Then there was the issue of Maughan’s wife, Va. A onetime Pan Am reservation agent who had changed her name from Lorraine Hannemann, Va Maughan was a gossipmonger’s dream. Stories floated around that it was she, and not Maughan, who had negotiated his pay packages at Salomon. She reportedly once refused to allow a Salomon executive the use of her car and driver to take his sick baby to the hospital, and she also was said to have bragged about a relative in the Japanese mafia. Shortly after the merger, at a 1997 company retreat at the Phoenician in Scottsdale, Arizona, Va threw a fit when she found out that Jamie and Judy were in a room across from the Weills, whereas the Maughans were in a different building. The Dimons switched rooms to keep the peace, but the event foreshadowed an ugly and career-changing confrontation the next year.
• • •
There was no honeymoon after the Salomon deal. Just a month later, on October 27, the Dow Jones skidded 554 points—7 percent—when investors panicked over a developing crisis in Asian currency markets. After a decision by the Thai government to cut the “peg” of its currency to the U.S. dollar, the Thai baht itself collapsed, and the region’s currencies fell like dominoes, with similar collapses in both South Korea and Indonesia. Salomon lost $50 million in the process.
Weill and Dimon also received a quick lesson in the kinds of risks they’d taken on by bringing a bet-the-farm culture under the Travelers umbrella. Salomon’s equity risk arbitrage unit suffered a loss of $100 million betting that British Telecommunications would purchase MCI Communications. Steve Black disbanded the group, but the firm’s much larger fixed income arbitrage group remained intact.
Although the losses only intensified Dimon’s distaste for Maughan and the whole Salomon culture, the two men briefly found common cause, in a surprising situation. They combined to block another attempt at inappropriate nepotism by Weill.
Just as Weill had argued in 1996 for his daughter’s advancement against Dimon’s wishes, in early 1998 he pushed to have his son Marc, then 41, placed in charge of the firm’s fixed income arbitrage group. Dimon and Maughan were united in their conviction that the division was a potential powder keg in the wrong hands—and that Marc Weill’s were definitely the wrong hands.
When Marc was hired, Dimon had seen the possibility that Weill might mishandle his son. Accordingly, Dimon had insisted that Marc report to him, not to Weill. Dimon even had a conversation with Weill’s wife, Joan, and had pleaded with her to make sure her husband left Marc alone to do his job. Still, Dimon knew Marc’s limitations, and categorically refused to put him in charge of Salomon’s arbitrage desk. Weill backed down. In the future, when Dimon was no longer in his way, Weill pushed his son into roles beyond his capabilities, with far more money to manage—he ultimately oversaw $60 billion as well as the firm’s private equity initiatives—and even added him to the firm’s management committee. At that point, the pressure was too much, and he left the company in 2000. He later formed his own venture capital firm and focused on hobbies including collecting mineral specimens and flying radio-controlled helicopters.
The year did end on a somewhat high note. Travelers stock was the top-performing member of the Dow Jones industrial average in 1997, soaring 78 percent. Dimon earned $23.1 million plus another $37 million in stock options. To outsiders, it might have even seemed that he and Weill had pulled off another daring deal. At a Goldman Sachs investment conference in November, Weill said of himself and Dimon, “I’m Batman; he’s Robin.”
Behind the scenes, however, the trading losses at Salomon had put everyone on edge. Dimon and Maughan continued to circle each other warily, and Weill continually turned up unannounced at meetings. Dimon found the intrusions frustrating and disruptive, because the focus was usually the intricate details of the business that Weill was uninterested in—so that, invariably, Weill threw the meeting off course. As a result, Dimon sometimes scheduled important meetings for times when he knew Weill was out of town. Insecure about losing control, as had happened with Peter Cohen at Shearson, Weill resolved that he wouldn’t stand for such insubordinate behavior, even if that subordinate was named Jamie Dimon.
7. A BRIEF VIEW FROM THE TOP
In 1998, Jamie Dimon and Sandy Weill completed their 16-year climb to the top of Wall Street. But Dimon wouldn’t have long to admire the view. By the end of the year, he was facing the end of the partnership that had defined his career.
At Travelers’ regular planning group meeting in Armonk in December 1997, the topic was pure Weill: What next? Mike Carpenter, Travelers’ head of corporate planning, took the group through a number of possible merger candidates, including American Express, Goldman Sachs, J.P. Morgan, and Merrill Lynch. At some point, the name Citicorp was tossed into the ring, resulting in a chorus of incredulity. Citicorp was simply out of Travelers’ league—too big, too powerful.
Dimon remembered the idea for what it was—“the mother of all deals.” Conceptually, a merger made all the sense in the world. Citicorp was the global leader in virtually every banking product that existed, from credit cards to checking accounts, and Travelers was strong in almost every financial product outside banking itself, with Travelers’ insurance, Salomon Smith Barney’s brokerage and investment bank, and Primerica’s financial advisers.
But there was a glaring problem. Despite the reputation of Weill and Dimon as deal makers par excellence, Citicorp loomed high above them as the Tiffany of financial services companies. Travelers, by comparison, was a deal maker’s concoction, an agglomeration of parts. Although the deal might make sense in terms of complementary businesses, there was hardly any reason for the highly regarded, patrician CEO of Citicorp, John Reed, to consider ceding the top post to Sandy Weill in the event of a merger. And it was hard to see how Weill would accept anything less than being the boss.
But in raw numbers, Weill noted that Travelers’ market capitalization was not too far from that of Citicorp itself. His company’s brand might not be as respected as the global bank’s, but a decade of delivering for investors had pushed Travelers’ value to such a high level that the suggestion of such a deal could not be laughed off.
• • •
John Reed was a standout in the world of commercial banking. Considered the most visionary banker of his time, he saw the power of technology before most of his peers, giving Citicorp a leg up in the ATM business as well as in the use of databases to ferret out new business opportunities with current and prospective customers. He was a pinstriped banking man to the core, and he sat atop one of the world’s most admired companies, with $21.6 billion in 1997 revenues and $3.6 billion in net income.
A professional character, Reed also liked to hide in his office and communicate with his staff by memos. In this, he was the opposite of Sandy Weill, a relentless backslapper who liked nothing more than being in the trenches, among his employees. “Reed did not like people,” recalls a longtime colleague. “Give him a whiteboard and an office where he didn’t have to associate with humans and he could lecture for hours. Mind you, if he did run into you, he’d try to prove to you every day that he was smarter than you were.”
But the man was smart, smart enough, in fact, to realize that in a fast-consolidating financial services landscape, he had to remain open to any and all ideas about how to keep the company competitive. He realized that the bureaucracy of the giant bank he and his predecessor Walter Wriston had built was stifling the firm, that it needed a dose of adrenaline, and that it could do with a bit of balance. Despite its size and reputation, the company occasionally stumbled in a very big way. Ten years before, for example, it had endured the largest loss in corporate history as a result of the Latin American debt crisis.
Word had gotten out that Reed had recently spoken to Harvey Golub at American Express about combining the two firms, and although nothing came of the discussions, the episode showed an openness that Weill found encouraging. In December 1997, when Weill called Reed to suggest that they get together for a chat, Reed proposed meeting in Washing
ton on February 25, when they would both be attending a Business Council meeting of prominent CEOs.
Reed didn’t quite know what he was in for. When he knocked on Weill’s hotel door at 9:00 P.M., he thought Weill was going to ask him to spend $25,000 for a table at a charity dinner, or something of that sort. Instead, Weill had his sales pitch all ready to go. Reed was barely through the door when Weill launched into his vision of a merger of equals, a combination of the two firms that would sit powerfully atop the financial world. He proposed sharing the leadership role as co-CEOs, and splitting the board 50-50 with directors from both companies.
Reed did not reject the idea out of hand, and the next morning at 7:00, Weill was on the phone with Dimon. Monica Langley recounts their conversation. “You won’t believe it!” Weill said. “This could be the greatest deal of all time!” Although he’d been kept in the dark about the meeting with Reed, Dimon knew what his boss was talking about. “The mother of all deals?” he asked. “Yeah, the deal to beat all deals,” Sandy replied.
Dimon was floored. This was the dream they’d been talking about for the better part of a decade. From their modest beginnings in Baltimore—indeed, from the listless days in the Seagram Building in 1985—they had somehow managed to get to this point, the absolute pinnacle of their industry. The mother of all deals was no longer just a joke to be bandied about during bullshitting sessions.
Upon reflection, Reed found the idea compelling enough to suggest that Weill continue discussions with Citicorps’ vice chairman Paul Collins, and a second meeting was scheduled for March 2. By this time, Weill felt it important enough to bring both Dimon and the head of corporate planning, Mike Carpenter, into the loop, and the two men joined Collins and Weill on March 5 at Weill’s apartment to continue figuring out how such a combination might work. Over the next few days, Dimon himself fielded most of Collins’s financial questions about a deal.
• • •
The two companies’ teams agreed to meet in Armonk on March 20 and 21, once Reed had returned from a trip overseas. In advance of that, however, Weill invited Reed to a private meeting on the evening of the nineteenth, and it was over dinner that he secretly dropped the first of several bombs designed to curtail his protégé’s ambitions.
Having noticed that Reed had taken a liking to Dimon, Weill later wrote, he told Reed not to view Dimon as the eventual CEO of the combined firm. “Don’t do this deal in order to get Jamie as a successor,” Weill said. “You’ll have to see for yourself, but there are issues here you aren’t aware of.” Little more was said on the issue, but an inexorable process had begun. (James Robinson had dispatched Sandy Weill in part by co-opting Peter Cohen. Weill would be damned if that was going to happen to him again. This time, he wasn’t going to go “up and out.”)
Over the next two days, the teams hashed out much of the conceptual framework for a merger, including a name—Citigroup—and a plan that the company would have three main divisions: the corporate investment bank, the consumer business, and asset management. Dimon quite reasonably assumed that he would be put in charge of running the corporate investment bank, the same job he had shared with Maughan at Salomon Smith Barney.
What he did not consider, given his place on the boards of Travelers and its predecessor companies for several years, was the possibility that he would not be on Citigroup’s board. And that’s when Weill lobbed bomb number two. In mid-March, while the two men went over details of the deal at Weill’s apartment, he turned to his longtime lieutenant and said, “Jamie, you’re not going to be on the new board.”
This statement marked the final and irreconcilable breach in a relationship that had once been closer than the bond between most fathers and sons, even if the two men chafed at such a notion. It was not just another disagreement. Weill was telling Dimon that he was never going to become CEO of Citigroup. This was the end, albeit at this point more figuratively than literally.
In the fairy-tale version of Dimon’s career, he succeeds his mentor and leads Citigroup to greater glory. In the fairy tale, Citigroup is not on the verge of extinction 10 years later, while Jamie Dimon is leading one of its only healthy competitors. The future of American banking, in other words, was shaped by this very moment. How much different history might have been had Sandy Weill done what Dimon fully expected him to—assure him that the job would soon be his. But Weill was not yet ready to think past his own career. He was living in the present, and he was sick to death of Dimon’s thinking they were equals. Dimon was his junior partner. And he didn’t need a junior partner on the board when he had an equal one in John Reed.
Dimon was dumbstruck. “Sandy, I’ve been building this company for 15 years with you—please don’t do that to me,” he sputtered. Weill then launched into a tortured rationale to explain why it wasn’t possible for him to do what most people assumed was a fait accompli. He had agreed with Reed that no insiders other than the co-CEOs would be on the combined board, he said. Dimon didn’t buy it, arguing that his place on the board could be justified by putting another Citicorp executive such as Paul Collins on it as well. Weill countered with Bob Lipp. What would Lipp think if Dimon were appointed and not he? “Sandy, go ask Bob,” Dimon replied. “Bob will tell you to put me on the board.”
What’s more, Dimon said, there was a point of pride. There had already been much discussion about his being president of the combined company, and he pointed out that in the event he did have the title, he would be one of the only presidents of a major public company not on its board. In other words, it was an embarrassment, a snub. But Weill was resolute. “We’ve decided.” At that point, Dimon couldn’t take it anymore, and left.
Shell-shocked, he later told a friend, “My God. I helped build Travelers.” Frustrated as he was by what he saw as the unfairness of the situation, Dimon somehow failed to grasp the larger implication of Weill’s remark. Sandy Weill had begun to dismantle what had been corporate America’s longest-running, best-known, and most widely lauded succession plan.
• • •
The next few weeks were filled with phone calls and meetings to make sure the deal went off without a hitch. Weill called Alan Greenspan to make sure they’d at least get preliminary approval from the Federal Reserve. He called Secretary of the Treasury Robert Rubin, who actively lobbied for repeal of Glass-Steagall, ultimately making the transaction legal. (Rubin subsequently resigned from the government and joined Weill at Citigroup. He earned $115 million from Citigroup over the next decade before resigning under a cloud of criticism in early 2009.)
On Saturday, April 4, 1998, the two companies’ boards approved the merger. By Sunday afternoon, Weill couldn’t contain his excitement anymore, and called John Reed to suggest that the two of them call President Bill Clinton. There was no reason they needed to do so, but Reed went along. Weill, after all, had just completed the greatest roll-up in history, culminating with the largest merger of all time—a $70 billion combination.
The deal was announced Monday, April 6. Fortune magazine wrote, “We are at ground zero of one of the most fascinating business and management stories ever to come along.” As astonishing as the deal itself was the ability of the two management teams to keep it a secret for as long as they did—further testimony to Weill’s prowess as a deal maker. As a result, his fame rose even higher. In a story in the New York Times, Peter Solomon, the onetime vice chairman of Lehman Brothers, paid Weill the ultimate deal maker’s compliment. Weill, he said, “has the audacity to merge up.”
It was more than just one huge transaction. The die was cast for a new model of banking, and competitors had to get with it or get left behind. The industry soon convulsed with deals. NationsBank and BankAmerica merged in a $64.8 billion deal. First Chicago and Banc One entered a $30 billion Midwest marriage. And Bank of New York made a play for Mellon Financial. None of those, however, excited investors and the press as much as the Citigroup story. That creation, after all, was complete. Advertisements promoting the creation of Sa
lomon Smith Barney had included the line, “We’re just getting started,” Now, in a presentation announcing the Citigroup deal, Dimon flashed a slide that simply said, “We’re done.”
• • •
It was only a few days after the ink had dried on the merger agreement signed by Weill and Reed that Weill launched bomb number three.
Shortly after the announcement of the merger, Weill and Reed met in Bermuda to develop executive roles at the combined company. They were joined by two lieutenants from each side—Dimon and Bob Lipp from Travelers, and Paul Collins and Bill Campbell of Citicorp, that company’s vice chairman and head of retail, respectively. (Campbell was a marketing legend. A Canadian, he’d helped create the Marlboro Man campaign during a 28-year career at Philip Morris.)
Monica Langley writes that when the absence of the four men was noted, they were labeled “the Untouchables,” on the assumption that their attendance at the session practically guaranteed that they would be given the most senior sub-CEO roles in the combined firm.
And at first, that’s what it seemed would happen. Reed, who had demonstrated respect for Dimon’s intellect and drive, had no problem elevating Dimon above other Citicorp executives in the combined company. “I’ve only met two men who can carry a bank balance sheet in their head,” Bill Campbell later observed: “John Reed and Jamie Dimon.” Dimon also felt he had something in common with Reed. “He could be a cold-blooded analytic, and so could I,” he recalls.
Given Dimon’s nearly sterling reputation on Wall Street, no one on the Citicorp side seemed to find the prospect unsettling. In addition to whatever operating role he held, he would be president of Citigroup, right underneath the co-CEOs.
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