Dimon May Go Shopping

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, 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.

"Better to Be Lucky than Good"

JPMorgan's newfound muscle is especially bad news for rival Citi, which is struggling to hold on to its brokerage force and wealthy clients in the face of massive losses at a number of in-house hedge funds. On May 30, Citi's Richard Zinman, one of the most successful brokers in the nation, bolted for Credit Suisse (CS). JPMorgan, along with Morgan Stanley, stand ready to benefit from other such departures.

Dimon's current stature is the product not only of smart decisions but also a hefty dollop of good fortune. The risk-averse Dimon sat on the subprime sidelines largely because he was busy trying to digest BankOne, which merged with JPMorgan in 2004. And the acquisition of Bear Stearns, which closed on May 30, looks similarly serendipitous for JPMorgan. Dimon will have to navigate culture clashes, manage legal liabilities, and woo back hedge fund clients who have bolted in recent weeks from Bear's once-mighty prime brokerage business. But the low $10-a-share price and concessions from the Federal Reserve mean that JPMorgan still has plenty of financial ammunition to pull off another big deal in retail banking, investment banking, or asset management. "Sometimes it's better to be lucky than good," says Timothy Ghriskey, co-founder of Solaris Asset Management. "But it really puts [JPMorgan] in the driver's seat with the Bear Stearns sale"or, gift."

For the moment, Charlotte (N.C.)-based BofA is JPMorgan's fiercest competitor. But that bank will have its hands full trying to absorb Countrywide Financial (CFC), which BofA agreed to buy in January for $4 billion. Making matters worse, BofA could face another round of multibillion-dollar writedowns on its ailing CDOs should the housing market deteriorate further. Such losses are especially likely if giant bond insurers MBIA (MBI) and Ambac Financial (ABK), both of which insured many of BofA's subprime securities, suffer downgrades of their debt—a scenario that seemed likely on June 4 when Moody's Investors Service put the two insurers on review. Given those potential problems, there's concern that BofA may have to add to its coffers, especially if its credit-card business and home-equity lending suffer amid a consumer spending slowdown. "We're comfortable with our capital position," says Joe Price, the bank's chief financial officer.

Wall Street, nonetheless, worries that BofA's earnings could be depressed—a situation that would distract management. And with another hobbled competitor, JPMorgan could put more distance between itself and the rest of the pack.

Goldstein is a senior writer at BusinessWeek. Henry is a senior writer at BusinessWeek. Der Hovanesian is Banking editor for BusinessWeek in New York .