strength of their balance sheet," Mayo said.

J.P. Morgan's outperformance hasn't gone unnoticed. It's become a CEO training academy for the rest of the industry: Dimon's deputies have gone on to lead institutions including Barclays, Standard Chartered, Visa and First Data.

JPM after Dimon

Still, banking – taking money from depositors and lending it out to people and corporations – is not what you would call a growth industry. And a new threat is on the horizon: Banks are now preparing for tech giants like Amazon and Google to intrude on their turf in areas from deposits to payments.

But the biggest question around J.P. Morgan is the obvious one whenever a leader has had an outsized impact. What happens when he leaves? Dimon plans on retiring in about five years, he said in January.

Companies whose influential leaders step down typically underperform the market for at least a year, according to an Aug. 6 Morgan Stanley note. Dimon has delivered annualized returns that are 2 percentage points higher than the S&P 500 during his tenure, and investors wonder if his potential successors can deliver the same growth, according to the note.

Jamie Dimon, chairman and CEO of JPMorgan Chase.
Adam Jeffery | CNBC

"Jamie is the best CEO out there among the big banks," said Peabody. "He's a visionary, he's got fiscal disciplines, risk disciplines, and he's been willing to invest for the long term."

Perhaps some of Dimon's risk-managing DNA will remain in the bank's culture and processes. For instance, the firm performs more than 100 stress tests a week, measuring the impact from possible wars, geopolitical disasters and recessions.

"We don't just guess at the probabilities; we prepare for the worst," Dimon told the Harvard Business Review this year. "As a result, we have the capital and the earnings and the capabilities to withstand any of those things, just as we managed to survive during the financial crisis."