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Jamie Dimon's swat team

How J.P. Morgan's CEO and his crew are helping the big bank beat the credit crunch.

By Shawn Tully, editor at large
Last Updated: September 2, 2008: 4:08 PM EDT

Jamie Dimon
From left: Gordon Smith, Jes Staley, Jamie Dimon, Bill Winters, Heidi Miller, Steve Black, Todd Maclin, Charlie Scharf
From left: Barry Zubrow, Bill Daley, Steve Cutler
From left: Jay Mandelbaum, Frank Bisignano, Mike Cavanagh, Ina Drew

(Fortune Magazine) -- It was the second week of October 2006. William King, then J.P. Morgan's chief of securitized products, was vacationing in Rwanda, visiting remote coffee plantations he was helping to finance. One evening CEO Jamie Dimon tracked him down to fire a red alert. "Billy, I really want you to watch out for subprime!" Dimon's voice crackled over King's hotel phone. "We need to sell a lot of our positions. I've seen it before. This stuff could go up in smoke!"

A classic Dimon manic moment, the call is significant for two reasons. First, it marked the beginning of a remarkable strategic shift that helped J.P. Morgan, virtually alone among the big diversified banks, sidestep the worst of a historic credit crisis. Second, it sheds light on Dimon's distinctive management style - a blend of Cartesian analysis and inspirational leadership that, despite some bad bets in the home mortgage market, has moved J.P. Morgan (JPM, Fortune 500) to the front of the pack in global banking.

You probably know Jamie Dimon (and if you don't, check out "The Contender" story). He's the 52-year-old former boy wonder who helped Sandy Weill build the world's biggest financial conglomerate at Citigroup (C, Fortune 500), went into exile, and is now staging a spectacular second act. He's outspoken, profane, fearless - such a big presence that you might think he's a one-man show.

The King James version isn't the whole story. In fact, Dimon relies on a trusted team of talented lieutenants who share his zeal for sifting piles of data to spot trouble before it happens and vigilantly control risk, even when that means sacrificing growth and losing market share to rivals. Says J.P. Morgan director Bob Lipp, the former Travelers chairman who's worked with Dimon for two decades: "This is the best team on Wall Street."

Dimon and his team are on top today because they took a daring stance at the height of the credit bubble. J.P. Morgan mostly exited the business of securitizing subprime mortgages when it was still booming, shunning now notorious instruments such as SIVs (structured investment vehicles) and CDOs (collateralized debt obligations). With the notable exception of Goldman Sachs (GS, Fortune 500), J.P. Morgan's main competitors - including Citigroup, UBS (UBS), and Merrill Lynch (MER, Fortune 500) - ignored the danger signs and piled into those products in a feeding frenzy.

Make no mistake: J.P. Morgan is also suffering from the credit crunch. Dimon jumped into the home loan market just when others were retreating - and this time his contrarian instincts let him down. "We made our share of mistakes and messed up in home mortgages, and we're sorry," Dimon tells Fortune. And he sees more pain to come, as consumers caught in the economic downturn fall behind on mortgage, credit card, and car loan payments. The third quarter is already looking tough. J.P. Morgan has announced that it is taking $1.5 billion in mortgage and leveraged-loan write-downs, and another $600 million to account for the decline in the value of its Fannie Mae and Freddie Mac preferred stock.

Still, J.P. Morgan is weathering the crisis far better than its rivals. From July 2007, when the cyclone began, through the second quarter of this year, J.P. Morgan took just $5 billion in losses on high-risk CDOs and leveraged loans, compared with $33 billion at Citi, $26 billion at Merrill Lynch, and $9 billion at Bank of America (BAC, Fortune 500). And in this market, losing less means winning big. Before the crisis J.P. Morgan was a middle-of-the-pack performer; today it leads in nearly every category, starting with its stock. Since early 2007, its share price has dropped 24%, to $37 (as of Aug. 27), vs. declines of 44% for Bank of America and 68% for Citigroup. Last year its market cap was far below those of Citi and BofA. Today J.P. Morgan stands in a virtual tie with BofA for first place among U.S. banks, and it towers over Citi - a point that must be especially gratifying for Dimon. And even with what looks to be a weak third quarter, J.P. Morgan is on track to earn around $8 billion in 2008 - that's well below its peak of $15 billion in 2007, but a world apart from most of its loss-ridden rivals, which have been forced to slash their dividends or raise capital, or both.

Nothing dramatizes J.P. Morgan's commanding position as "last bank standing" better than the rescue of Bear Stearns. When the Federal Reserve needed a strong institution to absorb the ailing investment bank, J.P. Morgan was the most plausible choice. Dimon paid virtually nothing for Bear - just look at the numbers: The $11.5 billion in cash on Bear's books should fully offset the costs of the merger. Yet J.P. Morgan captured businesses worth as much as $15 billion, not to mention a trophy skyscraper that would cost $2 billion to replace (and has a mortgage of just $670 million). And Bear may just be the overture. Dimon is now in a position to go bargain hunting while competitors suffer on the sidelines. J.P. Morgan's next target is anyone's guess, but it's likely to be big: Wachovia, Washington Mutual, SunTrust, or even American Express. "Will Dimon do a deal?" asks Tom Brown, the veteran banking analyst who now runs hedge fund Second Curve Capital. "Will he ever! His whole career has involved buying troubled companies."

Dimon, who spent more than a decade orchestrating merger after merger with Weill, appears ready to charge. "Sure, it's hard to make a deal when your stock has dropped," he says. "But so have the stocks of the targets. We have the capital and the people to do a deal, if it makes sense."


Dimon's all-stars who make up the 15-member operating committee are a mix of longtime loyalists, J.P. Morgan veterans, and outside hires. Dimon doesn't look for people who went to the right schools or have prestigious résumés. To make it on Dimon's team you must be able to withstand the boss's withering interrogations and defend your positions just as vigorously. And you have to live with a free-form management style in which Dimon often ignores the formal chain of command and calls managers up and down the line to gather information.

Some of Dimon's lieutenants have been with him for years. Charlie Scharf, 43, head of retail banking, became Dimon's assistant straight out of college in 1987 at Dimon and Weill's first venture, consumer lender Commercial Credit. In those days Dimon, known as "the kid," sported an unruly head of hair to go with his hyperkinetic style. As Scharf recalls, "Neither Jamie nor the offices looked anything like my image of corporate America. The offices were furnished with worn red-velour couches. The fax machines didn't work. Jamie talked through a huge, outdated squawk box like the one in Charlie's Angels."

Heidi Miller, 55, who runs treasury and securities services, the operation that provides cash management to corporations and hedge funds, started as Dimon's assistant in 1992. "I had no job title, no job description, and he hadn't named a salary when I took the job," says Miller. "My husband thought I was crazy." Within days Dimon had Miller taking the lead in the acquisition of Travelers, and she rose to become CFO of Citigroup. Mike Cavanagh, 42, J.P. Morgan's CFO, and Jay Mandelbaum, 45, chief of strategy and marketing, both joined Dimon in the early 1990s at brokerage Smith Barney. Mandelbaum is particularly good at getting the notoriously stubborn Dimon to change his mind. An example: When he first came from Bank One, Dimon vociferously defended using the Chase "octagon" symbol as a trademark across the company. Mandelbaum helped the marketing team convince Dimon that the octagon was a symbol of retail banking that didn't match J.P. Morgan's exclusive image. His lieutenants joke that Dimon now claims dropping the octagon from the J.P. Morgan side of the business was his idea.

Dimon doesn't just surround himself with buddies from the old days: A second key group of Dimonites consists of J.P. Morgan Chase executives whom he promoted or nurtured. Among them are Steve Black, 56, and Bill Winters, 47, co-heads of the investment bank, and Jes Staley, chief of asset management. Before Dimon's arrival, Winters installed risk controls he'd helped pioneer at the old J.P. Morgan, including the use of credit default swaps to insure against losses, that would prove crucial to navigating the crisis. Black came to the bank four years before Dimon. But he had served under Dimon at Smith Barney, where he learned the boss's approach to risk management - and got accustomed to his blunt style. "If you get your feelings hurt, you can't work here," says Black. "Jamie will apologize, then do the same thing two weeks later. He can't help himself."

Other J.P. Morgan veterans have flourished under Dimon as well, including Ina Drew, 52, the chief investment officer, and Todd Maclin, 52, a burly, magnetic Texan who runs the business that caters to midsized companies. Maclin is one of the few natural salesmen in the bunch, and he shares Dimon's predilection for straight talk. "Jamie and I like to get the bad news out to where everybody can see it," drawls Maclin, "to get the dead cat on the table."

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