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Dimon Gets Morgan's Mantle as Buyer of Final Resort

Sept. 29 (Bloomberg) -- At 11:50 p.m. on Sept. 25, less than three hours after JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon announced the takeover of Washington Mutual Inc., a 14-seat plane took off from White Plains, New York, carrying retail-banking chief Charles Scharf on a mission to Seattle to plant the lender's octagonal logo in his new domain.

Touching down at 2:30 a.m. local time, Scharf, 43, was ready for meetings at 7 with Chief Executive Officer Alan Fishman, 62, at WaMu's 42-story tower, according to JPMorgan spokesman Thomas Kelly. Next came a conference call with reporters to discuss the deal, which the retail banker called a ``once in a lifetime opportunity.''

The rescue of WaMu by Dimon, 52, following the biggest bank failure in U.S. history, marked the second time in seven months that federal regulators tapped the onetime protege of former Citigroup Inc. CEO Sandy Weill to assume the role of buyer of last resort. By swallowing the deposits and branches of the country's largest thrift on top of his $10-a-share purchase of a failing Bear Stearns Cos. in March, Dimon is assuming the role that J. Pierpont Morgan, his bank's founder, acquired early in the last century.

``JPMorgan is putting together quite an interesting empire of assets,'' said Douglas Ciocca, managing director of Renaissance Financial Corp. in Leawood, Kansas, who manages about $1.8 billion. ``Jamie Dimon has the right pedigree to be able to pull something like this off, as did J.P. Morgan himself.''

Top on List

WaMu, with $188 billion in deposits, long was top on the list of banks Scharf and Dimon wanted to acquire, Kelly said. Bids for the thrift, which was seized by the Federal Deposit Insurance Corp., were due at 6 p.m. Sept. 24.

JPMorgan's New York-based bankers found out later that evening their proposal to buy WaMu's deposits, branches and some liabilities in exchange for a $1.9 billion payment to the FDIC was accepted. The bank made the highest offer, the agency said. It didn't disclose the other bidders.

``We got this at a price that protects us, where if we were wrong, it still protects us,'' Dimon said in an interview Sept. 25.

WaMu collapsed as customers withdrew $16.7 billion, the credit rating was slashed to junk and the shares tumbled 76 percent this year through Sept. 22. Facing $19 billion of losses on soured mortgage loans, the Seattle-based lender put itself up for sale earlier this month.

The savings-and-loan in March rejected a takeover offer from Dimon that WaMu valued at $4 a share, about $6 below where the stock was trading.

While Dimon and Scharf immediately wrote down about $30 billion in WaMu mortgages and home-equity loans, the rescue gives them command of $900 billion in deposits.

Today, Citigroup agreed to buy the banking operations of Charlotte, North Carolina-based Wachovia Corp. for about $2 billion in stock. Citigroup will absorb as much as $42 billion of losses on the bank's loans and pay the FDIC $12 billion in stock and warrants.

5,400 Branches

Dimon's expanded bank will have 5,400 branches from Manhattan to Florida, California and Washington. WaMu outlets and credit cards will be refashioned by 2010 under the Chase brand, JPMorgan said. About 10 percent of overlapping branches will be closed.

The CEO ``is putting together a very good U.S. banking franchise,'' said Bert Ely, president of the bank-consulting firm Ely & Co. in Alexandria, Virginia. ``He gains a very major presence immediately on the West Coast in retail banking.''

Consumer banking accounted for $17.5 billion of JPMorgan's revenue in 2007, or almost 25 percent of the total. Investment banking accounted for nearly 26 percent and credit cards 22 percent.

JPMorgan shares fell $2.42, or 5 percent, to $45.82 at 9:54 a.m. in New York Stock Exchange composite trading. Citigroup fell 1.3 percent, while Bank of America Corp. dropped 4.7 percent.

Dimon's bank took $18.8 billion in writedowns, losses and credit provisions since the beginning of 2007. That's dwarfed by $55 billion at New York-based Citigroup, $44 billion for UBS AG of Zurich and $21.2 billion at Bank of America in Charlotte, according to data compiled by Bloomberg.

Fewer Writedowns

By coming through the credit crisis with fewer writedowns and stronger shares, Dimon positioned the company to play a role similar to that played by financier Morgan nearly 100 years ago. In the panic of 1907, the 70-year-old magnate pressured bankers to form a pool of money to bail out stockbrokers and shored up New York City by syndicating debt.

Dimon said on a call with reporters Sept. 26 he saw ``no price'' at which he would have made a bid for all of WaMu, the latest casualty of a financial crisis that drove Lehman Brothers Holdings Inc. out of business and Merrill Lynch & Co. into a takeover by Bank of America.
$2 Becomes $10

The CEO's role as financial-industry rescuer began on March 14, when the Fed turned to him to make an emergency loan to Bear Stearns after clients pulled cash and creditors stopped renewing loans. By March 16, JPMorgan had an agreement to buy the fifth- biggest investment bank for about $2 a share.

While the price increased to $10, the central bank took on $30 billion of the investment firm's assets, with JPMorgan agreeing to absorb the first $1 billion in losses on the portfolio.

Dimon learned deal-making from Weill, 75, as the pair built what's now known as Citigroup into the largest U.S. lender. Weill hired the younger banker in 1982 after reading a term paper he wrote as a Tufts University undergraduate analyzing the elder banker's acquisitions.

The son and grandson of stockbrokers, Dimon earned a master's degree in business administration from Harvard University and helped Weill plot acquisitions over 16 years at American Express Co., Primerica Corp. and Travelers Group Inc.

Weill and Dimon clashed amid the tension of merging Travelers and Citicorp Inc. in 1998, and the younger man was fired within weeks of the deal. In 2000, the Queens, New York, native resurfaced in Chicago as CEO of Bank One Corp., where he pushed the firm to profitability by cutting expenses, slashing the dividend and writing off bad debt.

21-Year Relationship

Dimon's close relationship with Scharf, his retail-banking chief, stretches back to 1987, when he was hired to join the future JPMorgan CEO at Baltimore based Commercial Credit Corp. the week before he graduated from Johns Hopkins University.

Scharf moved to Bank One as chief financial officer after his former boss took the top job and won the job of fixing the lender's ailing retail unit.

In 2000, Bank One closed 200,000 more checking accounts than it opened. By 2003, a year after Scharf took charge, the bank was pulling in 434,000 more new customers than it was losing, according to that year's annual report.

New York Return

Dimon sealed his return to Wall Street by helping broker the $58 billion takeover of Bank One by JPMorgan. He brought Scharf along to head the retail financial-services division at the combined company.

The pair will have to grapple with $176 billion in WaMu mortgages, including adjustable-rate, subprime and home-equity loans. JPMorgan forecasts home prices in the U.S. may fall as much 20 percent in the event of a severe recession.

Dimon ``was trying to be opportunistic,'' said Jon Fisher, who oversees $1.5 billion at Minneapolis-based Fifth Third Asset Management. ``If his assumptions on credit and housing are wrong, we could be talking about him in a couple years too.''

About 15 minutes after the WaMu deal was announced, Dimon shot an e-mail to the Washington bank's staff welcoming them to JPMorgan. At 2 p.m. on Sept. 26, Scharf met with about 50 employees in the White Oaks Room on the 42nd floor of the bank's Seattle headquarters. He said they'd built a good company that was too concentrated in mortgages, something that JPMorgan's diversification helped his firm weather.

``We've coveted the franchise for a long time,'' Scharf said on the Sept. 26 call. ``We are very, very excited strategically.''

To contact the reporter on this story: Elizabeth Hester in New York at ehester@bloomberg.net.
Gah Mr. Dimon is the living definition of "BIG SHOT" if there ever was one. I'm wondering how JP Morgan hasn't gotten poisoned by all of the toxic companies it's absorbed...Wachovia ate one and keeled over and yet JP Morgan just continues to absorb things.