Amongst the global financial crisis...

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Just thought you folks would like to have a read of this, given the current financial crisis.

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Jamie Dimon's swat team
How J.P. Morgan's CEO and his crew are helping the big bank beat the credit crunch.

(Fortune Magazine) -- It was the second week of October 2006. William King, then J.P. Morgan's chief of securitized products, was vacationing in Rwanda, visiting remote coffee plantations he was helping to finance. One evening CEO Jamie Dimon tracked him down to fire a red alert. "Billy, I really want you to watch out for subprime!" Dimon's voice crackled over King's hotel phone. "We need to sell a lot of our positions. I've seen it before. This stuff could go up in smoke!"

A classic Dimon manic moment, the call is significant for two reasons. First, it marked the beginning of a remarkable strategic shift that helped J.P. Morgan, virtually alone among the big diversified banks, sidestep the worst of a historic credit crisis. Second, it sheds light on Dimon's distinctive management style - a blend of Cartesian analysis and inspirational leadership that, despite some bad bets in the home mortgage market, has moved J.P. Morgan (JPM, Fortune 500) to the front of the pack in global banking.

You probably know Jamie Dimon (and if you don't, check out "The Contender" story). He's the 52-year-old former boy wonder who helped Sandy Weill build the world's biggest financial conglomerate at Citigroup (C, Fortune 500), went into exile, and is now staging a spectacular second act. He's outspoken, profane, fearless - such a big presence that you might think he's a one-man show.
The King James version isn't the whole story. In fact, Dimon relies on a trusted team of talented lieutenants who share his zeal for sifting piles of data to spot trouble before it happens and vigilantly control risk, even when that means sacrificing growth and losing market share to rivals. Says J.P. Morgan director Bob Lipp, the former Travelers chairman who's worked with Dimon for two decades: "This is the best team on Wall Street."

Dimon and his team are on top today because they took a daring stance at the height of the credit bubble. J.P. Morgan mostly exited the business of securitizing subprime mortgages when it was still booming, shunning now notorious instruments such as SIVs (structured investment vehicles) and CDOs (collateralized debt obligations). With the notable exception of Goldman Sachs (GS, Fortune 500), J.P. Morgan's main competitors - including Citigroup, UBS (UBS), and Merrill Lynch (MER, Fortune 500) - ignored the danger signs and piled into those products in a feeding frenzy.

Make no mistake: J.P. Morgan is also suffering from the credit crunch. Dimon jumped into the home loan market just when others were retreating - and this time his contrarian instincts let him down. "We made our share of mistakes and messed up in home mortgages, and we're sorry," Dimon tells Fortune. And he sees more pain to come, as consumers caught in the economic downturn fall behind on mortgage, credit card, and car loan payments. The third quarter is already looking tough. J.P. Morgan has announced that it is taking $1.5 billion in mortgage and leveraged-loan write-downs, and another $600 million to account for the decline in the value of its Fannie Mae and Freddie Mac preferred stock.

Still, J.P. Morgan is weathering the crisis far better than its rivals. From July 2007, when the cyclone began, through the second quarter of this year, J.P. Morgan took just $5 billion in losses on high-risk CDOs and leveraged loans, compared with $33 billion at Citi, $26 billion at Merrill Lynch, and $9 billion at Bank of America (BAC, Fortune 500). And in this market, losing less means winning big. Before the crisis J.P. Morgan was a middle-of-the-pack performer; today it leads in nearly every category, starting with its stock. Since early 2007, its share price has dropped 24%, to $37 (as of Aug. 27), vs. declines of 44% for Bank of America and 68% for Citigroup. Last year its market cap was far below those of Citi and BofA. Today J.P. Morgan stands in a virtual tie with BofA for first place among U.S. banks, and it towers over Citi - a point that must be especially gratifying for Dimon. And even with what looks to be a weak third quarter, J.P. Morgan is on track to earn around $8 billion in 2008 - that's well below its peak of $15 billion in 2007, but a world apart from most of its loss-ridden rivals, which have been forced to slash their dividends or raise capital, or both.

Nothing dramatizes J.P. Morgan's commanding position as "last bank standing" better than the rescue of Bear Stearns. When the Federal Reserve needed a strong institution to absorb the ailing investment bank, J.P. Morgan was the most plausible choice. Dimon paid virtually nothing for Bear - just look at the numbers: The $11.5 billion in cash on Bear's books should fully offset the costs of the merger. Yet J.P. Morgan captured businesses worth as much as $15 billion, not to mention a trophy skyscraper that would cost $2 billion to replace (and has a mortgage of just $670 million). And Bear may just be the overture. Dimon is now in a position to go bargain hunting while competitors suffer on the sidelines. J.P. Morgan's next target is anyone's guess, but it's likely to be big: Wachovia, Washington Mutual, SunTrust, or even American Express. "Will Dimon do a deal?" asks Tom Brown, the veteran banking analyst who now runs hedge fund Second Curve Capital. "Will he ever! His whole career has involved buying troubled companies."

Dimon, who spent more than a decade orchestrating merger after merger with Weill, appears ready to charge. "Sure, it's hard to make a deal when your stock has dropped," he says. "But so have the stocks of the targets. We have the capital and the people to do a deal, if it makes sense."