SPIEGEL: Mr. Dimon, the US magazine Fortune has called you "the toughest guy on Wall Street. Do you think the description fits?
Dimon: It was a nice headline, but its not accurate. Of course I sometimes have to make some tough decisions. Thats my job. But people also have to trust their boss. They know that Ill support them when the going gets tough.
SPIEGEL: Last year you received a salary of $27 million, including bonus -- some of your employees earned even more. Are you and your people worth it?
Dimon: From the business point of view, yes. If a large company has the wrong bosses, it will have bad consequences for many employees. It is therefore right to pay good and qualified managers a lot of money.
SPIEGEL: So the commonly held impression that millions are sometimes paid to managers who do not deliver good enough results is wrong?
Dimon: There are, of course, bad excesses. Some CEOs are paid two or three times as much money as is normally the case, but only because they have negotiated golden parachutes or their company has changed hands. There are enormous options programs that have nothing to do with a managers performance.
SPIEGEL: Train drivers in Germany recently went on strike. They have a job that entails huge responsibilities but still earn less than $40,000 per year. Is this just?
Dimon: Its a big mistake to make such comparisons. Everyone is born with certain talents. Some people are tall, others are fat or skinny. I dont know whether the train drivers' demands are justified or not. But they cannot be justified simply on the grounds that someone else with an entirely different job profile and different duties earns more money.
SPIEGEL: Even on Wall Street there are calls to put an upper limit on the salaries of investment bankers.
Dimon: Theyre barking up the wrong tree. We operate in a very competitive market. If my bankers can earn significantly more money on the other side of the street, Ill lose them. On top of that, we nowadays face tough competition from private equity firms and hedge funds who offer even more money. But we dont want to complain too loudly, either, about having to pay a lot in taxes. It can be argued that we profit more from society than others.
SPIEGEL: You are profiting mainly from the current wave of mergers. During the first half of 2007, acquisitions totaling an unbelievable $2,397 billion were announced worldwide.
Dimon: This is certainly a wonderful time for investment banks. We are close to the top of the cycle, and the number of acquisitions will decline again. But well be much better off 20 years from now. Companies need consulting services, and the financial instruments that we offer are becoming increasingly sophisticated. We have set our sights on growth.
SPIEGEL: The German government is worried that huge state funds from China and Russia could gobble up sensitive industry sectors. Do you share this concern?
Dimon: Governments must naturally take a good look at the objectives of the state funds. Are they independent? Do they behave like normal investors? There are state-owned companies from Singapore and Kuwait that pursue pure business interests. They simply want to earn money, for instance for their government pension system.
SPIEGEL: In the US, for example, there was already the case of a proposed takeover of P&O's port operations by an Arab-owned company being blocked for security and political reasons. What advice did you give Finance Minister Peer Steinbrück when you met with him here in Berlin?
Dimon: When it comes to the defense industry or the security of a country, I can understand why a government wants to be in control. But when you listen to calls for protection from all kinds of people, you run into trouble. I think its a mistake to politicize business decisions.
SPIEGEL: One of the German government's main concerns at the moment is the regulation of hedge funds, whose expansion could pose a threat to the stability of financial markets. Was that a topic you discussed with Steinbrück?
Dimon: Minister Steinbrück is not concerned about regulation but rather about transparency. But please understand that I prefer not to talk about the details.
SPIEGEL: A subsidiary of JP Morgan Chase, JP Morgan Asset Management, is considered the largest hedge fund company in the world with managed assets of $34 billion. Isnt this very risky?
Dimon: We have our risks under control...
SPIEGEL: ... thats what all of the 9,000-odd hedge funds say, and yet spectacular bankruptcies continue to occur.
Dimon: Its true that quite a few hedge funds go bust. Each year 20 percent of them disappear as a result of natural selection. In the future large, well-managed funds will crystallize. Banks such as JP Morgan can provide them with a seal of respectability, as well as a certain degree of risk management and financial accountability.
SPIEGEL: But even when investment banks run hedge funds, things can go dreadfully wrong. Two funds from Bear Stearns are on the verge of going belly up.
Dimon: They are collapsing because the risks they took were too high.
SPIEGEL: Your bank, together with Citigroup and Merrill Lynch, sparked the crisis, because you wanted to see more money from the hedge funds.
Dimon: The collapse had nothing to do with that. When hedge funds incur high losses and become illiquid as a result, its their fault alone. Its perfectly normal to demand more capital in order to secure the deals. The two hedge funds were strongly indebted, had invested in illiquid securities and were only short-term financed.
SPIEGEL: Nonetheless, it involved a sum of $3 billion. Was this an accident or the beginning of a fundamental crisis?
Dimon: In our world it is normal for some ideas not to pan out. There are also other hedge funds which take too high risks.
SPIEGEL: Nevertheless, the US subprime mortgage market, which contributed to the enormous losses suffered by the two funds mentioned earlier, is currently going through frighteningly turbulent times.
Dimon: You have to separate the financial market from the real economy. From a financial markets standpoint, the financial losses arent problematic. They are distributed among the purchasers of credit derivatives, banks and hedge funds. The actual effects of the crisis are felt by the real market. Fewer people can afford to buy homes, prices for homes fall.
SPIEGEL: Could this lead to a recession?
Dimon: The situation is worse than people think, but the dimensions fall short of what would trigger a recession. The US economy is large and is fortunate in that the rest of the world is growing. China, Japan and Europe are getting stronger, and this has a positive effect on the US. And so far there is no sign that consumer spending is slowing.
'The Market Is at a Crossroads'
SPIEGEL: Your optimistic view of financial markets is not shared by many governments. They are worried that a crisis could strike the global financial system if several hedge funds were to collapse, which would have serious consequences for the real economy.
Dimon: The regulatory agencies must naturally keep an eye on the systematic risk that occurs when many hedge funds go broke. Bank control systems have become much better, but hedge funds have become much larger. Governments have to ask themselves if they are getting enough information.
SPIEGEL: And they are asking this. But the answer is no.
Dimon: Those in charge of regulating financial markets should sit down together. This can only be solved on the international level. US Treasury Secretary Henry Paulson is working on proposals aimed at defining good practices for the sector.
SPIEGEL: Many hedge funds have so far refused to give the US government information about their investments.
Dimon: But what exactly do the regulators want to know? Give me an example.
SPIEGEL: They want to know, for example, where exactly the funds are invested.
Dimon: Why? It would be wiser to have information about the indebtedness of each fund. This would make it possible to more effectively evaluate the stability of the financial system. Information about individual investments and potential bans make no sense. The government should not determine who is allowed to buy what.
SPIEGEL: But many shareholders are critical of the extremely short-term thinking of many hedge funds.
Dimon: Yes, there are concerns about this. One consideration would be whether the voting rights of short-term investors should be limited, such as a minimum retention period of six months. But this is something that the companies should deal with and not the government.
SPIEGEL: In Germany hedge funds and private equity firms have come under a lot of criticism and have been called locusts. Do you understand this?
Dimon: I do not understand why one investors money should be better than that of another investor. But I share the concern when it involves very aggressive activism and insider hedge fund deals. We do not do business with these kinds of people.
SPIEGEL: JP Morgan does not just invest in hedge funds; it has also invested $5 billion in its own private equity firm One Equity Partners. Do you plan to expand this business?
Dimon: We want to limit our involvement to 10 percent of the equity capital. If we can buy something very good for a very low price, we would raise the limit. But prices are already very high.
SPIEGEL: One Equity is also interested in the automotive industry. It is said to be talking with Ford about purchasing Land Rover and Jaguar. Is there any truth to these rumors?
Dimon: Normally we buy things together with partner companies and then build up stronger units. This could also make sense in the car business. But I prefer not to comment on potential transactions.
SPIEGEL: Many private equity giants such as Blackstone recently went public or are planning to do so. The founders are making a quick buck in the process. Is the private equity boom coming to an end?
Dimon: I dont know. But the market is certainly at a crossroads. This is especially true for outside financing.
SPIEGEL: During the first and second quarters of this year the volume of high-risk special loans was $105 billion. Ten years ago the total was only $32 billion. When will this bubble burst?
Dimon: I would not call it a bubble. It is only a small part of the overall world financial system. If you look at the loans individually, each one, of course, poses risks that are much bigger than they were before. The leverage ratios are higher, many deals are riskier. But the risk premiums are rising. And for some high-risk loans you can no longer find lenders who are willing to provide money.
SPIEGEL: Have you also become more cautious at JP Morgan?
Dimon: We look at every single loan request. This close examination has cost us a lot of business lately. And this trend will intensify. Banks are becoming more cautious
SPIEGEL: ... and at the same time increasingly larger. The British bank Barclays, which relies on your bank for advice, wants to acquire the Dutch bank ABN Amro. What does the ongoing consolidation process mean for you?
Dimon: I tell the members of my supervisory board that we in the US can expect stiffer competition in the future from European banks as well as from Indian and Chinese banks. So we have to get better quickly.
SPIEGEL: Do you plan to enter the fray and acquire a European bank?
Dimon: We're going to buy Deutsche Bank next week...
SPIEGEL: for how much?
Dimon: All joking aside, as an investment bank we are one of the biggest players in the world and were growing fast, if almost only internally: more traders, more bankers, more systems, more countries. But we have no international retail banking business. This is our largest strategic shortcoming. We might make an acquisition here.
SPIEGEL: In Europe?
SPIEGEL: And when?
Dimon: This will depend on opportunities and prices. One year ago we were not in a position to pull off a major acquisition. We had neither the managers nor the systems. Now we are strong enough, but first larger units have to be created through the ongoing consolidation process. These units could then be interesting takeover targets for us. But this is perhaps something that my successor will have to deal with.
SPIEGEL: Mr. Dimon, thank you for the interview.
Interview conducted by Christoph Pauly and Beat Balzli.