Jamie Dimon is currently the CEO and Chairman of JPMorgan Chase & Co. He has been CEO since 2005. Janet Yellen is the current United States Secretary of the Treasury. She has been Treasury Secretary since January 2021. Janet Yellen’s base salary is $221,000. She does not earn a bonus.
Jamie Dimon’s base salary is $1.5 million, but his total compensation in a typical year, with bonuses and other awards, comes to around $35 million. That’s roughly what he has earned every year for the last decade. In fact, since becoming CEO in 2005, Jamie has earned well over $200 million in salary and bonuses. That does not include stock grants or dividends. Just salary and bonuses.
So you’ve got $35 million per year vs. $221,000. And yet, even with that gross compensation difference, there’s an extremely strong possibility that Jamie Dimon will be gunning to succeed Janet Yellen as Treasury Secretary. Why? Because of a little-known, highly-valuable tax loophole…
(Photo by Chip Somodevilla/Getty Images)
How Did Jamie Dimon Become A Billionaire?
After graduating from Harvard Business School, Jamie Dimon took a job at American Express (where his father was an executive vice president). In 1985 he jumped to a company called Commercial Credit. Through a series of mergers and acquisitions, Commercial Credit eventually formed into Citigroup. When Jamie was forced out of Citigroup in 1998, he sold the 2.3 million shares he owned for a $110 million pre-tax windfall.
In 2000, he was named CEO of Bank One, which at the time was the fifth-largest bank in the United States. In 2004, JPMorgan acquired Bank One. On New Year’s Eve 2005, JPMorgan named Jamie CEO.
With a $620 billion market cap, JPMorgan is the largest bank in the world by total company value. The world’s second-largest bank, Bank of America, is worth $340 billion. JPMorgan is also the largest private bank in the world in terms of total assets, with $3.665 trillion worth of assets. I say “private bank” in the previous sentence because there are four state-owned Chinese banks that have $4-6 trillion worth of assets.
Jamie Dimon’s net worth is $2.3 billion. He first became a billionaire in 2015 and, impressively, he is one of the very few people in history who have become a billionaire without being a founding employee of a company.
As of this writing, Jamie owns 7,525,746 shares of JPMorgan. A year ago, he owned 8.63 million shares, but late last year, he announced a plan to sell 1 million shares over time. He completed his 1 million share sale plan in April of this year. He generated around $180 million from the sales. As I type this article, JPM stock is trading at $216 per share. Therefore, Jamie’s remaining 7.5 million shares are worth…
$1.6 billion
Jamie also owns around $600 million worth of non-JPMorgan equities.
Magical Tax Loophole
Before accepting one of a handful of high-level Executive Branch government positions, candidates are required to liquidate all of their stock holdings. This is required so any potential conflicts of interest are removed. That makes sense. The decisions made by the Treasury Department directly impact the stock market, especially banking sector stocks. So, to reiterate, before taking the job, persons subject to this rule are required to liquidate their equity positions and place the proceeds into a blind trust.
Knowing that this rule may prevent highly talented private sector individuals from ever considering taking a low-paying government job, in 1989, a tax incentive was created. This loophole only exists for a handful of high-level positions in the Executive Branch. One of those positions is Treasury Secretary. It does not apply to members of Congress or the President!
This loophole gives qualifying individuals a one-time magic opportunity to sell every stock they own without paying a dime in capital gains tax. The highest rate of Federal Capital Gains tax is 20%. I think you see where I’m going.
If Jamie Dimon ever puts himself in a position to be nominated and confirmed as Treasury Secretary, he will be granted a one-time opportunity to sell all of his stock holdings, tax-free . If we just focus on his JPMorgan holdings, which we know are common stock equities, that would mean he could sell all 7.5 million shares 100% tax-free. In other words, he would get $1.6 billion without paying 20% in capital gains. Under normal circumstances, Jamie would pay around $320 million in capital gains taxes on that sale.
And if Jamie’s $600 million in non-JPMorgan financial holdings are also public equities, those would also be sold tax-free. If that’s the case, when combined with his JPMorgan shares, Jamie would get a one-time tax-free sale of $2.2 billion in stocks, which would otherwise incur a roughly $440 million IRS bill.
If you’re skeptical that anyone would ever actually leave a powerful corporate finance job and sell all the stock they earned over a multi-decade career to take advantage of a tax loophole before serving as Treasury Secretary… that’s EXACTLY what several recent Treasury Secretaries have done.
Before he became Treasury Secretary in 2006, Henry Paulson was the CEO of Goldman Sachs for seven years, from 1999 to 2006. In July 2006, Paulson liquidated 3.23 million shares of Goldman, roughly 1% of the company. He sold the shares at an average price per share of $152. When it was all said and done, Henry Paulson had a tax free gain of $491 million.
Now… as it turns out… Henry should have held onto his Goldman stock. Today, Goldman Sachs has a market cap of $160 billion. A 1% stake would be worth exactly $1.6 billion pre-tax. If Hank still owned those shares today, he would be subject to a 20% capital gains tax and, as a resident of Illinois, a 5% state tax. So he would pay around $400 million in taxes, leaving him with a net gain of $1.2 billion.
Bottom line, you heard it here first. Someday, when you see the news that Jamie Dimon has thrown his hat in the ring to be Treasury Secretary, you know why.