Dimon May Go Shopping

The JPMorgan CEO dodged subprime, bought Bear, and still has funds to spare

by Matthew Goldstein, David Henry and Mara Der Hovanesian

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BofA's Lewis, JPMorgan's Dimon, and Citi's Pandit Photo Illustration by Sean McCabe: Photos by Neal Hamberg/Bloomberg; News (Lewis); Suzanne Plunkett/Bloomberg News (Dimon)

In case there were any lingering doubts that JPMorgan Chase (JPM) Chief Executive Jamie Dimon had emerged from the credit crisis on top of the U.S. banking heap, more proof came on June 2 when Ken Thompson, CEO of rival Wachovia (WB), was ousted. Two days later, JPMorgan's market value surpassed Bank of America's (BAC), the first time it has been in the No. 1 spot since June, 2001.

Not long ago banks jockeyed for the title of biggest, with Citigroup (C) and Bank of America trading places on any given day. Now it's all about strength. JPMorgan has come to the forefront by avoiding subprime securities and other major problems that have ravaged its peers. While many CEOs, including Citi's Vikram Pandit, are raising billions in capital and selling assets to survive, Dimon can marshal his firm's resources to acquire competitors and build business. "JPMorgan has a chance to really increase its market share," says David Easthope, a bank analyst with research firm Celent.

Foreign Rivals Lurk

There are two camps in the banking world today: the many trying to climb out of the financial wreckage and the few trying to profit from it. Sure, U.S. giants like Wells Fargo (WFC), BofA, and U.S. Bancorp (USB) have held up relatively well. But JPMorgan, with a solid balance sheet and an ample pile of capital, is poised to dominate. In fact, Dimon's toughest competition may come from overseas players, many of which have more buying power, thanks to the weak dollar. "America looks pretty cheap," says Andrew Maguire, a global head of the retail banking practice with Boston Consulting Group. "If you had ambitions to do a deal, this would be a good time. But you have to be in good shape."

JPMorgan's shopping list could be long. Dimon could make a bid for Wachovia, or at least cherry-pick some of its retail branches in the Southeast and Texas. And JPMorgan's name continues to come up as a potential suitor for Washington Mutual (WM), even after the ailing thrift got a hefty $7 billion cash infusion from private equity firm TPG Capital. Some of Citi's retail branches in the U.S. may also be up for grabs; Pandit, who recently hired a new executive to head up the retail banking group, has said he may offload select branches. Alternatively, Dimon could opt to beef up his presence in overseas markets, where JPMorgan is thin.

Of course, JPMorgan may have to go head-to-head with foreign rivals if it wants some of the industry's better assets. Britain's HSBC (HSBA.L) and Barclays (BARC.L), along with a number of Chinese competitors, could make a run at a U.S. bank. China Investment Corp., a sovereign wealth fund, partnered with private equity firm J.C. Flowers & Co. on a $4 billion fund that will seek out opportunities among distressed financial companies.