He gutted executives’ benefits, eliminating country club memberships, first-class airline travel, 401(k) matching, severance plans, golden parachutes, deferred compensation, and change of control provisions. Performance would thereafter be rewarded solely with generous stock grants and options. Higher-paid employees were told that their health insurance premiums would be increased in order to subsidize those of lower-paid ones. He also instituted a “blood oath” similar to one he’d participated in at Commercial Credit so many years before. Members of the company’s executive committee were required to hold on to 75 percent of their restricted stock awards, even after they vested. Just as the rumors had flown at Smith Barney about toilet paper, rumors flew about Dimon at JPMorgan Chase. Did he really go down to the street and ask the drivers of parked Lincoln town cars in front of the building what executives had called for them? No. But in the view of many, this was the kind of thing their new leader was entirely capable of doing.
(One thing about Dimon that was no myth: when he said “casual dress,” he meant it. The first off-site meeting of the company’s operating committee after his arrival was in Nantucket. For the two-day retreat, executives had been advised to dress “casually.” When the team showed up in “office casual”—khakis and collared shirts—they were surprised to find Dimon wearing vintage tennis shorts that barely covered his thighs, and sneakers with no socks.)
In an attempt to make divisional managers more responsible for their bottom line, Dimon also pushed expenses that had somehow made their way into the “corporate” division back down to the units themselves. If there’s anything Dimon hates, it’s unallocated expenses. Sitting down with divisional managers in the summer of 2004, he explained that the profit and loss statements would need to be redone so that the results would better reflect the reality of their business. “OK, but we can’t do it for the 2005 budget, so we’ll do it for the 2006 budget,” one executive suggested. “Oh, no,” Dimon replied. “We’re going to do it right now. We’re going to get in this room and do it ourselves.”
JPMorgan Chase had been a longtime sponsor of the U.S. Open tennis tournament in New York City, and senior employees had long enjoyed the perks of taking clients to the company’s box at Arthur Ashe Stadium. But they didn’t account for the cost of these tickets in their divisional results. Dimon recognized the sponsorship as a valuable piece of branding for the company but also thought that individual units should “pay” for tickets out of their own budget, rather than have corporate simply cover the entire cost. As a result of this and other initiatives, corporate’s share of expenses plummeted from $5.3 billion in 2005 to just $1.1 billion in 2006. In 2008, a manager had to be prepared to take a $2,400 hit to his or her budget for a single U.S. Open ticket, making an invitation to a client a far more serious consideration than it had been in years past.
Dimon didn’t stop there. After finding out that regional bank managers at Chase made five times as much as their new colleagues from Bank One, Dimon slashed compensation at hundreds of staff positions by as much as 50 percent over the next two years. He also took aim at the company’s large outsourcing contracts, just as he had done at Bank One. In 2005, he canceled a $5 billion contract in which IBM was managing computer systems—in the process nullifying the largest outsourcing contract in history. “We want patriots, not mercenaries,” he told Fortune magazine.
Around the same time, Dimon gathered the firm’s top information technology people and told them they had six weeks to decide on a single computer system, covering the company’s retail deposit platform, general ledger, credit card processing, and customer identification systems. He told them that if they didn’t make the choice, he’d do it for them. In early summer, he cut matching programs for charitable gifts. These moves did not endear him to his spoiled colleagues. “He’s going down like cod liver oil,” one banker told Business Week magazine. Another told Euroweek, “The news that Jamie is flying in is similar to being told that Ivan the Terrible is coming for tea.”
It wasn’t all just cost-cutting and reprimands. In short order, Dimon put his stamp on the company’s strategic considerations, including whittling down Chase’s auto leasing business and eliminating a program to lend to owners of manufactured housing. In December, the firm took a majority stake in the hedge fund Highbridge Capital, a $7 billion outfit based in New York City. Jes Staley, head of asset management, had to convince a skeptical Dimon of the merits of investing in Highbridge, a move he’d been pushing for despite a lack of support from his own management team. But his boss had come around in the end. By the end of 2007, the unit was managing $44.7 billion in capital and was the largest hedge fund operation in the world. (In June 2009, JPMorgan Chase purchased the rest of Highbridge, making it wholly owned.)
Staley also decided to take Dimon on regarding an issue that struck several of his colleagues as a dangerous one—whether the company’s asset management group should stick with its proprietary offerings and not sell other firms’ funds. Just as he had done at Smith Barney, Dimon advocated a so-called “open architecture” in which the firm’s brokers were allowed to offer any number of funds, not just those from JPMorgan Chase. Staley insisted that they use only outside money managers to complement a core offering of in-house products. Colleagues referred Staley to Monica Langley’s book Tearing Down the Walls, showed him the part where Jamie and Weill’s daughter had quarreled over this same issue, and asked: did Staley want to suffer the same fate as Jessica Bibliowicz? “But that wasn’t Jamie’s way at all,” says Staley. “He once said to me in the middle of a disagreement, ‘Don’t change your mind unless you change your mind.’”
Staley ultimately convinced Dimon by appealing to Dimon’s own thinking on another issue. Dimon had shut down the IBM outsourcing contract because he believed that in financial services, controlling core technology and data was crucial to winning. Staley pleaded with Dimon that outsourcing asset management was in essence doing the same thing. “If you outsource it, you’re just going to be average,” Staley said. After battling for nearly a year on the issue, Dimon finally relented. “He wants to understand your business,” says Staley. “And he’ll give you his views. But it is your business unless you don’t perform.”
(Staley’s one concern was that Dimon would be unable to resist buying a brokerage firm to bolster the company’s equity unit. Staley felt that the brokerage business conflicted with that of the private bank. His concern was not unfounded. Dimon had even said in a speech that if Smith Barney were to go up for sale, he would be an interested buyer. “My biggest worry was that Chuck Prince would call up in the middle of the night in 2007 and say. ‘Jamie, here’s Smith Barney,’” recalls Staley. “How could Jamie have said no?” Luckily for Staley, in early 2009 Citigroup agreed to merge its Smith Barney brokerage unit with Morgan Stanley’s. The idea was officially off the table.)
With Charlie Scharf overseeing retail at Chase, he and Dimon instituted their policy of eliminating across-the-board bonuses for branch personnel and redeploying some of that money to top performers. Before they came, half of branch managers earned a bonus of $8,000 to $18,000. In the new system, the top generators of revenues and profits could earn as much as $65,000 in bonuses, whereas the poorest would earn nothing and quite possibly lose their jobs. (This was the same strategy they had implemented at Commercial Credit’s branch offices back in the 1980s, and then at Bank One in Chicago.)
True to his initial promises, Harrison did not try to impede Dimon from taking power out of the gate and making large-scale decisions about the company’s future—despite the fact that Dimon wouldn’t officially be CEO until January 2006. “It’s clear that Dimon has taken control,” the analyst Dick Bove of Punk Ziegel told Fortune in October. Not that Harrison minded some of the fringe benefits; when you hitch your wagon to a superstar, people notice you a little more. In October, the two men joined Charlie Rose for an interview at the Economic Club of Chicago.
The company’s 2004 annual report showed t
he extent to which it was now the Jamie Dimon show. The letter to shareholders, which had been four pages the previous year, now stretched to seven, and a number of Dimon’s mantras had found their way into its pages. The company strived to use just one set of numbers—both internally and externally—to bring clarity to performance. He gave the same presentation to analysts and investors as he did to the board. The term “fortress balance sheet” was now part of the official management lexicon. Harrison and Dimon also set a goal of 20 percent return on equity through the economic cycle, with the idea that they might achieve 30 percent in good years and maintain a minimum of 10 percent in bad ones.
These grandiose plans aside, the company still struggled to deliver on its bottom line. In the third quarter, with earnings down 13 percent, Dimon didn’t try to sugarcoat the situation. “These are terrible results,” he said. “We don’t feel good about it.” That left little for anyone else to say. If you admit your mistakes, Dimon’s theory went, you save yourself the hassle of having your critics point them out to you.
By the end of the year, 6,500 jobs—4 percent of the workforce—had been cut, and merger-related cost savings totaled $400 million. But lousy trading results sank the company’s overall earnings, which fell 34 percent, from $6.7 billion to $4.47 billion. The heads of stock and bond trading were both fired. As unimpressive as those results were, Citigroup was in much worse shape, still embroiled in all manner of controversies, including continuing fallout from the Jack Grubman debacle.
In an awesome display of the Dimon effect, the analyst Dick Bove interpreted the poor results as a positive, in that they would allow Dimon to continue to make changes at the company going forward. Bove was not alone. American Banker named Dimon Banker of the Year for 2004, in large part owing to the merger. On December 20, he was named to the Time/CNN list of 25 “business influentials.” He earned $7.9 million for the year, versus Harrison’s $8.9 million.
Still, the nagging question about Dimon refused to go away. Did he have the vision to drive growth without acquisition? There were only so many banks one could buy, after all, and the integration problems could very easily overwhelm any inherent benefits of a deal. Dimon could bring costs down; that was indisputable. But for the stock market to take a real shine to JPMorgan Chase, he would have to show that he could raise revenues more quickly than the competition. And that wasn’t happening. The combined companies’ revenues rose a meager 2.8 percent in 2004. Worse, the return on equity was a paltry 10 percent, well below that of the competition.
• • •
As 2005 began, the media were cheering Dimon on from the sidelines. Business Week named him one of its “managers to watch” in January, and followed that with an article titled “Dimon’s Grand Design” in March. But the stock market was still holding back its approval. The merger had been one of three major bank deals in 2004, and Bank One’s former shareholders were lagging in returns—their stock was worth 9 percent more now than at the time of the deal, versus a 36 percent gain for shareholders of SouthTrust (which had been bought by Wachovia) and 58 percent for shareholders of FleetBoston (which had been purchased by Bank of America). Much of the differential had to do with the lower premium Dimon had accepted to get the deal done, but it was a third-place showing nonetheless.
Dimon’s new colleagues had by now experienced his insatiable appetite for detail—there were no numbers or statistics that he wasn’t interested in, whether it was the number of tickets bought for a Billy Joel concert or the number of phone calls people made each day. “Sometimes, all that matters are the details,” he told USA Today. “Sometimes details will sink you. CEOs should drill down.” By drilling down, Dimon meant sitting down and spending three hours or more every month going through 50-page books prepared for him by every division head, with the numbers from the prior month. “One thing Jamie brought with him to the company is the commitment to understanding a basic fact,” recalls the commercial banking chief, Todd Maclin. “And that’s that every single risk you’re taking can be broken down to its smallest components and therefore be better understood. All it takes is time and effort.”
Dimon also brought the painful and laborious tradition of sitting down with the operating committee for eight hours each year to go over the rationale behind the compensation of every single one of the firm’s top 500 earners. Upset with the idea that other executives would have input into how to compensate their direct reports, some managers complained to Dimon. “Don’t they work for me?” he was asked. “No, they work for the company,” he replied. “How can you decide what to pay people if you don’t know how other people think about the job they’re doing?”
Despite the seeming sense in such practices, Wall Street—including much of JPMorgan Chase before Dimon arrived—usually tends in the opposite direction, toward secrecy and hoarding information. “If you’d asked someone else for their profit and loss statement before Jamie instituted this stuff, they would have told you to go jump in a lake,” says Todd Maclin. “It would be like asking to see their hemorrhoid scars. ‘That’s personal stuff!’ they’d say. ‘How dare you ask me to see my P&L?’ But now, it’s like they’re all posted somewhere on the company’s intranet. There’s just so much transparency.”
People were also becoming more familiar with his tendency for debate-driven decision making. When you worked for Jamie Dimon, he expected you to speak your mind. If you didn’t, he’d just as soon replace you. “I don’t care if we do the trade or don’t do the trade,” he told a reporter. “I care that we do it right…. If you work in a company where you can’t walk in the room and say what you think, you create an atmosphere where you don’t do the best you can and where people don’t disclose things.”
“Jamie brought a level of communication and consistent analytical rigor to the operating committee that was familiar to me from the old J.P. Morgan but that had gone missing between 2001 and 2004,” recalls Winters. “And he brought the fortress balance sheet mantra. The old J.P. Morgan had done some things right and some things wrong. A fortress balance sheet had been one of our tenets, but we lost it after we sold the company to Chase. Jamie brought it back.”
The emphasis on openness extended to what senior executives felt free to say to the media. Whereas, in later years, Sandy Weill did not tolerate outright criticism, Dimon’s reports at times seemed to be trying to one-up each other regarding how much they could get away with in terms of the backhanded compliment. “I’m not going to say he’s perfect,” Steve Black told USA Today. “[But] when you’re yelling and screaming and sticking your fingers in each others’ eyes, you’re treating Jamie as one of your partners, not as the CEO.” Heidi Miller, CEO of JPMorgan Chase’s treasury and securities services, voiced a similar point of view. “He’s not a saint,” she said. “He makes mistakes, but he lets you talk back.” And again, more about the yelling: “The yelling is never personal,” Miller added. “He doesn’t yell that much anymore.”
He would, however, get directly involved in any issue that he thought was hampering the bank’s ability to execute. Never having lost the taste for a profitable cross-sell, Dimon was incensed when the commercial banking head, Todd Maclin, told him investment bankers were preventing his people from contacting prospective middle-market clients. A heated meeting subsequently took place, during which Dimon relieved angry investment bankers of a number of clients, giving them to Maclin’s team. “The room was filled with hollering and yelling,” Maclin told Fortune. But Dimon did not back down.
What mattered to Dimon was that people got paid for performance and that the right people were doing the right jobs. That’s about it. “That’s why Americans love sports,” he told a reporter. “There’s a purity in it—you win or you lose—but in corporate America when you strike out, there’s always some excuse…. Leaders should step down when a company does poorly, not be given increased pay.”
As many years as he’d been in the business, Dimon had not yet grown bored with old-fashioned relentlessness;
he was like a football coach content to stick to a dominating ground game. “He just pounds through and pounds through and pounds through, as opposed to someone who tries really clever plays,” says Richard Bookstaber, author of A Demon of Our Own Design.
He was also investing for the future. In 2005, the bank invested $300 million in its retail branch network, opening 150 new branches and making strategic moves such as putting 270 ATMs in Duane Reade drugstores in New York and 200 ATMs in Walgreen’s in Arizona. The company also rebranded 1,400 Bank One branches under the Chase identity, and converted the remaining 560 in 2006. It also completed the largest credit card conversion in history, putting 30 million Chase and Bank One customers on a single technology platform.
Winters and Black, meanwhile, had focused on reducing the volatility of the firm’s trading through a number of initiatives, including their own investments in technology. They instituted tighter “stop losses,” triggers for bailing out of a losing trade. Trading results were less volatile in 2005 than in 2004—even as revenues were rising significantly—and that trend continued in 2006. The company also continued to make progress in the league tables, moving into the top slot in convertible bond offerings, high-yield corporate bonds, and leveraged loans in 2005.
Much of 2005 was taken up by pushing through the completion of the merger. The company spent $2.9 billion on information technology during the year, including $1 billion on technology platform conversions, more than its major competitors. Analysts were impressed with Dimon’s commitment to the drudgery of making the company’s in-house systems talk to each other. “Someone sneezes in their mortgage division, and someone in credit cards catches a cold,” observed the CIBC Oppenheimer analyst Meredith Whitney.
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