When James Dimon took the helm at Bank One Corp. many on Wall Street said he was the right person to turn the struggling Chicago company around.
Now, after 10 months on the job and two losing quarters, analysts and investors say the real test of that premise is about to begin.
Mr. Dimon, 44, has had his work cut out for him since he succeeded John McCoy as Bank One's chief executive. One of Mr. Dimon's first tasks, explaining to investors a $1.26 billion second-quarter loss, was understandably interpreted as the first step in a cleanup of prior missteps.
And even when Bank One reported a $512 million fourth-quarter loss, which stemmed from declines in its commercial and retail banking units and a $1 billion increase in loan-loss reserves, there was a sense that Mr. Dimon was still operating in a grace period.
He has stressed that Bank One is ending the first phase of the turnaround effort, a point he reiterated in an interview conducted by e-mails on Tuesday.
"I think we're at the tail end of what I call 'boot camp,' " he said. "We can start making business decisions, look at the numbers we are creating, and be responsive over time, with the ultimate goal a sustainable, profitable franchise."
When Mr. Dimon joined Bank One, analysts and investors agreed that he was inheriting a company that needed a complete overhaul. There are still problems, some beyond its control. One is the slowing economy, which has made it hard for management to generate momentum.
"He is taking the right steps, but he doesn't have the wind at his back," said Sandra Flannigan, an analyst with Merrill Lynch & Co. "It is going to take a long time to fix the problem."
Depending on how the economy performs over the next six months or so, credit quality could keep deteriorating through the period, Mr. Dimon said. Analysts said the fact that this was a widespread problem could buy Bank One some time before frustration again sets in.
"The market will continue to be patient for at least two quarters," said Catherine Murray, an analyst with J.P. Morgan Securities. "It is a tough thing to turn around an organization this size."
By adding the $1 billion to its loan-loss reserve, Bank One acknowledged that credits are likely to remain under pressure, Ms. Murray said.
Nonperforming assets and net chargeoffs increased 20% from the third quarter to the fourth, and revenue growth will probably remain a challenge as less productive units are downsized. This is the area that observers are watching the closest.
Steve Wharton, vice president of investment management at Loomis Sayles & Co., a Boston fund company, said he has "reservations" about whether Bank One can produce a 15% long-term annual growth rate, as Mr. Dimon previously predicted.
"Revenue growth will be mediocre," Mr. Wharton said. So far [analysts have] been giving him a pass - they are accepting this period of underperformance."
Certainly, the steady increase in Bank One's share price since Mr. Dimon's arrival - from $28 last year to $39 - has helped build acceptance among investors.
But for that to last, analysts and investors say, Mr. Dimon must take care of a long list of things fairly soon. In addition to credit quality and revenue growth, improved customer service is high on that list.
Ms. Flannigan said Bank One also needs to monitor a major systems conversion. It has seven deposit systems that need to be converted.
Another essential element of the turnaround is in the hands of Philip Heasley, who now heads First USA, the company's troubled credit card unit. Mr. Dimon said Bank One wants the unit to produce "sustainable growth" by yearend. "Bottom line, we are going to spend more money in marketing, while total expenses are still coming down. We're extremely confident."
Costs are also still a focus in some people's calculations.
Mr. Wharton said eliminating executive perks and cutting down on corporate waste will also be crucial for a rebound. Mr. Dimon has already taken $5 billion of charges for restructuring moves designed to cut costs at the banking company, which has had thousands of layoffs. He has also sought to slash consulting fees, cut leases for vacant office space, and drastically lower employees' mobile phone and pager bills.
David Dreman, chairman and chief investment manager at Dreman Value Management, said he has seen enough gradual improvements to believe that Mr. Dimon's turnaround is on schedule. "This year is definitely the year to judge him," Mr. Dreman said. "He inherited a messy situation. A big bank doesn't turn on a dime."
Nancy Bush, an analyst at Prudential Securities, said analysts will be looking for Bank One's revenues to increase by yearend. "They have great faith in him, given his past accomplishments. That faith is justified, but that faith is not bottomless."
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Stock Downgrades Follow Bank One's Surprise Loss - January 19, 2001 Bank One Reports Its 'Last Messy Quarter' - January 18, 2001
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