LAST MAN STANDING THE ASCENT OF JAMIE DIMON AND JPMORGAN CHASE DUFF MCDONALD Simon & Schuster 1230 Avenue of the Americas New York, NY 10020 SimonandSchuster.com Copyright © 2009 by Duff McDonald All photographs courtesy of Judy Dimon except 5 (the Browning School), 14 (JPmorgan chase), 15 (Steve Black), and 16 (michele Bové). All rights reserved, including the right to reproduce this book or portions thereof in any form whatsoever. For information address Simon & Schuster Subsidiary rights Department, 1230 Avenue of the Americas, New York, NY 10020. First Simon & Schuster hardcover edition october 2009 SIMON & SCHUSTER and colophon are registered trademarks of Simon & Schuster, inc. For information about special discounts for bulk purchases, please contact Simon & Schuster Special Sales at 1-866-506-1949 or [email protected]. The Simon & Schuster Speakers Bureau can bring authors to your live event. For more information or to book an event contact the Simon & Schuster Speakers Bureau at 1-866-248-3049 or visit our website at www.simonspeakers.com. Designed by Julie Schroeder Manufactured in the united States of America 10 9 8 7 6 5 4 3 2 1 Library of congress cataloging-in-Publication Data McDonald, Duff. Last man standing: the ascent of Jamie Dimon and JPmorgan chase/ Duff McDonald. p. cm. Includes bibliographical references and index. 1. Dimon, Jamie. 2. capitalists and financiers—united States—Biography. 3. J.P. morgan chase & co. I. title. HG172.D495M33 2009 332.1’22092—dc22 [B] 2009024144 ISBN 978-1-4165-9953-1 ISBN 978-1-43910971-7 (ebook) For the two who just missed each other Dr. Donald John McDonald (10/23/37–09/09/08) & Marguerite Scott McDonald (11/13/08–) CONTENTS PROLOGUE 1. BANKING IN THE BLOOD 2. THE MENTOR 3. THE SUBPRIME OF HIS LIFE 4. BUILDING THE PERFECT DEAL MACHINE 5. HIS OWN MAN 6. THE BOILING WITHIN 7. A BRIEF VIEW FROM THE TOP 8. EVERYTHING BUT KILIMANJARO 9. THE OUTSIDER 10. THE RETURN 11. WINNING BY NOT LOSING 12. ALL THAT HE EVER WANTED 13. THE NEW POWER BROKER 14. WILL GIANTS STILL WALK THE EARTH? EPILOGUE BIBLIOGRAPHY ACKNOWLEDGMENTS INDEX PROLOGUE On the morning of September 18, 2008, the phone rang in Jamie Dimon’s office. It was Hank Paulson, the secretary of the treasury. For the second time in six months, Paulson had a pressing question for the chairman and CEO of JPMorgan Chase. Would Dimon be interested in acquiring the floundering investment bank Morgan Stanley—at no cost whatsoever? During one of the most tumultuous months in the history of the stock market —stocks fell 27 percent between August 29 and October 10, 2008—the storied investment bank Lehman Brothers had already failed, the brokerage giant Merrill Lynch had been sold to Bank of America, and the insurance heavyweight AIG had received an emergency loan of $85 billion from the federal government. One of the only remaining questions was whether it would be Morgan Stanley or Goldman Sachs that fell next. The government was desperately seeking to stave off what could have been a wipeout of Wall Street. And here was Paulson, offering Dimon Morgan Stanley for the bargain basement price of $0 per share. At the government’s urging, Dimon had agreed to take over Bear Stearns for $2 a share in March 2008, in a whirlwind 48-hour deal. (The price was ultimately raised to $10.) The transaction had catapulted JPMorgan Chase to the forefront of the financial industry and established Dimon as the government’s banker of last resort. “Some are coming to Washington for help,” Sheila Bair, chairman of the Federal Deposit Insurance Corporation, later said. “Others are coming to Washington to help.” Considered in a historical light, a takeover of Morgan Stanley would have been much more profound than that of Bear Stearns. Dimon was already being compared to John Pierpont Morgan, the legendary banker who was his company’s founder, and this deal would have meant a reassembling of the empire that had been forcibly dismantled during the Great Depression, when banks were barred from the securities trade. Dimon, in other words, would have been sitting atop the very same empire his firm’s namesake had lorded over nearly a century before. But it was not to be. Dimon reportedly said he’d discuss it with his board, but his initial view was that his bank shouldn’t do it—it would involve a bloodbath for employees on both sides, a doubling of risk, and years of distraction for the company. What’s more, the ultimate cost of a deal would have been quite substantial, whether in terms of layoffs, writedowns, or a de-risking of Morgan Stanley’s balance sheet. (Dimon has always said it doesn’t make sense for two major investment banks to merge.) Moreover, his team was already busy preparing a bid to take over the deposits and loans of the Seattle-based bank Washington Mutual, also on the verge of failure. The amazing thing: Paulson really didn’t have anyone else to turn to. Dimon was quite literally the only chief of a major bank to have properly prepared for the hundred-year storm that had hit Wall Street with such vengeance. Everyone had known that the capital base of the financial sector had been in desperate need of shoring up, but Jamie Dimon was alone among his peers in having actually done something instead of just talking about it. As a result, of all the actions taken by the government in the fifteen months since the crisis had started, the only thing that had really worked was giving it to Jamie. Which is exactly why a desperate Paulson was trying to do it again. But he proved unable to persuade Dimon to pull off a third major deal in 2008. Morgan Stanley eventually pulled through. But even without this deal, Dimon’s reputation continued to ascend to new heights. In the midst of the most serious and far- reaching financial crisis since the 1930s—much of it caused by plain old avarice and bad judgment—Dimon and JPMorgan Chase stood apart. Much of the melodramatic coverage of Wall Street postcrisis has focused on its flaws—the hubris and the greed. Jamie Dimon’s story contains the opposites—the values of clarity, consistency, integrity, and courage. By sticking to them, Dimon has unquestionably become the dominant banking executive of his era. “Banking is a very good business if you don’t do anything dumb,” says Warren Buffett. “Morris Shapiro said long ago that there are more banks than bankers, and that’s fundamentally the problem. But Jamie is a banker from head to toe.” 1. BANKING IN THE BLOOD Jamie Dimon is a banker by blood. His paternal grandfather, Panos Papademetriou, was a Greek from Smyrna who worked in banking before leaving Greece during its war with Turkey. He arrived in New York in 1921, by way of France and Canada, settling in Manhattan and promptly shortening his last name to Dimon. The mischievous immigrant later offered his son two stories about the changing of his name. In the first, he sought work as a busboy but found that no one would hire Greeks. “Dimon” sounded French—and Papademetriou was fluent in French—so he changed it to get a job. In the second version, he fell in love with a French girl and chose the name for amorous purposes. Either way, he clearly felt he would do better with an American- sounding French name than with a Greek one. Panos didn’t last long as a busboy—family lore has it that he was fired, and he subsequently found work at the recently opened branch of the Bank of Athens, a subsidiary of the National Bank of Greece. After working his way up to vice president in charge of loans, he left the bank in 1949 to become a stockbroker at Shearson Hammill. Panos’s son Theodore became a stockbroker, too, joining his father at Shearson Hammill in 1953, a year after his marriage to Themis Annastasia Kalos, also the child of Greek immigrants. The brokerage, founded at the turn of the twentieth century, had a national presence as well as a reputable investment banking operation. Shortly thereafter, Theodore and his wife moved to East Williston, Long Island. Just 25 miles from New York City, the village was enjoying a burst in population growth as Americans embraced the postwar suburban ideal. Their first son, Peter, was born in 1954. Fraternal twins soon followed— Jamie and Ted Jr.—on March 13, 1956. Ted Sr., who commuted to Shearson Hammill’s offices on 44th Street and Fifth Avenue in his gray Convertible Dodge, soon grew tired of the commute, and persuaded his wife to move back to New York. The family of five settled in a rental apartment in Jackson Heights, Queens, where young Jamie attended PS 69 from kindergarten through the fifth grade. Jamie was a precocious child. His mother remembers him looking at her “as if he was an adult” as early as the age of two. He also felt a need to keep up