Last Man Standing (49 page)

Still, his stewardship would be tested in 2009, as significant exposure to cash-strapped American consumers and businesses meant that the company was due for several more quarters of multibillion-dollar losses and write-downs. “We’re as beaten down as anyone else in this environment,” said the chief financial officer, Mike Cavanagh, in late 2008. “The culture around here is not one of congratulation and puffing ourselves up. It’s ‘tear it apart’ at all times. And there’s certainly plenty to tear apart now.”

Jamie Dimon cannot understand how anyone could approach a business differently. “For any of our businesses you can get a reporting
packet and it will tell you everything that’s going on, including what’s good and what’s bad,” he says. “What we aim for is continuous improvement. It’s not like we think we get to a perfect place.”

Dimon showed the courage of his convictions once again by cutting the company’s dividend on February 23, 2009, a move he explained was vital to preserve JPMorgan Chase’s capital. “I’m a large investor in J.P. Morgan,” said Brian Rogers, who is the CEO of T. Rowe Price and was a classmate of Dimon’s at Harvard. “I was meeting with one of our clients that same day and talking about risks in the financial sector. I told them that one of the few things you could be confident in was the integrity of J.P. Morgan’s dividend. When I returned to my office at 4:00 and found out the news, I thought I was going to kill him. When I listened to his explanation, though, I thought, you know, Jamie is probably right. I went from a near apoplectic fit to saying that he was probably doing the right thing for the company. Everyone obviously agreed, as his stock was up in the aftermarket.”

In May, when the results of the government’s “stress tests” on the country’s 19 largest banks were released, Dimon and JPMorgan Chase were right where everyone expected them to be—head and shoulders above the majority of their peers. Bank of America was said to need a staggering $34 billion in new capital, but Dimon’s fortress balance sheet was considered adequate as it was. At that point, there was no more debate that any further consolidation in the industry was likely to be led by JPMorgan Chase. The predator was again on the prowl.

Still, although Dimon was receiving the best press—and commanding the most respect—of his entire career, the cheering was somewhat muted by the country’s anger with the entire financial system and its recklessness. The billions in bailout funds being paid by taxpayers were one thing. To also owe the bank a mounting credit card bill and a mortgage worth more than one’s house quite another.

At one point, the only thing hindering Jamie Dimon’s progress was Sandy Weill. By 2009, he was swimming against the tide of an entire industry of overreaching CEOs.

For the first half of his career, Jamie Dimon was a character in someone else’s story—Sandy Weill’s. But by 2009, it was clear that Dimon’s star had eclipsed Weill’s. And it was also clear that Weill had made a terrible mistake 10 years before when he fired Dimon. When asked about it in his office in December 2008, Weill confessed as much. “I think I made a very bad decision on succession,” he said. Today, he has only the highest compliments for his onetime protégé. “Jamie obviously has far fewer blind spots than most people in this business. He’s outperformed most of them.”

The two deals Dimon pulled off in 2008 showed that he could follow in Sandy Weill’s footsteps as an acquisitions specialist. But there was one main difference. Unlike Weill, Jamie Dimon wasn’t pursuing opportunities. He was
taking advantage
of them. The U.S. government had practically insisted that Dimon take over Bear Stearns. The last time the government had talked to Weill about acquisitions, in 2005, it was to say that his company, Citigroup, should lay off for a while, as his serial deal making had left Citi dazed and confused. “Jamie has outgrown the comparisons with Sandy Weill,” says the analyst Mike Mayo. “As we look back, Sandy Weill apparently cut more corners than people appreciated. But Jamie goes out of his way to ensure that the foundation and plumbing are strong.”

What Weill is likely to find quite difficult to believe is a shared opinion of many who worked with both men over the years—that Dimon contributed more to their success together than Weill. “By this point, he
would probably consider Jamie his peer, but Sandy’s not in the same league as Jamie,” says one. “Not anymore.”

• • •

There are a number of people who rose to the top ranks of Wall Street unnoticed by most of us. The hedge fund kingpin James Simons comes to mind, at least until he started pulling down more than $1 billion a year. Even Governor Jon Corzine of New Jersey usually stayed under the radar during his climb to the top of Goldman Sachs. Jamie Dimon was not one of those people; we saw him coming a mile away.

Yet it wasn’t until 2008 that a complete picture of Dimon emerged. After years of being considered a glorified number-cruncher who only knew how to cut costs, he was finally acknowledged as a leader who knew how to make a company grow. What’s more, he was recognized as both a creative thinker and a man with the ability to shape the culture not just of his company but also of his industry and even the country itself. It says something about Wall Street today that only a few people command both the respect of their peers and the genuine curiosity of the outside world. Jamie Dimon is certainly one of them. Although from an early age he preferred wealth to the intellectual pursuits of his brothers, Dimon evolved into a financial philosopher in the spirit of Warren Buffett.

Dimon’s 2008 letter to his shareholders was a tour de force, a clarion call for change from the CEO of one of the largest banks in the country. He started work on the letter several months in advance, and spent many weekends refining his message. “I don’t write a lot,” he says. “So it’s very hard for me.” In addition to explaining JPMorgan Chase’s results, the letter also tackled a bigger question: what had just happened? “That was as much for me as for the shareholders,” he recalls. “It was cathartic. I’d given some talks about what had happened and what should be done about it, but I’d never really organized those thoughts. That’s what I set out to do.” The letter is especially forceful on the effects of excessive leverage, the industry’s tendency toward using short-term financing to support long-term assets, and regulatory failures, in particular
that of the housing finance concerns Freddie Mac and Fannie Mae. Most impressive of all may have been the understated eloquence of his prose—simple and direct, just like Buffett’s.

The letter actually prompted Buffett to send Dimon yet another admiring note. “Jamie,” it read, “you have outdone yourself; your letter is a masterpiece.” Buffett went on to ask Dimon’s permission to distribute the letter at his own annual meeting. He also sent copies of the letter to his friend Bill Gates as well as his colleague Charlie Munger. “It’s the best I’ve seen anywhere,” he says. (Both Gates and Munger agreed.) Nearly 25 years after the young Harvard graduate sat in the Seagram Building and marveled at the legendary Buffett’s own letters, the legend was marveling right back at him.

Jamie Dimon has always been a winner. By 2009 he was something else entirely. He was a
hero
. In April 2009, at a reunion of his high school at which he was given the alumnus achievement award, he commented on what he considered the “surrealness” of it all. Referring to the school’s late headmaster, Charles Cook, Dimon said, “I bet he’d be pretty surprised to see me up here right now.”

One of the reasons Jamie Dimon came out of 2008 looking so good is that just as JPMorgan Chase was outperforming its competitors, Dimon was outperforming his CEO peers in his public response to the crisis and the orgy of recrimination it had engendered. Guilt is normally in short supply on Wall Street, but it is shocking just how few mea culpas were heard from bankers who had amassed great personal wealth over nearly a decade of illusory growth. Instead, Wall Street kingpins came across as complainers of the highest order, blaming their problems on everything but themselves—a 100-year storm, short sellers, panicky investors, bad accounting rules. While Jimmy Cayne and Dick Fuld raged about the unfairness of it all, Dimon made no excuses and blamed nobody but himself.

Although he has technically worked for only four companies in his career—American Express, Citigroup, Bank One, and JPMorgan Chase—Dimon has long had a reputation as a Mr. Fix-It who knows how to instill discipline and clean up a troubled balance sheet. In 2008,
though, his job effectively became to clean up the entire financial system. And in so doing, he proved a point he’s been focused on his entire life: that you can still win while doing the right thing.

• • •

The question whether the mega-bank model pioneered by Weill and Dimon is viable has never been put to rest. That’s in part because the two prime examples—Citigroup and JPMorgan Chase—have seen such starkly differing results. At the same time as it became too big to manage, Citigroup became too big to fail, critics say, putting the entire financial system at risk. Defenders of the mega-bank concept, Dimon included, make an argument similar to the refrain of some people who defend the Second Amendment: “Guns don’t kill people; people kill people.” The model itself isn’t flawed, the proponents of the mega-bank say, though some of the people trying to implement it are.

Through mid-2009, Citigroup had taken $45 billion in new bailout monies, as well as obtaining federal backing on a staggering $300 billion of assets. By that time, the company was practically a ward of the government. “You couldn’t design a better footprint or get a better set of assets if you had to build a bank from scratch,” Citigroup’s CEO, Vikram Pandit, had told
Business Week
in April 2008. Yet in January 2009, Pandit had begun to break the company apart. The house that Sandy Weill built was now a teardown.

Meanwhile, Dimon echoed Pandit’s earlier sentiments at his own company’s “analyst day” in February 2009. “You can’t duplicate this franchise,” he said. “If I gave you $200 billion, you couldn’t do it.”

In early 2009, too, the intellectual underpinnings of the concept appeared to be validated. In the fourth quarter of 2008, JPMorgan Chase’s investment bank division had faltered, but relatively strong results in the other five business units had balanced out the loss. Then, in the first quarter of 2009, the investment bank had a terrific quarter while the other five units saw their results deteriorate. This was the rationale of the model. Individual units may have volatile results, but the combination is more stable.

In the end, however, JPMorgan Chase—or, more precisely, Jamie
Dimon—might be the exception that proves the rule. When something gets as big and as complicated as JPMorgan Chase or Citigroup, the issue is not just whether someone has the intellectual capacity to manage it. Someone must also have the desire. At Citi, Chuck Prince didn’t have the capacity and Sandy Weill didn’t really have the desire. It seems pretty clear that Dimon has both, but this may be because he is a once-in-a-generation kind of person. If mega-banking requires a dozen Jamie Dimons in order to survive, then it is surely doomed.

“He has an amazing sense of risk,” says his former colleague at Smith Barney, Bob Lessin, currently vice chairman of investment bank Jeffries & Company. “He understands it intuitively better than anyone alive, so he doesn’t do stupid things. The industry has a recent history of dramatically mis-pricing risk relative to return. Jamie never fell for that. If you want one phrase to describe him, that’s it.”

• • •

“I think he’s one of a kind,” says Dimon’s college pal Laurie Maglathlin. “There are very few people who can remain true to themselves, know when to turn their job on and off, can run a business like the one he does, yet still prioritize with their family.” His high school friend Jeremy Paul says almost exactly the same thing. “There are few people I know who have changed less throughout their lives,” he says. “With Jamie, that’s really interesting because who has more pressure on them than he does? But he just handles it.”

The most successful people on Wall Street have tended to come from one of two camps. The first consists of people who do well because everybody is scared of them. That list includes Jimmy Cayne of Bear Stearns and Ken Lewis of Bank of America. The second group consists of those whom most people like but are
also
scared of. Dimon is in that category.

Is he irreplaceable? Is he the Steve Jobs of JPMorgan Chase? At one point, he will leave the company, and that might come sooner than many people think. Once the current crisis is past, it’s hard to see him staying on for too long. At that point, he’ll have done it all: building, merging, saving. What else could interest him? You can only wake up on Sundays
and read 100-page executive management reports for so long. One thing he is not going to do is go to another big company. “But I’m not going to play golf either,” he says.

The list of what Dimon might do next has both obvious and not-so-obvious possibilities. He could teach, most likely in the Socratic confines of Harvard Business School. He could spend the rest of his life investing his own substantial fortune in industries—music or sports, for example—that excite him. One fantasy, according to his wife: opening his own restaurant and turning himself into Sam Malone of
Cheers
. (That, or maybe he might finally go and climb Mount Kilimanjaro.)

He does say that he puts aside an hour so every weekend to think about succession. Although he considers the talent development process inside JPMorgan Chase in need of improvement—he gives the company a C grade on that front—he’s pretty sure he’s got some strong executives who could step into the CEO position without much difficulty. In case he gets hit by a truck, he says, he’s already identified to the board three candidates who could take over. Internal oddsmakers give the best chances to Mike Cavanagh and Jes Staley.

“I’m not one of those people who believes that no one can do the job like I can,” he says. “In fact, I think there are several people who could. You might try to tell me that some of them haven’t been tested. But if the requirement to be a CEO is to have been a CEO, then you’ll never have succession anywhere. At some point, you have to take a chance.”