Harrison was in tight spot, too. The industry was in the grip of merger mania, and if Harrison didn’t snap up Bank One, someone else surely would. It wasn’t just the company that was attractive—it was Dimon himself. Harrison desperately wanted Dimon as his successor, and started sweetening the terms. Upon completion of a transaction, the two men agreed, Harrison would remain chairman and CEO for two years, while Dimon would be president and chief operating officer of the company, with compensation equal to 90 percent of Harrison’s. After that, Harrison would relinquish the title of CEO to Dimon, while still remaining chairman of the board.
Dimon extracted further concessions. Despite the fact that JPMorgan Chase was much larger than Bank One—with $793 billion in assets to Bank One’s $290 billion—the board would be made up of seven outside directors from each side plus Harrison and Dimon. Two-thirds of the directors would have to vote against Dimon to deny him the top spot when the time came. The minnow was swallowing the whale.
In November, Dimon enlisted Gary Parr of the investment bank Lazard Frères as an adviser. The two men had known each other since 1993, when Parr had sold part of the insurance company Allegheny Corp. to Dimon and Weill. Harrison relied on his own in-house bankers. The two teams had their own code words for the deal. Bank One called JPMorgan Chase “Park” in its documents (the bank’s headquarters were on Park Avenue) and called itself “Clark” (its own Chicago head office was on Clark Street). JPMorgan Chase referred to itself as “Jupiter” and called the smaller Bank One “Apollo.” (Lazard made $20 million in fees for the deal; the JPMorgan Chase bankers were paid $40 million in an intracompany transfer.)
(Dimon’s go-to investment banker in 2009 was JPMorgan Chase’s own Doug Braunstein. But he’s not averse to using outside bankers if they earn their keep. “I have enormous respect for Gary Parr,” he says. “And if someone outside the firm brings us an idea, they will be compensated for it. I think it’s important that you’re open-minded to other people’s ideas. Braunstein was on the other side of the deal and I almost throttled him on three separate occasions. Ultimately when a guy’s on the other side you learn how good they are and you kind of want him on your side at one point.”)
By the close of the year, both men had made sure their boards were comfortable with the deal. The Bank One board, in particular, was happy with the succession plan, as it didn’t want a repeat of First Chicago and Banc One’s infighting. “We had shown that having a good CEO makes a huge difference,” recalls Bank One’s board member James Crown. “And with the company finally moving back up in terms of earnings, we didn’t want to put shareholders back at risk with a leadership that might reverse the gains that had been made.”
Early in 2004, Dimon reached out to his old friend Steve Black, who was now deputy co-CEO of the investment bank under its chairman, David Coulter, at JPMorgan Chase. He asked Black to dinner with him and Jim Boshart, as sort of a final check on the various issues and personalities involved in the potential combination. Black had already told Harrison what he knew about various people at Bank One. But Harrison was his boss. This was the guy on the other side of the table. After making sure Harrison and Coulter didn’t view such a dinner as inappropriate, Black and Boshart had a four-hour meal with Dimon on Saturday, January 10, at Aretsky’s Patroon on East 46th Street.
The next morning, a Sunday, Black’s phone rang at 7:00. It was Bill Harrison, anxious to know how dinner had gone. “These guys are close to getting this thing done,” Black thought to himself after hanging up the phone.
(Dimon had tried to hire Black at Bank One, but it was a very short conversation. Despite the fact that Dimon had already lured James Boshart—Black’s best friend—there was no way Black was packing his bags and relocating to Chicago. “I’m not moving,” he had told Dimon. And that was that.)
Black was right about things moving fast. After negotiating in earnest for about four months, the two men finally came to an agreement early that week. Harrison broke the logjam by offering a 10 percent premium, giving Dimon himself a paper profit of about $44 million on his Bank One shares. In a matter of days, the two made a $58 billion stock-for-stock deal, which was announced on January 14. The combined company had $1.1 trillion in assets (just below Citigroup, with its $1.3 trillion) and 2,370 branches in 17 states. It was also the second-largest credit card issuer in the country, with $123 billion in credit card loans outstanding. Bank One’s stock jumped 10 percent in after-hours trading while JPMorgan Chase’s slid a modest 4 percent.
(No one complained when Dimon moved back to New York, despite all the hullabaloo about his long-term plans when he’d taken the job at Bank One. He’d made money for his shareholders, and he’d turned a Chicago bank into a global player. It was enough.)
JPMorgan Chase stock wasn’t down for long. The influential analyst Mike Mayo—by this point at Prudential Securities—liked the deal and upgraded the shares. The stock bounced, pushing the premium up over 12 percent. At that point, Harrison called Dimon and said that if the stock climbed much further, Harrison would be forced to renegotiate. There was ultimately no need for this, and the transaction got done at a 14 percent premium. At a subsequent meeting with employees in Chicago, Harrison praised Dimon’s negotiating skills. “It’s been, without question, the most stressed kind of time a CEO can go through when you’re negotiating one of the deals. Particularly with Jamie. That’s also why I look older today.”
Dimon admitted a slight hesitation. “Two or three times, I felt deep anxiety about this deal,” he said. “It’s terrifying. Do you push the button or not? If you don’t, and this opportunity is gone when you want it later, you’ve made a horrible mistake. So I pushed the button.”
A group of shareholders later sued J.P. Morgan, Harrison, and Dimon, maintaining that Dimon had offered to sell his company for $7 billion less than the deal price if he could have the top job immediately. The accusation was that Harrison had thus overpaid—again—just so that he could hang on to his job for two more years. Both Harrison and Dimon denied any such thing, but the deal’s premium nevertheless raised eyebrows—not because it was big but because it was so small. In March 2004, Wachovia purchased SouthTrust for a 20 percent premium. Among the recent deals, Bank One had somehow sold out for the smallest premium of all.
Dimon later admitted that although he’d briefly considered selling the company to the highest bidder, he never tested the waters, not even bothering to gauge the interest of other potential acquirers, such as Wells Fargo. He justified the deal with JPMorgan Chase as the best fit for Bank One. (Others would snipe that it was also the best fit for Jamie Dimon.)
No matter what the terms were, the deal paved the way for Jamie Dimon’s triumphant return to New York, to go head-to-head with Citigroup. “We’ll give Citi a run for its money!” he told the press when announcing the deal. (Fans of bloodsports lamented that Weill had largely passed the reins to Prince by that point.) The irony was that for the second time in a row, Dimon had found opportunity at a company that had been scared into an ill-fated merger by the fear he and Weill had struck into the hearts of the competition while building Citigroup.
Dimon later revealed that the first person to call and congratulate him about the deal was none other than Sandy Weill. They had taken aim at J.P. Morgan & Company together almost 10 years before, and Weill couldn’t help celebrating the occasion, even if it meant more formidable competition for Citigroup. One word during the phone call was unclear to Dimon, however. Weill had said either, “You finally got J.P. Morgan,” or “We finally got J.P. Morgan.” There was no more “we.” It was a warm exchange, however, and the two men shared a laugh, as in old times.
Harrison’s last deal was his finest. The staid southerner had snagged the most sought-after man in the industry as his successor. After spending the prime of his career in the huge shadow that Sandy Weill had cast, Harrison ultimately bested his rival in the last, most important decision a CEO makes—whom to turn the company over to. Weill had Chuc
k Prince; Harrison had Jamie Dimon. Harrison also bested Weill when it came to graciousness on the way out the door. Whereas Weill clung to power as long as he could, eventually fumbling the succession process as a result, Harrison identified Dimon, persuaded him to come aboard, and then let go in exactly the manner he had promised.
The usual litany of articles followed. Time magazine: “Dimon’s Jewel.” Newsweek: “The Kid Stays in the Picture.” BusinessWeek: “Jamie vs. Sandy: An Epic Grudge Match.” Fortune: “The Deal Maker and the Dynamo.” Fortune best captured the mood with the following observation: “At last J.P. Morgan’s William Harrison has made a deal the market loves. Why? Because in buying Bank One, he’s bringing Jamie Dimon back to the big show, where he belongs.”
• • •
Despite all the carefully negotiated succession planning, Jamie Dimon still had a reputation for being somewhat difficult in the presence of anyone else’s authority. And two years is a long time for a man in a hurry to wait. How long before he and Harrison clashed? As one person close to Dimon put it quite clearly, “Jamie likes to take over.” Dimon had been unable to control his anger while working with Sandy Weill, with whom he’d shared an especially close relationship. But he barely knew Bill Harrison. For the previous four years, Dimon had been in total control, which was how he liked it. How would he bring himself to share power again?
Though Harrison had critics, almost everybody who’s ever worked with him or for him praises his character. Comfortable in his own skin and far less insecure than Weill, Harrison was able to let the 48-year-old president and CEO-designate have his customary bursts of passion without being threatened by them. Judy Dimon even asked her husband why he couldn’t be as patient and mature as Bill Harrison, a remark Dimon repeated at a number of leadership meetings with JPMorgan Chase’s employees.
What helped in the transition was that during their months of negotiations, the men had planned very carefully how they would jointly run the bank, and had determined which people were best suited for which roles. They had sketched out an organizational structure three or four levels deep in most places.
Dimon told his direct reports that if they felt they had a legitimate disagreement with a decision he’d made, they could go and visit Harrison together. His intention was to eliminate politics at the level beneath the CEO and president, for fear that politics would otherwise destroy the company. In return, he got nothing but cooperation from Harrison. “We both wanted it to work,” recalls Dimon. “He really wanted a successor, so he wasn’t fighting me. It was mature. We talked about everything. We weren’t competing.”
No big merger goes off without casualties, and at JPMorgan Chase there were a few, including those who had seen themselves in line for the job of CEO. Don Layton, who’d been a vice chairman in charge of all the Chase-related businesses and had spent 30 years at the company, quit when he found he’d be reporting to Dimon, with the result that Dimon was then in charge of finance, risk management, and technology, in addition to being president and COO. David Coulter, who had arranged to continue reporting directly to Harrison while sharing the office of the vice chairman with Dimon, was effectively demoted from chairman of the company’s investment bank in September 2004, when he agreed to become chairman for the company’s west coast business. (He left the company the next summer.)
That same September, Dina Dublon, JPMorgan Chase’s chief financial officer since 1998, announced her resignation. Dimon’s longtime lieutenant Mike Cavanagh, who had been running middle market banking, replaced her. (In a classic example of his occasional tone-deafness, Dimon announced at Dublon’s retirement party, “If you paid one dollar for Texas Commerce Bank, you paid a dollar too much!” Dublon had overseen the $1.2 billion deal, and several executives from Texas Commerce were in attendance.)
Dimon also sent the head of human resources, John Farrell, packing after the two failed to see eye to eye. In a lot of large companies, human resources tends to take on a life of its own, introducing new programs and acting as if it were a business in and of itself. Not so in Jamie Dimon’s world, where HR is about helping people get what they need, period. On the other hand, Dimon significantly expanded the company’s finance division, whose members would be put to work counting virtually anything that could be counted.
One person he did keep around was Jimmy Lee, the legendary J.P. Morgan banker who had pioneered the use of syndicated loans. A larger-than-life personality, Lee was also known for backroom politicking and front-room confrontations, but Dimon knew a valuable asset when he saw one. The Rupert Murdochs, Sumner Redstones, and Sam Zells of the world asked for Lee by name when working with J.P. Morgan. He also hosts an annual confab in Deer Valley that draws an enviable roster of heavyweights, including DreamWorks’ Jeffrey Katzenberg, General Electric’s Jeffrey Immelt, Microsoft’s Steve Ballmer, and the NBA commissioner, David Stern.
(Shortly after the deal, Dimon asked Lee to join him for dinner at the Post House, a steak house in the Lowell hotel on East 63rd Street. Moments after sitting down, Lee pulled a piece of paper out of his pocket and put it down on the table next to him. Dimon looked at Lee and said, “What’s that?” Lee replied, “It’s the list of things I needed to do today. I wanted to make sure I covered all the topics I wanted to talk to you about.” Dimon looked incredulous. “Let me see that,” he said. After a quick scan of the sheet of paper, Dimon threw it back at Lee dismissively. “That’s not a list,” he said. “Do you want to see a real list?” He then pulled his own out of his pocket. The two men laughed at their shared, antiquated approach to scheduling.)
As time passed and he handed more and more power over to Dimon, Harrison’s one disappointment was finding out that when you hire the most confident man in finance, it’s unlikely he’s going to ask for your advice very often. Harrison used to seek his predecessor’s counsel out of respect, even if he’d already made up his mind. Dimon didn’t bother with such pretense. “But if you understand that, you’re OK,” says Harrison. “He doesn’t waste time like that.”
The transfer of power from Harrison to Dimon stands as one of the cleanest and most orderly in recent financial history. In stark contrast to the disastrous handoffs that have characterized Wall Street—David Komansky to Stan O’Neal at Merrill Lynch, Jon Corzine to Hank Paulson at Goldman Sachs, and, worst of all, the vicious civil war between Phil Purcell and John Mack at Morgan Stanley—it is a model of clarity and execution.
• • •
In Bank One’s last annual report as an independent company, Dimon noted that the company’s share price had risen 85 percent during his tenure, versus a 25 percent decrease in the S&P 500 and a 24 percent increase in a relevant index of banking stocks. Touching on an issue close to his heart—financial strength—he also trumpeted the fact that on the day the merger was announced, the bond-rating agencies had put both banks on “positive watch.”
He called out an old foe, Prudential Securities’ analyst Mike Mayo. On a conference call with analysts, Dimon said, “Mike Mayo has had Bank One for sale since the day I got there. And yesterday he made it a buy. The first [thing] he wrote about [Bank One] was something like, ‘Even Hercules couldn’t fix that mess.’ I want the next one to say, ‘I was wrong.’” A minute later, a voice came on the line. “Jamie Dimon … it’s Mike Mayo. Since you got to Bank One, I was wrong.” Dimon’s response: “Thank you.”
(Mayo actually stewed over being called out in public, especially as he didn’t consider that his rating of Bank One was a failure. He’d actually downgraded Bank One stock to “sell” in 1999, when it was trading for $60 a share. Even though he’d been wrong about it during Dimon’s tenure, this was still one of the best calls he’d made in his career. But he took the high road and said nothing. Two years later, though, when Dimon made another crack at his expense during a presentation to investors on January 31, 2006, Mayo thought the criticism of his record had gone too far, and issued a report defending his stock picks, as well as pointing out certain errors in
Dimon’s remarks. The Financial Times picked up the controversy, and on the day of its report, Mayo’s phone rang. It was Dimon, calling to apologize to him.)
Mayo had been right about one thing, though. Despite Dimon’s capable restructuring of Bank One, he did have trouble juicing the company’s revenues. Even in 2003, the firm’s top line actually fell 3 percent, to $16.2 billion. He was undoubtedly the Mr. Fix-It of banks. But did he have the vision to take one to the next level without a jumbo-size acquisition? His defenders argue that he was shrinking the bank by shedding underperforming businesses in order to have a solid core from which to grow, and he sold to JPMorgan Chase before that strategy came to full flower. Critics respond that it’s impossible to know what might have happened, and that Dimon sold the company for fear of not delivering.
In one last burst of enthusiasm, Dimon said in an employees’ meeting that even if Bank One had forgone a few billion in the deal, it didn’t matter; if they did a good job, JPMorgan Chase’s stock could reach $100 in five years—the equivalent of adding $200 billion in market value. Nearly five years later, in the midst of the credit crisis, the stock was treading water at $35 a share. “I didn’t say I’d eat my hat if it didn’t get to $100,” he recalls. “But that’s taken on a life of its own.” Sitting on a bookshelf in his office was an Australian leather hat under glass. Beneath it, a clock was counting down to zero, with only 150 days remaining—a gift from the JPMorgan Chase executive Blythe Masters. “That’s going to be hard to chew,” he laughs.
Dimon stepped down from the board of Yum! Brands when he became president of JPMorgan Chase. At the time, corporate governance experts and the media had begun shining a spotlight on the issue of interlocking directorates—evidence of the clubbiness atop large American companies—and both Dimon and David Novak—the CEO of Yum!—decided they didn’t need the trouble. “I told David, ‘I need you on my board more than you need me on yours,’” Dimon recalls. “And he said, ‘You’re right.’” (Interestingly, Dimon now agrees with Weill’s position at Citigroup that there be no insiders on the board. “But at that point in time there were lots of boards that had them,” he says. “I agree you shouldn’t have any. But that wasn’t the issue for Sandy. He wasn’t saying, ‘We’re going to do this for corporate governance reasons.’ That wasn’t the issue at all.”)
Last Man Standing Page 21
