by Monte Burke
By 2006, Joe’s vision for the company was complete. TD Ameritrade was still the leader in online discount trades. But now it was also a company for long-term investors, the “mass affluent” market (people with between $100,000 and $1 million in liquid assets) so coveted by financial services firms. TD Ameritrade had more than one hundred branches and investment advisory services for its six million customers. It was essentially Charles Schwab with better technology.
In the fall of 2006, the integration of the two companies was nearly complete. One night Joe invited his top three lieutenants—MacDonald, Hirji, and Chris Armstrong, the product and marketing director who had come on board to help with the TD Waterhouse integration—to dinner in order to celebrate their achievement. He invited their wives along as well. There Joe told the three men how much he appreciated the sacrifices they’d made, the late nights and early mornings, the missed Thanksgiving dinners.
Then he turned to their wives. “I also want to thank you for your sacrifice. I know it wasn’t easy on your family life,” he said. Then he pulled out three stunning diamond tennis bracelets and presented them to the wives. “Our wives were speechless,” says Hirji. “I know it’s just a gift, but it made our wives so happy. He built a huge amount of loyalty and dedication from us that night because of that happiness.”
The company ended 2006 in great shape, recording its fourth straight year of record revenues and profits. TD Ameritrade’s stock had outperformed the Standard & Poor’s index—the benchmark against which all stocks are measured—by 250 percent. Joe thought he would stay on for two more years to oversee the new company, to help get the best out of the employees and encourage them to concentrate on the things that mattered.
There would be one more huge hurdle to get over, though, one that involved the largest financial calamity since the Depression.
By late 2006, many financial firms in the United States were flying high, recording record profits, inflated by the global housing bubble. With low interest rates, mortgages—and in particular, bundled third-party mortgages—became all the rage.
Joe had seen this before. While at Merrill, he had lived through a few financial crises that were in one way or another caused by risky leverage: the Savings & Loan crisis in the 1980s; Merrill’s own Orange County debacle; and the failure of the hedge fund Long Term Capital.
The real estate boom seemed to Joe like another bubble underpinned by shaky leverage. He didn’t want any part of it. “I’ve just seen the smartest guys in the world get a little bit greedy. Money gets in the way. They get undisciplined. In this case, they thought they’d be smart enough to get out when they saw the real estate market start to crack. But it became like a gambling addiction, like they thought, One more $100 million bet on black and I’ll get out.”
Around this time TD Ameritrade began to get hammered by the media, and by analysts who were wondering why in the hell Joe wasn’t levering up and getting a piece of the hot action.
There were essentially three different ways Joe could have gotten into the mortgage game: he could have started buying the mortgage-backed securities himself, as his old company, Merrill, was doing; he could have bought a company, like E-Trade, that had some of them on its books; or he could have leveraged his own balance sheet. “We were under severe duress to get into the mortgage business somehow. I just never thought it was our strength. It was just too risky,” he says.
But others, in particular two very powerful hedge funds named SAC Capital and JANA Partners, didn’t see it that way. The two firms—led by, respectively, Steve Cohen and Barry Rosenstein, two giants in the financial world—owned 8.4 percent of TD Ameritrade’s stock, enough to be able to make their opinions heard.
In late 2006 and early 2007, Joe had informal talks with Charles Schwab, and floated the idea of a possible merger. Joining Schwab would have made a certain strategic sense. Counting E-Trade, there were essentially three big players left in the space. Combining two of them would have created one of the biggest non–Wall Street–based financial services companies in the world.
Schwab decided that it was still not interested in any sort of merger. Joe had continued, off and on, to talk with Caplan at E-Trade. But by 2007, Joe was getting even more worried about the mortgages on E-Trade’s books. Unlike in 2001, Joe now had the luxury of staying put. He didn’t have to do a merger or an acquisition to survive or even thrive.
SAC and Jana did not agree. The hedge funds are both known as “activist” shareholders; that is, they seek to identify hidden value in a company, then through either accumulating shares in the company or using public pressure (or most of the time, both), they try to push the company into action.
In this case they wanted TD Ameritrade to combine with either Schwab or E-Trade. On May 29, 2007, the activists sent a letter to TD Ameritrade’s board urging that course of action because of the “massive value creation opportunity.” After sending the letter, the activists began a full-scale assault on the board, calling each of the members individually, writing e-mails and more letters. “There was no technique they didn’t use to get at us,” says board member Ed Clark.
Their cause was helped by the fact that, according to MacDonald, the hedge funders had one key TD Ameritrade board member in their corner: Ricketts. He again wanted to pair up with E-Trade and regain some of the control that he had lost.
But both Joe and Clark agreed that a merger with E-Trade would be a very bad idea. Not having Ricketts in their corner was troubling, to say the least. But Joe started to fret about the other board members, too. “They were under tremendous pressure and I was worried that they would crack,” says Joe.
He called an emergency meeting in New York. At that meeting, he and his management team hit on a bold plan. They didn’t have anything to hide. Why not go public with the whole thing?
And that’s just what they did. TD Ameritrade released the letter from the activists to the media with a response from Joe in which he pointed out that his company hadn’t exactly been sitting on its hands for the last six years. They’d done eight deals. And if something ever made sense for their shareholders, Joe wrote, he’d do it in a heartbeat.
The press loved his gumption. Joe did the business TV show circuit where his blunt, no-BS style was particularly effective. On each show, Joe reiterated what he had said in his letter. Then he would tack on his masterstroke, saying: “Look, SAC and JANA are just doing their jobs. They want us to merge, they want a pop in the stock, then they want to get out. That’s fine. That’s their job and I respect that. But my job is to do the right thing by our shareholders. If we thought E-Trade was a good combination and would be good for the long-term interests of this company’s shareholders, we would do it. But we just don’t believe it is.”
With that, it was all effectively over. By going public with the letter and the response, Joe had accomplished three critical objectives: He had framed the debate in his favor. By alerting the public that these two activists were interested in TD Ameritrade, he had made the stock price rise—which, of course, prevented SAC and JANA from buying any more shares. And he’d successfully nipped in the bud—once again—a possible board insurgency.
Game. Set. Match.
(Both SAC and JANA would sell their shares later on for handsome profits.)
Not doing a deal with E-Trade turned out to be one of the best moves Joe ever made. As it developed, in late 2007, E-Trade became one of the first financial firms to be hit by the bursting of the housing bubble. Caplan left E-Trade that November. “I have nothing but nice things to say about Joe. He was always honest and straightforward with me. We remained congenial throughout,” Caplan says. Joe called him the day he resigned to wish him luck.
In 2008, when the world’s debt bill finally came due, the overleveraged world economy was brought to its knees. Americans saw more than a quarter of their net worth wiped out in a flash. Lehman Brothers failed. Joe’s old company, the once-conservative Merrill Lynch, lost an almost inconceivable $28 bil
lion because of its gamble on subprime mortgages, and was sold on the cheap to Bank of America. E-Trade lost $1.3 billion and nearly sank.
But TD Ameritrade prospered. In 2008 the company had its sixth straight year of record growth. As the rest of the financial world crumbled, TD Ameritrade made a profit of $800 million, its record. Its performance during that time remains one of the most underreported success stories from the 2008 financial crisis. The old mantra stands true: you don’t get credit for not doing something stupid.
What happened during the financial crisis, especially at Merrill, with which he still felt an emotional connection and where he still had many friends, hurt and angered Joe. His old firm essentially went under because its leaders forgot for whom they worked: their shareholders and their employees. “Merrill had something like eighty thousand employees,” says Joe. “Many, if not most of them, had their hard-earned money in the company’s stock. That all just disappeared. That’s just not right. Those leaders, at Merrill and elsewhere on Wall Street, were never really punished for what they did. There should have been consequences. They should have given back the money they made on the bubble. Or there should have been some sort of legal ramifications.”
Joe never took his eye off what he believed was his fundamental duty at TD Ameritrade: to take care of the shareholders and the employees.
During his tenure at TD Ameritrade, client assets grew from $24 billion to $300 billion, and the market cap went from $700 million to $10 billion. And the company grew its revenues every year.
“What Joe did was unbelievable. Under his guidance, the company followed the best possible path it could have followed,” says Silver Lake’s Roger McNamee. “I give a lot of credit to Ricketts, too, for hiring Joe and for listening to him even though his instincts might have told him not to.”
The Ricketts family even gave Joe his due. “He was critical to our success during that time,” says Pete Ricketts.
After all, despite their differences, Joe’s tenure at TD Ameritrade paid off with a very tangible benefit for them. In 2009, the Ricketts family bought the Chicago Cubs, one of the sports world’s most recognizable franchises, for $845 million, the largest amount ever paid for a baseball team. A lot of that money was the fruit of Joe’s vision and work. (In 2011, J. Joseph Ricketts resigned from the board of the company that he founded in 1975.)
In late 2008, Joe retired from the CEO post and became TD Ameritrade’s chairman. His work there was done. In his last year Joe made $21 million, 90 percent of which was based on the performance of the company’s stock. He also owned $121 million worth of TD Ameritrade stock. “Joe created wealth for himself and for his shareholders,” says Caplan. “Not every CEO does that.”
What Joe loves and craves most of all in his work life is intensity. He finds it quite rapturous. It allows him to blaze each day rather than shuffle along, to be acutely aware that he is alive. He has sought out and achieved this intensity all of his life, starting in his childhood, when he worked hard to become a good student and athlete while also pushing the extracurricular “bad kid” stuff—the drinking, the fighting—right to the edge.
Some people shrink in the face of such intensity. Joe thrives under it. He can get anxious and emotional, sometimes even short-tempered enough to raise his voice, in the days and weeks leading up to an event. But when the moment arrives—during an earnings call, or a critical moment in a football game—something comes over him, some sort of serenity. That calmness and cool filters down to others. It is the true key to his uncanny ability to lead.
To invoke an old cliché, Joe loves the journey, not the destination. When a destination is reached, Joe then gets restless, bored. At Merrill, he seemed to have peaked in 2001. So he sought out another challenge, and found it at TD Ameritrade. In 2008, with his goals accomplished, and with the company enviably situated after the financial crisis, that journey, too, had come to its end.
And so he stepped down, intending to relax and enjoy some free time. Instead he was soon to resume the journey he had never completed—as a football coach. Finance has its intense moments, to be sure: the daily eye on the company stock price, the quarterly earnings calls, the deal making and deal breaking. But coaching was king. “Nothing is more intense than in-season football,” says Joe.
He had no idea how intense it was going to turn out to be—both on and off the field.
Chapter Fourteen
Endgame
The Nighthawks’ end-of-the-season gathering starts out slow, a subdued affair at a local sports bar not far from the stadium. Players stand next to each other, staring into space, nodding, in mourning. Nearly all of the players are in attendance, even the teetotalers. Joe’s not there, but a handful of his coaches are.
But the night eventually gains in volume and momentum. The next stop is a crowded nightclub located in a strip mall in west Omaha, and when that shuts down at 2:00 a.m., a group of twenty or so players and coaches ends up at center Donovan Raiola’s house for the after-after party. There, the tone is different. Eyes are off the rearview mirrors. The past is forgotten, at least momentarily.
The party goes on well into the morning. An hour or so before sunrise, Jay Moore, who is living with his parents, calls his mother, and she comes to pick him up, still in her pajamas. The other players present seem to take that as some sort of sign, and gradually they all begin to drift home, disappearing into the lifting darkness.
But while the team has been out, and even while they’re sleeping off the night the next morning, Joe has been planning. He’s been on the phone with Hambrecht and Huyghue. He can’t accept the season ending the way it has.
At 3:00 p.m. the next day, the players amble into the Kroc for a meeting called by Joe. They are all expecting official word of the end of their season.
“Stewie,” says Joe to Schweigert. “How was the party last night?”
“Still going, Coach.”
Joe smiles, then pauses a moment. “Okay, guys, listen up. Here’s why I brought you in today. I know last night you heard that Virginia and Vegas are playing next week in the championship game and that we are done,” he says. Then he adds: “But that might not be the case.”
Joe explains that he has worked out a scenario with the owners wherein the Nighthawks would play once more, a sort of UFL consolation game, against Sacramento. The game would be in Omaha.
“I want to play Sacramento,” Joe says loudly, maybe the only one in the room with any energy left.
He surveys his troops, clearly expecting them to jump to their feet and erupt with excitement. But there are no cheers, only a general murmur. Joe looks stunned.
“Wait, don’t you guys want to play?” he asks.
“I do, Coach. I want to play,” says Schweigert.
Joe looks around the room. “How about the rest of you guys?”
There are a few garbled words in support of the idea, but the players remain in their seats, talking quietly among themselves. They don’t seem overly enthusiastic, especially the veterans, who seem emotionally and physically drained. They tell Joe they’d like to discuss the matter privately. Joe and the coaches leave for their own room. It turns out that they, too, are divided, roughly along offensive and defensive lines.
There is a concern among some of the coaches about the players’ state of mind. “The players assumed this season was over, Joe. Some of them have already made plans to go home,” says Olivadotti. “They’re sick of being yanked around by this league. They may have already checked out. And we really don’t want to play a game with guys who don’t care anymore.” He’d seen plenty of NFL teams quit on a season, and it was never pretty.
Andrus has a different take. “Don’t you think these guys want another chance to get on film for the NFL? Don’t you think they want to redeem themselves? You don’t think Masoli wants another game? Or how about Wolfert?”
The division among the sides is perhaps predictable. The defense has just played a game for the ages, and firing up the engine
again for one more performance like that may prove difficult. The offense, of course, wants one more chance to prove itself.
Joe listens, takes it all in. “Let’s see what the players say.”
Minutes later, the coaches head down to the players’ room. The players have decided they do want to play, but they have a serious concern: will they be paid? They are wary of a league that has had trouble paying off its own bills and, as they’ve recently learned, is currently being sued by its own chief operating officer—the man in charge of paying the league’s bills—for failure to be paid himself. (The case would eventually be dismissed.)
Joe tells them he will make sure the league pays their $5,000 game check, and that he will throw in an extra $1,000 if they win. He also tells them that the team will cover their expenses to get home.
“The only thing I ask from you guys is that you not just go through the motions in this game,” he says. “I want you to treat this like the championship game.”
Suddenly, from the back of the room, Don Lawrence raises his hand. “I have something to say,” he yells as he makes his way toward the front, teetering a bit, like an ocean buoy. “Do you guys hear what this guy is saying? What he’s going to do for you?” This is not the usual mild-mannered Lawrence. He is almost seething. “If you guys don’t appreciate this guy you are a bunch of freaking dumbasses.”
Then he puts his head down and retraces his steps to the back of the room.
The Nighthawks are in. Joe gets his wish. But he worries: Has he put his own desires over those of others? And if so, will that come back to haunt him?