The aim of the report is to check the performance of JP Morgan Chase in the current year with regards to the recent financial crisis. The recent financial crisis has hit the world economy hard and the effect has been felt worldwide. The leadership skills of many leaders of different organization have been tested during this time. The analysis of the expertise of Jamie Dillon (who headed both Bank One and JP Morgan) is of particular focus to the report. A through investigation of the leadership style of Jamie Dillon in turn around of Bank One and JP Morgan has been done. After that some essential characteristics needed to be a successful turnaround specialist is also given. Finally the role of Jamie Dillon as the colleague and a member of the board of directors is analyzed.
The recent banking crisis that is now prevailing for a good three to five years is threatening to prevail for a longer period of time than speculation. The crisis of banking system was instigated by a shortfall in the banking system of United States. And that shortfall was a resultant of overestimation of value of assets. This overvaluation of assets carried the possibility of longstanding detrimental effect that few predicted at that time. As a result this bad practice rampaged throughout the United States economy. And when the result of this bad practice of overvaluation started to come out everybody saw that giant financial institutions were just falling a part. Many banks had to resort to the government for the bailout which obviously was there last way out. The magnitude of the crisis was so big that critics labeled this financial crisis as the worst after the great depression of the 1930s. The crisis contributed to different arrays and in different dimensions. The crisis led to the failure of important businesses like the Lehman Brothers. The crisis also had its impact on consumer wealth and obviously it decreased the consumer wealth. The crisis also slowed down economic activity worldwide. The causes of this massive on slot of economic slowdown are of many types and identified in many ways. The probable solutions to this problem are also diversified in nature. The point of concern is that the banking crisis and the associated financial crisis is predicted to continue for the fiscal period of 2010-11 and is threatening many of the large business and financial institutions.
Along with all other businesses JP Morgan was also hurt by the banking and financial crisis. After the housing market bubble of 2006 in the US, the housing market faced a slowdown in 2007, 2008 and also in 2009. As a result JP Morgan's mortgage lending businesses were affected by clumsy growth. Other major sections of businesses of JP Morgan Chase like the Investment Bank and Asset Management segments took setbacks in the above mentioned years.
The banking crisis of the recent one can be labeled as a systematic one and this type of systematic banking crises has spread out for the past decade. Such risk is costing the world economy big time and security of financial assets has gained increased volatility. It is described earlier that the causes of banking crisis or the financial crisis are many and many factors are country specific. Despite this country specific factors there have been some general factors that contributed to the downfall. The factor of volatility in the overall macro economy had its part to play. The presence of structural weaknesses in the economy and financial system is one big factor that is remarked as the major factor of downfall. The lack of vigilance by the governments of different factor is also identified as the cause of this recent downfall. The predatory compensation system in the financial institutions and the lack of morale in these institutions are also contributing to the worsening of situations.
2.0 Update On JP Morgan Chase History
The associated case with this report has outlined the history of JP Morgan Chase up to the year of 2008. As a logical chronology of updating the history of JP Morgan important events from then on is described here.
The CEO of JPM, Mr. Jamie Dimon, tried to calm down a much apprehended investor segment by reporting a profit after tax of $702m which the company earned in the last quarter of 2008 and the announcement was given on January 15, 2009. The announcement was like an appeasing factor to the tensed investors. The announcement was very significant as in similar times many of the big competitors of JPM were struggling and were expected to report multi-billion dollar losses for the same quarter in which JPM announced profits.
Although the CEO of JPM announced profits in the last quarter of 2008 he warned that the US economy would decline and JPM will not be able to evade the shockwave. Jamie Dillon said that JPM and all its other peers will have face very tough times.
Jamie Dillon in that year of 2009 told everyone very frankly that the worst recessions in a long time are only spreading its wings more and more. Jamie Dillon predicted tough time for the industry in 2009.
In 2009 the bank sought to a further $2.9bn hit by marking down leveraged lending exposures in its investment bank, and a $680m write-down on some private equity investments, part of which related to assets taken on through JP Morgan's purchase of Bear Stearns in March.
JP Morgan absorbed poor performance in its investment bank section and as well as in its retail unit. The cause of this lackluster performance was basically the decrease in consumer loan portfolios. The amount of consumer loans decreased throughout the year of 2009. In 2009 the $4.1 billon was added as loan reserves.
Buying of Bear Stearns and Washington Mutual's assets had long term role to play. These two acquisitions were actually a long standing legacy of JPM Chase as the company has become gigantic by engaging to numerous small and big mergers and acquisitions. In 2009 some solid actions had to be taken in order to consolidate the position of JPM and with the decisive management of Jamie Dimon JPM did take some measures that stabilized the bank's performance. The CEO proudly announced a solid balance sheet of the company which he largely contributed to actions like adding $13.9bn to the reserves.
By the end of December 2009 the bank had accumulated $136bn in tier-one-capital which indicated one very significant measure of the financial health of JPM. The ration soared to 10.8% compared to that of the last year's 8.4%.
Despite all these positive efforts of the company and despite the fact that the company did perform better than its peer in 2009 the stock price of the company fell. The reason of fall of price of stock was cited as JP Morgan having a poor prospect of generating capitals in times of financial hardship.
3.0 JP Morgan Chase Performances in 2010
JP Morgan's performance in the year 2010 can't be done in full as the year is in progress. Whatever data that is available shows very impressive performance of the company.
The first quarter of the year 2010 brought an impressive show by JPM as the company announced an increase of 55 percent of income. The investment banking division of the company had big role to play in bringing this massive success in this tough time. In fact investment bank, by using hefty trading profits, successfully had offset the relatively weaker performance of the Chase retail banking and credit card units. To further improve performance JPM took the policy of setting aside lesser money to cover for the future results and this policy paid out right benefits for the company.
Let's now concentrate on the financial performance (in 2010) of JPM more closely and in more in depth. In the first quarter of 2010 the revenues from the principal transactions soared to more than double from that of the first quarter of the previous year. The revenues from the quarter one of 2010 reached to $4.5 billion which is a very positive stat for the company. Apart from this principal earning income the other indicators also showed positive result for the company in the beginning of the year 2010. The income from the core investment banking which included advisory and underwriting options increased to 5.4% .The figure for the core investment banking reported revenue of $1.4 billion in that quarter. JPM also did well in pulling out revenues in the asset management category. The asset management revenues piled up to $3.2 billion which is a 12.7% increase from that of the first quarter of the year 2009. Not all the sectors of JP Morgan's businesses saw the light of success in the first quarter of operation in the current year. Commercial banking sector faced tough times and hence contraction of the division occurred. With this division the businesses of commercial banking got reduced. All these contractions and reductions led to the decline in the revenue stream of commercial banking sector. The commercial banking sector is so huge that the component performance can give for better analysis of the performance of the commercial banking sector of JPM. One of the major commercial banking components of JPM is the lending and deposit division. Lending and deposit related revenues declined to a significant margin of 2.5% and the declined revenue figure was $1.6 billion. Mortgage division absorbed highest shock and the Mortgage related fees declined to a staggering 58.9% and the declined figure came to $1.6 billion. Credit Card division also faced severe challenges as the division reported a 25.9% decline in the income. Questions obviously arise as how on earth one division (commercial banking) can do so badly while the other major divisions were just doing fine. Answer to this question is that the decline in mortgage and credit card related income incepted from the decrease in securitization transactions.
4.0 Role of Jamie Dillon as a turnaround specialist
A leader like Jamie Dillon has different arrays of leading a company out of a bad situation and fulfills the mission of turning a company around. The leadership strategies or styles are studied in the following paragraphs under the heading of the two companies which he led to their successful turnaround.
Turnaround of Bank One:
Jamie Dillon joined as the CEO of Bank One in the volatile time of the bank and had to perform his best to drag the company out of the hole. Jamie Dillon did exactly that and enabled the company to stand upright in its shoulders again. As one of his managers Dave Donovan said that Jamie is a charismatic leader with the capabilities of detail and hard work and the power to mesmerize employees. So we can say that Jamie Dillon used charismatic leadership theory in the course of turnaround of Bank One. Jamie Dillon inherited the leadership traits that helped a struggling company like Bank One to survive.
When Jamie Dillon joined the company he identified that there existed low morale and a feel of insecurity amongst the employees. As a result the employees had a knack of low commitment to work. A fear factor worked in against of the employees. With all these factors in mind Jamie Dillon followed Heresy and Blanchard's Situational Leadership theory. He followed a telling style of leadership as most of the employees were unwilling or afraid of going for a try. Jamie Dillon had to take a highly directing or telling role and telling the employees exactly what to do.
Turnaround of JP Morgan Chase:
Immediately after Joining JP Morgan Chase as the CEO, Jamie Dillon pointed out major problems that he thought would have to be sought out in order to turnaround JPM. The identified problems were numerous unfinished mergers, stagnant profitability, and IT related problems.
In order to solve these problems and turnaround the bank Jamie followed a Taskmaster leadership style. As a task master, he provided an ambience where each team member has blinders on in order for them to focus on their deliverables. Each project and each organization will define and determine what shape those blinders take. The focus of Jamie Dillon as a taskmaster was to master the plan and continues to move forward with the plan and as well as made sure any deviations from the plan were dealt with quickly.
Jamie Dillon also followed a team building leadership theory where a 360 degree feedback was introduced in order to maintain a smooth flow of information. The focuses of these teams were to perform work on team basis and get it done faster.
Overall in both cases of turnaround by Jamie Dillon have been remarkable and he elicited some very general yet very important dimensions like honesty, integrity, listening, hardworking. All these factors piled up his success in these two financial giants.
5.0 Leadership Characteristics for a turnaround specialist
As we saw with Jamie Dillon that he follow so many styles and so many strategies to lead his companies (Bank One and JP Morgan Chase) for the successful turnaround of the companies. Following are some prerequisite characteristics to be a turnaround specialist. The description is given by giving a particular emphasis on the discussion on Jamie Dillon's way of turning businesses around.
Earn Trust and Inject Confidence: A turnaround hopeful should handover the work straight forward to the employees and be sent percent honest with the employees. For a successful turnaround the soul of the company (the employees) must be with the leader.
Openness, Frankness and Honesty: To be a turnaround specialist a leader must disclose (with care) the overall situation to the company management and employees. Such disclosure enables everyone in the organization to get a true picture of the company and start rebuilding the company. Carefully and fully disclose the entire situation to Company Management and the employees. With a true picture in mind the employees are willing to sacrifice which is very important for a struggling company.
Integrity: A successful turnaround of a business requires integrity on the part the leader. The space of ethics is also very important in turning around. It is very important to get the whole hearted support of the entire company. This is only possible when integrity is there in the leader. When the integrity factor is present, all the employees get behind the turnaround plan and pushes the plan on course with lots of hard work. It is crucial to have the complete support of the entire company behind the turnaround plan. All this comes from a ground of integrity, ethics and finally trust.
Transparency: When a leader tries to be overcautious and maintain unnecessary secrets and involves in behind the door exchanges, that's the point where the turnaround plan fails. Secrecy and behind the door dealing are often the chief reasons for failure in a Company turnaround. Transparency of the Company leadership is significant in promoting the turnaround plan and its successful implementation.
Clear Communications: Unambiguous communication from the part of the leader to all levels of employees is one major step to win the employee trust, commitment and support. Clear communication brings in transparency which brings in integrity and hence leads to successful turnarounds of businesses.
Listening: Listening is probably the single most important skill of a leader in a vital turnaround situation. In a struggling situation of a company it is very unclear who has the right type of information. Vital information regarding the firm's future success could be found from a very surprising corner of the organization. Who knows that even a mere line manager can have vital information regarding cost cutting or productivity and this type of information could lead to the company's turnaround.
Availability and Accessibility: The leader must be available and accessible to all who need him or her. The boss should make sure that every little query of the employees is answered properly. The basic idea is to give the employees a concept of having the boss always in there need. Such actions lead to building strong employee morale and commitment which is needed in crunch time.
Hard Work: The leader must elicit the value of hard work. There is no short cut to turnaround and only meticulous and thoughtful steps will lead to a successful turnaround.
Sacrifice: The leader must be sacrificing in nature. For a successful turnaround of a business sacrifice must start at the top and the leader got to promote the value of sacrifice at all levels. Little sacrifice could open the door to a new beginning.
Discipline: The virtue of discipline is a big factor in successful implementation of a turnaround plan. Discipline is always necessary but it becomes even more important when a company is facing tough situation.
6.0 Emotional Intelligence theory and Jamie Dillon
Emotional intelligence is a self-perceived grand ability to identify, assess, manage and control the emotions of one's self, of others, and of groups. In emotional intelligence it is very important to know one's own emotions, the ability to manage his or her own emotion, the ability to motivate him/her, the ability to recognize and understand other people's emotions, and the ability to managing the relationship of others. Jamie Dillon had very good emotional intelligence and thus could be the successful turnaround specialist for two large financial institutions of United States. Under the pressure situation of falling income and increased pressure from the investors, Jamie Dillon showed very strong emotional intelligence and motivated the employees to rally around his mission. Jamie Dillon was successful in both of the cases of turnaround. While many of the peers of JPM suffered losses due to world recession, JPM continues to very good figure.
Workplace is not free of conflicts and in fact it is a place where conflict is a commonplace. Jamie Dillon as the CEO also faced plenty of conflict situations which he had to deal with very carefully Workplace conflicts arise due to poor communications, inefficient allocation of resources, and leadership problems.
The managerial actions that could help in minimizing conflict management is the act of regular review of job descriptions so that job roles do not conflict. Jamie Dillon used to take care of this. Managers need to build relationships with the subordinates. Jamie Dillon intentionally visited JPM call centers and built relationships with the lower level executives and tried to keep conflict at minimal level. Basic training about interpersonal communications, conflict management, and delegation is also very important. Regular meetings of management are also very important in managing conflicts.
In case of team leadership, Jamie Dillon followed the managerial grid of leadership which basically incorporates the authoritarian, country club, impoverished and team leader.
A close analysis of the activities of Jamie Dillon would reveal that the style followed would probably fall in the category of country club leader and team leader when it comes play role as a board director and a colleague.
A leader of the country club type usually utilizes the power of reward to encourage and motivate the team to achieve goals and maintain discipline. In several instances of the case we have seen that Jamie Dillon is encouraging employees to maintain discipline and go ahead with task As such they are more or less incapable of using coercive methods to achieve goals for the fear that using such powers may break relationships.
Jamie Dillon also played the role of a team leader in different stages of turnaround for both Bank One and JP Morgan Chase. A team leader kind of leadership model is one in which the leader aims at building up relationships and at the same time is a tough task maker. He leads by example and aims at creating an environment where all members can exceed their potential.
7.0 Conclusion
JP Morgan Chase is doing comparatively better that its competitors in a time where the banking system and the overall financial system are going through a big turmoil. Through the leadership efficiency and effectiveness of Jamie Dillon (the CEO of JP Morgan Chase) the company has got to the present situation of relative stability. The situation was much more volatile in JPM when Jamie Dillon joined as the CEO of the company. The company has passed some very tough times and has gained vita experiences in the course of time. The CEO is not sitting behind and warning everyone that the economic slowdown would continue to hit United States and along with its peers JPM will also feel the heat. So JPM is getting ready for that. And there are some signs of bad performance in the retail banking of JPM which is a spot to the outstanding performance of the lending and commercial banking.
8.0 Recommendation
The most important recommendation for the company is to remind the CEO and every body in the organization to stay as vigilant as they could be so that any sign of financial distress could be identified and also fight against that. The retail banking section of JPM needs to be given further importance as this division is incurring losses. Also the fact that the risky ness of a bank is associated with the retail banking division, further checklist should be made.
