Last Man Standing
Page 18
Dimon decorated his office with a vintage 13-star U.S. flag, a four-star general’s helmet given to him by the former U.S. Army brigadier general Pete Dawkins, and a sign that said “No Whining.” He also put mounted magazine covers documenting his career on the walls, a self-aggrandizing custom he would give up later in his career.
For all its internal problems, Bank One remained a giant, the fourth-largest bank holding company in the country, with $36 billion in market value, $265 billion in assets, 1,800 retail branches, and 56 million credit card customers. Dimon flew to Columbus, Dallas, Detroit, Phoenix, and Wilmington in April to visit employees, and began restructuring the executive ranks. Several top managers departed, including the heads of corporate banking, middle market banking, and capital markets. Within a year, Dimon replaced all but one of the 13 executive committee members, with seven of the new hires coming from Citigroup, and followed through on his intention to reduce the board from 22 to 13.
The board had actually tried to make Dimon agree to keep Istock on as president indefinitely, but Dimon had balked, saying that the solution to infighting between the Banc One and First Chicago factions wasn’t to create two new competing factions atop the company. He also explained that if he was to be CEO, it would be he and not the board who would choose his executive team. It was hard for anyone to make the argument that Istock had done a bang-up job in the role anyway, he argued, considering the disarray at the bank. Dimon ultimately agreed to have Istock stay on for three to six months, with no one reporting to him, so that the two men might get to know each other. When that probation period was up, Istock left the company and its board, albeit with a healthy exit package. Dimon did not replace him.
Dimon refilled the board with his own allies, including Bob Lipp; Stephen Burke, the president of Comcast, who was a friend from Harvard Business School; and David Novak, Andrall Pearson’s successor as chairman and CEO of Yum! Brands. (Dimon was still a board member of Yum!)
Under the separation agreement he’d signed, Dimon was forbidden to solicit his former colleagues at Citigroup; but nothing prevented Bank One from hiring those who came to him. And come they did. In May, Mike Cavanagh, who had risen to be chief administrative officer and managing director of Salomon Smith Barney Europe, joined Bank One as senior vice president of strategy and planning, a new position. In June, Charlie Scharf, the CFO of Citigroup’s global corporate and investment bank, signed on to be CFO. In September, Jim Boshart came on board as head of commercial banking; and Dimon named Heidi Miller, who had left Citigroup in February to become chief financial officer of the Internet travel outfit Priceline.com, to the Bank One board.
He also hired the Citigroup veteran William Campbell as a consultant, tasking the longtime branding expert with the question of what to do with Wilmington-based Wingspan.com, the company’s ailing Internet banking operation. (It had accounted for $150 million in losses in the previous year.) The unit was being formally offered for sale, but Dimon wasn’t convinced that there was any “there” there to sell. He also brought his pal from the Seagram Building, Peter Freund, on board for a time.
(Sandy Weill can—and should—be given credit for the 12-year vision that took a tiny company called Commercial Credit and somehow ended up swallowing Citicorp. Once his creation was complete, however, he managed to gut the top ranks of the company in a remarkably short time. By the end of 2005, a dozen crucial colleagues who’d helped him build the company had left—Jim Calvano, Mike Cavanagh, Jamie Dimon, Bob Lipp, Marge Magner, Jay Mandelbaum, Heidi Miller, Joe Plumeri, Charlie Scharf, Joe Wright, Bob Willumstad, and Frank Zarb. The only person of note left from the Baltimore days was Chuck Prince, who held on long enough to be made CEO. Had those other people remained with the company, it is unlikely that Prince would have even been a top-five candidate for the job.)
The arrival of the New Yorkers raised concerns in Chicago that Dimon was merely creating Citigroup West. There was also concern in New York. Weill called to complain about what he perceived as excessive poaching, but Dimon was unmoved, telling his former boss that every single person who had joined him in Chicago was coming to a much worse company for a much smaller job and a lot less money. Dimon guaranteed his hires just a one-year contract at two-thirds of their previous salary—much the same approach Weill had taken at Commercial Credit. How could top talent be attracted by that? For the potential of sharing in the upside.
“If I were you,” Dimon told Weill, “I’d be looking inside to see why your people are leaving.”
The number of defections did suggest discontent inside Citigroup. Weill’s allies had been quietly pleased when no one except Black had initially followed Dimon out the door. But now it looked as if that was only because they were waiting until Dimon was in a position to hire.
The media were split on Dimon. Some coverage seemed to reflect a Weillian point of view. The trade publication US Banker published an article titled “Is Anyone Monitoring Jamie Dimon?” Business Week was even more blunt in its April 18, 2000, issue, asking, “Jamie Dimon: The Wrong Man for the Bank One Job?” and including a vague, unattributed criticism—“A dealmaker is a different personality than a leader.” CBS Marketwatch posted a report about how Citigroup was on top of its game at the same time that Bank One was on the bottom.
Other coverage was more complimentary, sometimes embarrassingly so. In June, Fortune published an article titled “Dimon in the Rough: The Problem Solver.” Bank Investment Consultant headlined its story “Boy Wonder.”
What no one grasped at the time was one of several ironies that mark Dimon’s career. The union of First Chicago and Banc One was, at least in part, a response to the creation of Citigroup just two years before. In effect, Dimon and Weill had scared the midwestern banks into a merger that failed to cohere, giving Dimon an opportunity to parachute in and play the hero. The specter of Citigroup, in good ways and bad, was still hanging over him.
• • •
Dimon confided in his old friends that his time off from work had mellowed him—that he was going to do it differently this time around. He wanted to buy a boat, he said, and take them on cruises around Lake Michigan. Plus, they would all go on vacations in Greece together. But the new Jamie Dimon never quite took hold. Within weeks, he was back to working long hours. “I’m still waiting for that cruise,” Mike Cavanagh recently mused.
(When Cavanagh’s wife, Emily, visited Chicago to scope out the housing market, Dimon asked her to join him for dinner at The Four Seasons hotel. When she told him how much the Cavanaghs were planning to spend on a house, he replied that her husband was lowballing her and that she should spend more.)
In late summer 2000, Judy and the kids made the move to Chicago. After taking care of school arrangements—the girls did end up at the Latin School of Chicago—Judy went into a funk for months. “I really missed close family and friends,” she recalls, “and wasn’t able to be immediately responsive to the open and welcoming ways of the Midwest.”
But she began to acclimate. In October, the Dimons paid $4.68 million for a mansion on Chicago’s “gold coast,” a 15,500-square-foot, 26-room pile with eight bedrooms, 11 baths, a game room, an exercise room, and a 900-square-foot roof terrace. The family had been living quite well for years, but this was something else—a trophy house that had been redesigned by the well-known Chicago architect Marvin Herman. One longtime colleague of Dimon’s described it as “like an embassy.” The Dimons had numerous parties at their home, including one on Halloween that was attended by several hundred people. True to his philosophy of no perquisites, Dimon neither asked for nor received assistance from Bank One in purchasing the residence.
(Although the entire family had moved back to New York by 2007, the Dimons still owned the house in Chicago in 2009. It was listed for sale for $10.5 million, a tough price for another young family to cough up during a recession. “We loved living there,” recalls Dimon. “But it’s just not going to sell and there’s nothing I can do about it.”)
Every Friday night, Dimon and Judy went to Mario’s Gold Coast Ristorante, a neighborhood favorite—and Sunday night was dinner with the family. When their daughter Julia introduced her parents to Luol Deng, a classmate from Duke who made the roster of basketball’s Chicago Bulls, they became fans of the team and attended a few games. Dimon even took up the guitar.
Dimon says he came to love Chicago and got involved in civic causes, joining the boards of the city’s Civic Committee, the Economic Club, and the University of Chicago, where his brother Peter had received a PhD in physics. After a lunch with one of his daughters at a South Side fire station, where they heard about the problem of finding victims in smoke-filled rooms, Dimon personally gave $1.2 million to the city’s fire department so that it could buy 120 thermal imaging cameras—one for every firehouse in the city. (Bank One also paid for 10 firemen to go to New York after 9/11 to help with the cleanup in lower Manhattan. Upon returning, one of the firemen presented Dimon with the boots he’d worn at Ground Zero. Dimon still keeps them in his office.)
For her part, Judy Dimon expanded on the work she’d been doing in education in New York City’s inner-city schools. She helped put together the Campaign to Expand Community Schools in Chicago, working alongside Arne Duncan, then deputy chief of staff to Paul Vallas, CEO of the Chicago public schools. (Duncan became Barack Obama’s secretary of education in 2009.) She also cochaired a $50 million fundraiser so that her daughters’ school could add facilities. “Serious arm bending,” is how she remembers the effort. “But a lot of fun.” The Dimons hosted about 15 different fund-raising cocktail parties at their house for various graduating classes of the school. She also cofounded another $50 million public-private partnership that transformed 150 of Chicago’s toughest public schools into community schools with extended operations, programs, and services.
Still, the city never entirely believed that the Dimons were there for the long haul. Jamie was dogged by questions regarding when he was going to move back to New York. In an interview with the Chicago Sun-Times, Dimon voiced frustration at not being taken at his word. “If I work here for 20 years, I die and they send my ashes back to New York, they’re going to say, ‘See, he wasn’t going to stay here.’”
There was at least one good reason to be suspicious. The Dimons somehow never got around to selling their Manhattan apartment. Both of Jamie’s brothers used it a bit during the family’s time in Chicago. At this point, Dimon was wealthy enough that he didn’t need to sell one house in order to buy another. But keeping a multimillion-dollar apartment as a crash pad for your brothers doesn’t exactly fit the profile of a man known for fiscal prudence.
• • •
The first six months at Bank One were not easy. Dimon says he was surprised at the extent of the company’s problems, as well as the severity of the measures they called for. After he held his first conference call with analysts on April 5, three kept their “hold” ratings on the company’s stock, while another reiterated a “sell.” There were serious doubts about the safety of the company’s dividend in the face of a pronounced weakness in earnings.
(Despite the chaos in 2008 and 2009, Dimon still calls 2000 the toughest year he’s ever had professionally, by a wide margin. As the new boss with a reputation for aggressive cost-cutting techniques—read: layoffs—he was a man people hesitated to be around, for fear of slipping up. “I was pretty much alone that whole year,” he recalls. “Working seven days a week.”)
Dimon faced the company’s shareholders at its annual meeting on May 16. In previous years, some 100 to 150 people had attended the proceedings; but more than 500 piled into an auditorium in 2000 to see their new superstar CEO, while another 100 watched on monitors in adjacent rooms. When one shareholder complained that service had deteriorated to a point where it was nearly impossible to get a live person on the phone, Dimon offered his own number. (Nine years later, when he and other executives had been hauled in front of Congress to answer for the sins of their industry, Dimon was told of one congresswoman’s constituent who had complained to her about being mistreated at the hands of JPMorgan Chase. He offered his number once again.)
The complaints did not stop there. Questions were raised about the company’s recent sale of $2.15 billion in real estate loans to Household International, about increased interest rates, and about the increasingly troubled credit card unit First USA. Dimon responded that he hoped First USA would return 1.5 percent on assets in the next year—versus just 0.6 percent in the first quarter of 2000—and adjourned the meeting after only 25 minutes. It wasn’t exactly the blockbuster performance that some observers had been hoping for.
Three months after Dimon’s arrival, the stock was back where it had been before he started, under $27 a share. Nineteen of 24 analysts who followed the company rated it a “hold” or a “sell.” Mike Mayo of Credit Suisse, long-considered the “ax” of the industry—the analyst with the most pull—maintained a “sell” he had initiated more than a year previously at $60. This was despite a note he had published after Dimon’s hiring: “Bank One got a home-run hitter in getting Jamie Dimon…. That’s a real coup for the company.”
Dimon let Wall Street know that Bank One would not be giving guidance on earnings until further notice. He then set about solving problems and did not issue bold pronouncements. There was a lot of sorting out to be done, and grumbling was inevitable. That summer, Barron’s talked of increasing pessimism among analysts about the bank’s prospects.
In his July call with analysts, Dimon established the guideposts by which the whole world could judge the company’s performance. He emphasized execution over grand strategic goals. He showed no inclination to go on an acquisition binge, preferring to focus on the most granular details—systems conversions, reporting structures, risk management, and financial controls. (“I always like to point out that I didn’t do a deal for four years in Chicago,” Dimon recalls. “Doing deals isn’t fun. The fun thing is actually building things.”) He also demonstrated the basic conservatism that he believes is the foundation of banking. Several years later, the companies that experimented with exciting but dangerous new concepts—Citigroup, which became obsessed with “operating leverage”; Merrill Lynch, which decided to hoard complex mortgage products—were the first to stumble when the credit bubble burst in 2007.
The analysts were, incidentally, right to be worried about the company’s dividend and earnings. Dimon concluded that the dividend needed to be cut in half. Such moves are obviously wildly unpopular with shareholders, especially those who own a lot of stock, and Dimon took grief for it. But there was no question in his mind that it had to be done. “We need the capital, we’re paying out too much, I’m not confident things are going to get better anytime soon,” he told one large shareholder, with his customary bluntness. “We’re going to cut it. It’s the right thing to do.” He went ahead and did so on July 19, freeing up some $1 billion in annual cash. (He did the same thing in 2009 at JPMorgan Chase in an effort to preserve capital in the midst of continued market turmoil. By then, the market knew enough to trust Dimon, and the stock rallied in response.)
Bank One’s problems, it turned out, ran a lot deeper than the credit card fiasco at First USA. With seven different deposit systems and five different loan systems, reconciliation problems emerged week after week. Corporate and middle market credit underwriting were disasters. The company had taken on too much credit risk, and wasn’t earning nearly enough on the capital it had deployed. From 2000 through 2003, the company wrote off some $15 billion in bad loans.
To cut costs, Dimon did as was feared and laid off 12,000 employees. He also
spent hundreds of millions of dollars to merge the computer systems, a move that quickly paid for itself. He introduced more than 2,000 new profit-and-loss statements, including one for each of the company’s 1,800 bank branches, and initiated a program in which retail employees could share profits if their branch hit its own targets. He installed a rigorous new risk-management system that was aimed at helping the company avoid excessive credit exposure in any particular industry, a decision that helped the bank fare better than many of its competitors in the technology and telecom meltdown of 2000.
Dimon turned the bank upside down, not only slashing expenses but also installing new incentive structures. Branch manager compensation was overhauled. Previously, all branch managers had received bonuses ranging from 5 percent to 12 percent of their salary. Henceforth, the top 10 percent of branch managers were to receive a bonus equal to 100 percent of their salary; the next 10 percent received 50 percent; the next 10 percent received 30 percent; and the bottom 30 percent would receive no bonus at all. This was an old trick Dimon had learned from Weill in his days at Commercial Credit. He also made a number of what he called “battlefield promotions” during the first year, promoting people before he would have in more normal circumstances because he felt he had no choice.
He and his senior team turned McCoy’s old office into what was nicknamed the “Lava Lounge.” They furnished it with old couches from bank branches and, yes, a bunch of lava lamps. This is where they brainstormed plans to change the culture of the institution. No issue was too small for their attention. When Judy told Dimon of a flickering Bank One ATM screen at a Walgreen’s in Chicago, Dimon called the company’s outside service vendor himself. When he was told that the problem had been “monitored” for six months, he fired the vendor on the spot.