A few months after the merger, Dimon and a group of JPMorgan Chase’s senior executives were having a dinner in a private room at Le Bernardin, when Ina Drew, then head of the bank’s treasury group, walked into the room and announced that Sandy Weill and Ken Bialkin were eating in the main room with their wives. Jay Mandelbaum and Bill Harrison decided to go downstairs and invite Weill up to say hello to the team.
Weill did come to say hello, and Dimon went down to visit Joan Weill. A number of longtime JPMorgan Chase executives had never met Weill before, and were excited to meet the banking legend. They peppered him with questions about, for example, his opinion of their own performance, and the rumor that Weill had been on the verge of buying Deutsche Bank. He had been, he replied to the latter, but the German company’s CEO, Josef Ackermann, had backed out at the last minute.
His defenses down, Weill spent forty-five minutes with the JPMorgan Chase team before graciously taking his leave. Word came back the next day that upon returning downstairs, Weill had told his dinner companions that the team had shown him more respect than Chuck Prince had offered since Weill had made him CEO of Citigroup.
One important constituency wasn’t thrilled about the merger: the Dimon family. Dimon had moved three young girls to Chicago at a challenging age, and here he was, four years later, proposing to move the two who were still in high school back to New York. “There’s been a lot of crying in the household these last two days,” he told reporters when the deal was announced. Judy Dimon, who had taken nearly a year to adjust to Chicago, wasn’t ready to pack her bags yet, either. (This is not to say she didn’t support the move. When he asked her opinion, Judy told her husband, “We’re not getting any younger. And this is your chance to do something great.”) The decision was made for Judy to stay put until the youngest daughter, Kara, graduated from Chicago Latin in 2007. “Women would say to me, ‘Don’t you even dream about making Kara move and go to another high school,’” recalls Dimon. “So I commuted for two and a half years. That was painful. I had no idea how hard it was going to be, being away from home four days a week. Leaving home on Sunday night to come back to New York was depressing. I hated it.”
The family eventually purchased a second apartment on Park Avenue for $4.875 million in December 2004, combining it with the one they already owned. Built in 1929, their apartment building is one of the few left in Manhattan with a grand courtyard in the middle. The triple-arch entrance suggests opulence within.
Still, the Dimons’ apartment somehow manages to be understated despite its oversize footprint. “For a long time, most of our furniture was hand-me-downs,” Dimon recalls. “Sure, we could afford better stuff, but the kids were there and we had a dog and I never wanted to be the kind of parent who was always worried about the kids spilling something. I still don’t. But when we came back, we renovated it.” That said, it is still a place where you can entertain 100 brokers on the terrace on a Sunday.
• • •
When Dimon stepped into Harrison’s shoes at JPMorgan Chase, he was, for the first time in years, in an unfamiliar role. Unlike Sandy Weill and Chuck Prince, Dimon had yet to run a global mega-bank, with innumerable moving parts.
His first move was to expand the company’s profit centers from five to six—the investment bank, retail financial services, credit cards, commercial banking, treasury and security services, and asset management. The first three were the largest in terms of revenue and profits, but the last two had demonstrably superior returns on equity.
The merger actually was a good fit, as there had been little overlap among the two companies’ business lines. In the first quarter of 2004, for example, JPMorgan Chase earned 57 percent of its net income from its investment bank and 22 percent from retail banking and credit cards, whereas 59 percent of Bank One’s earnings came from retail banking and credit cards, 31 percent from corporate loans, and 10 percent from asset management.
In strong markets, the combined company hoped to see a disproportionate share of earnings come from investment banking and trading. When the market was choppy, the retail and commercial banking divisions might provide stability. And the treasury and asset management divisions were money machines requiring very little capital.
Specific roles took several months to be determined, but Dimon’s core posse from Bank One remained with the merged company—Mike Cavanagh, Jay Mandelbaum, Heidi Miller, Charlie Scharf, and his adviser Bill Campbell. Whereas Cavanagh, Miller, and Scharf went on to carve out well-defined roles as CFO, head of treasury services, and head of retail, respectively, Campbell became a part-time adviser. Dimon’s Praetorian guard stayed largely intact.
Dimon swears he doesn’t use consultants unless they are absolutely necessary, but he continues to use the services of Andrea Redmond, the recruiter who helped get him in the door at Bank One. (What better endorsement of an executive recruiter than the one who finds you for the job?) Redmond introduced one of the more recent additions to the company’s operating committee, its credit card chief, Gordon Smith, to Dimon in 2007. (Smith had been a high-level executive at American Express.)
Mandelbaum found himself with the most amorphous job, head of strategy and business development. Heritage JPMorgan Chase’s head of asset management, Jes Staley, had been concerned that Mandelbaum—having run asset management at Smith Barney—would be gunning for his job but the mild-mannered Mandelbaum instead settled into a role as one of Dimon’s most trusted sounding boards. The other was the firm’s general counsel, Joan Guggenheimer, the woman Dimon had long ago elevated over Weill’s daughter Jessica Bibliowicz. Both stood out for their ability to tell Dimon when he was wrong. “Whenever I have really complicated stuff, I give it to Jay,” Dimon has said.
(“Jamie is either in agreement with you or he’s going at you,” says one JPMorgan Chase executive. “With one exception. He will sit down and reason for hours with Jay. If something is really going wrong, you watch, the person who is behind him is Jay Mandelbaum.”)
When Dimon rolled into JPMorgan Chase, his reputation was largely unchanged from that he’d had before decamping for Chicago: a cost-cutter and systems integrator; a man who got excited by finding ways to collapse 10 different credit card processing technologies into just two or three. But Bill Harrison quickly realized that the Jamie Dimon who returned from Chicago was different from the one who had left New York. Mergers take their toll on institutions, and if people aren’t happy, they will leave, raise hell, or rebel, and Dimon seemed to understand that. “A merger exposes how good a leader is very quickly,” recalls Harrison. “And Jamie got his hands around things very quickly.”
Two things surprised Dimon out of the gate. The first was a practical issue. The company’s technologies were far less integrated than he’d thought. The second was about the enduring nature of a powerful brand. “We could get off a plane anywhere in the world and the prime minister would want to see us,” he recalls. “I knew the name was good, but I didn’t know how good that calling card still was.” (The bank, for example, has been doing business with Saudi Arabia’s national oil company, Saudi Aramco, for 70 years.) If he could get everything moving in the right direction, he would have something he never had at Bank One or at a pre-Citi Travelers: a gold-plated corporate name on which he could capitalize.
As always, Dimon stamped out internal politics wherever he could. In early executive meetings at JPMorgan Chase, a few people thought it in their best interests to try to pull him aside afterward and whisper their thoughts about this person or that one. He quickly made it clear that he was uninterested in such grade-school tactics. “If you can’t say it in the room, don’t say it at all,” he told more than a few executives. (He later elaborated to Fortune on his irritation with obfuscation. “In a big company, it’s easy for people to b.s. you,” he said. “A lot of them have been practicing for decades.”)
He also sought out people he refers to as “culture carriers”—those who might give him insight into the way the old JPMorgan Ch
ase had worked, and where there was room for improvement. He took these people out, one-on-one, for a drink at the Helmsley Palace bar, the Lowell hotel, or the King Cole lounge in the St. Regis hotel, just to chat. One executive, who is gay, found Dimon’s forthrightness so disarming that he quickly came out to his new boss. “It took me five years to come out to my previous CEO and 10 years to come out to the one before him,” he recalls. “But Jamie Dimon has no bias. He’s only biased against dishonest, game-playing people.”
Dimon occasionally revealed his soft side. At a “town hall” meeting he held with secretaries in the company’s London office, one secretary stuck up her hand. “Mr. Dimon,” she said. “Yesterday my boss had me work for three hours—half of my afternoon—researching and booking a cruise for his mother.” Thinking she’d just busted her boss, she waited for Dimon’s temper to flare. “For his mother?” asked Dimon. “Yes,” she replied. “Well, if it was for his mother, that’s OK.” Dimon’s reports are nearly unanimous in pointing out what they consider to be the sincere, warm man hiding behind his relentlessness. When he smiles, they say, he is actually smiling, and not offering up a crocodile smile, what the old hands of Wall Street refer to as “grin-fucking.”
He also won over most members of the JPMorgan Chase management team who hadn’t yet worked for him. “He’s really smart and cerebral, with an incredible capacity for retaining facts and information,” says the commercial bank head, Todd Maclin. “But he’s also really good with people. If you looked at our operating committee, what you have is a bunch of people that aren’t very much alike. But every single one of them will just go to the wall for the guy, and for very unique reasons. He’s got an extraordinary ability to connect with people, help them do what he wants them to do, and also feel good about working for him.”
Early on, Dimon made a valuable connection to Bill Winters, a lowkey J.P. Morgan veteran who ran the investment bank with Steve Black. Winters and Dimon had never met before the merger. Although J.P. Morgan had been viewed over the past half decade as a second-rate collection of talent, Winters was a standout. After the deal had been announced but before it was formally approved, he flew to Chicago to meet his new boss. Winters was blunt. “You have a reputation for not liking two things—complicated derivatives and proprietary risk-taking,” he told Dimon. “But I can tell you that’s a lot of what we do. So why would you want to merge with us?”
“It’s not that I don’t like derivatives,” Dimon replied. “It’s only when I don’t understand them. So I want to spend some time getting to know them.” Dimon meant what he said. He spent his first year at JPMorgan Chase understanding markets he hadn’t been exposed to, and became supportive of the company’s derivatives business. “Nor do I have a problem with risk,” Dimon continued. “But what I can’t stand is when proprietary risk takers in a company have preferential access to the balance sheet and compensation in relation to other parts of the firm.”
Dimon explained to Winters that his problem with the Salomon arbitrage desk in 1998 was that Salomon’s traders did have preferential access to the company’s balance sheet and also got paid more, with the result that many of the firm’s smartest people wanted to work on that desk, siphoning intellectual capital away from the rest of the business. And when something went wrong for the prop desk, it did so catastrophically.
Winters promised Dimon that no such preferential access would be permitted. Dimon had made a strong impression on him, so much so that instead of looking for a new job, Winters decided to stick around. Black and Winters were named co-CEOs of the investment bank in March 2004, just over a month after Dimon’s arrival.
Dimon largely left the two men alone for the time being. The bank had suffered a large brain drain after the merger with Chase; according to one estimate, 80 of the top 100 people at the firm were gone within 18 months of the deal. But Black and Winters were rebuilding, and put together a revamped management team—hiring a trading standout, Matt Zames, from Credit Suisse; putting Carlos Hernandez in charge of equities; and moving the J.P. Morgan veteran Blythe Masters from the position of chief financial officer to overseeing commodities trading. They removed a number of management layers to enhance decision making and also revamped the company’s credit systems in the hope of more effectively controlling their exposures.
Winters focused primarily on the company’s credit and trading businesses out of the London office, while Black oversaw investment banking efforts from New York. The company made heavy investments in building out its energy trading capabilities as well as its mortgage-backed securities business. Co-CEOs tend to be a recipe for disaster in almost any industry, but Black and Winters struck a workable balance. They also told Dimon that if either of them appeared to be trying to stab the other in the back, he should fire them both.
One area that needed no rebuilding whatsoever was the company’s derivatives business. JPMorgan Chase had long held a dominant position in all manner of derivatives—in 2004, the company was the top player in interest rate options, interest rate swaps, and credit and equity derivatives—and at the time of the merger it held $37 trillion in notional derivatives contracts, more than half the derivatives held by U.S. banks and trust companies. A lot has been made of this fact, but Dimon had by that point come around to the argument that derivatives were a good business for the firm, provided the risks and exposures were monitored rigorously.
For starters, the “notional” amounts were almost irrelevant numbers when collateralization and netting between JPMorgan Chase and its customers were accounted for. The company’s net derivatives receivables at the time were actually far smaller, at $66 billion. That was still a large number, but not an outsize one compared with the rest of the industry. Morgan Stanley, for example, held $67 billion in net receivables at the time, and Goldman Sachs $62 billion. Both had far smaller balance sheets, as well, so JPMorgan Chase was actually taking on less risk, relatively speaking. (Still, the assumptions used in getting to that $66 billion were fraught with possible risk. If the investment bank’s risk managers were off on that $37 trillion by just 1 percent, that’s the equivalent of $370 billion, or three times the value of the entire company in early 2009.)
Much had been made by that point about Warren Buffett’s letter to the shareholders of Berkshire Hathaway in 2002, in which he wrote, “In my view, derivatives are financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal.” But as he also wrote in the letter, he agreed it was true that derivative securities allowed for dispersion of risk by market participants not inclined to shoulder it. Dimon saw both sides of the argument as well, and considered it a valuable business for his company to be in.
(Six years later, Berkshire Hathaway revealed substantial derivatives holdings on its own balance sheet, positions Buffett had personally established because of what he saw as mispricings in the market. “I’ll continue to say that used widely, derivatives pose systemic risk,” says Buffett. “But that doesn’t mean they’re evil. We’re holding $7 billion or $8 billion of cash attributable to ours. And I think these will work fine for me and not so well for the other guy.” In his 2008 letter to shareholders, Dimon showed that his own position had not changed, either. “With proper management, systemic risks created by derivatives can be dramatically reduced without compromising the ability of companies to use them in managing their exposures,” he wrote.)
Never one to lack swagger, Steve Black had told anyone who would listen after the merger between J.P. Morgan and Chase that he was going to build world-class capabilities in parts of the business where they were deficient. He’d been convinced that many of the previous decade’s mergers had been nothing more than “stacking doughnuts”—the holes in the business that had existed before were still there. In 2001, Black boldly predicted JPMorgan Chase would take its equities underwriting business to the top five within three years and to the top three in five, a claim that was scoffed at on Wall Street. At the time, the firm didn’t even
appear in the “league tables,” the year-end rankings of underwriters. But in 2003, it grabbed the number four position, up from eighth the previous year. And in 2004, it cracked the top three, ahead of schedule. Dimon knew to leave well enough alone.
Dimon charged into his work much the same way he had at Bank One in Chicago, with both elbows out. After he had been at the firm about a month, the new board of directors held a risk committee meeting. A number of division managers came before the board to make presentations about trading positions and other exposures; Dimon surprised most in attendance by showing that he was already familiar with most of their numbers. When one manager was unable to answer a particular question and said that he would report back to the board in a month, Dimon exploded: “No, I want to know tomorrow.” As the blood drained from the executive’s face, Bob Lipp thought, “Some of these people won’t last long.”
Lipp was right. Dimon swiftly removed managers who didn’t have the answers when he wanted them, and replaced them with people like John Hogan, a veteran from Chase Manhattan who took over as the firm’s chief risk officer in 2006.
Dimon went after “waste-cutting” with his usual zeal, shutting down 15 corporate gyms in the United States and Europe, removing fresh flowers from the company’s offices, and ending all use of executive coaches. (“We have to be clear that managing is the job of managers, not outsiders,” he deadpanned regarding the last move.) When he found out that a preponderance of high-level executives at JPMorgan Chase had their own chiefs of staff, he terminated the practice. Any consulting projects that cost more than $100,000 had to be personally approved by Dimon. Consulting costs plummeted. Staffers came to respond to certain queries by saying, “That’s going to be a Jamie decision.”
Last Man Standing Page 22