In This Corner! The Contender
Jamie Dimon, the new CEO of J.P. Morgan Chase is taking a shot at the title of world's most important banker and trying to whip a sprawling financial conglomerate into shape.
By Shawn Tully

(FORTUNE Magazine) - Just about everyone who works on Wall Street has heard the stories about Jamie Dimon. The one about his shutting down the gyms and pulling the fresh flowers at J.P. Morgan Chase. (That story is true.) And the one about his grilling limo drivers parked in front of headquarters to find out who'd ordered the Lincolns, then screaming at the culprits for wasting money. (That one's apocryphal, but Dimon doesn't mind people repeating it, because fear helps him control costs.)

Here's one you haven't heard. Dimon became president of J.P. Morgan Chase (Research) in mid-2004 when it acquired Bank One, where he had been CEO. Soon after, he convened an emergency meeting and ripped into his new colleagues for "letting pay get totally out of hand."

Among the examples that set him off: Regional bank managers at J.P. Morgan earned around $2 million -- five times the $400,000 that comparable Bank One people made. Morgan's human resources chief was pocketing better than $5 million. Outraged, Dimon announced he was slashing comp for hundreds of staff positions by 20% to 50% over two years.

"I'd tell people they were way overpaid," Dimon recalls, "and guess what? They already knew it." The kicker: Most of the managers stayed on despite the cuts.

A few months later, at a retirement party for J.P. Morgan CFO Dina Dublon, 52--whom Dimon was replacing with an ally from Bank One -- Dimon stepped to the podium and praised her service to the company. Then he unleashed a biting one-liner: "But if you paid one dollar for Texas Commerce bank" -- which J.P. Morgan acquired in 1987 for $1.2 billion -- "you paid a dollar too much!" The room, studded with Texas Commerce alumni and executives who had championed the deal, went dead silent.

As these stories suggest, Jamie Dimon is not known for subtlety. He has shouted down a U.S. Congresswoman who was pushing Bank One to keep more jobs in Chicago, and told a roomful of J.P. Morgan internal auditors that a colleague "knows as much about accounting in her baby finger as all of you combined."

He will lash out in meetings with trusted confidants -- "That's the dumbest thing I've ever heard" -- and expect them to come right back at him. ("If not, he won't respect you," says J.P. Morgan asset-management and private-bank chief Jes Staley.)

Yet far from hindering his career, this brash, iconoclastic manner has made Dimon the most watched, most discussed, most loved, and most feared banker in the world today. From Wall Street to the City of London, just mention "Jamie," and everyone knows you're talking about the rampaging rebel who's as loud as he is tight. He's much more than a cost cutter with a colorful personality, and his compulsive candor is just one of his highly effective management tools.

Working alongside boss and mentor Sandy Weill, Dimon helped engineer 12 years of audacious mergers that turned an obscure Baltimore loan company called Commercial Credit into Citigroup (Research), the world's largest financial services company. After being unexpectedly shoved aside by Weill, he re-emerged at a dysfunctional Bank One, turned it around, and sold it in the deal that made him, as of January, CEO of J.P. Morgan Chase, the third-largest financial corporation in the U.S. (2005 revenues: $55 billion), behind Citi and Bank of America.

Now he wants to perfect the model he and Weill created at Citigroup -- and defeat the house he helped build. "It's all about having the best systems, the best people, the best products, the best risk controls," he says. "It's all about being the best, the best, the best."

That's why investors, industry watchers, and fellow CEOs trade all those Jamie stories. They see him as the one figure with the skills and opportunity to prove once and for all whether the model of a one-stop-shop financial firm can live up to its promise. And they know that Jamie is just itching to expand his empire with at least one breathtaking deal.

It would be hard to find a company more in need of the Dimon treatment than J.P. Morgan. A hodgepodge of businesses from multiple mergers that were never fully integrated, the giant bank is burdened with a lazy culture and an underperforming stock ripe for reinvigoration. While J.P. Morgan ranks at or near the top in many key categories--second in retail deposits, credit card balances, and investment-banking fees; first in U.S. private-banking assets and cash-management revenues--growth has been tepid and profitability mediocre. J.P. Morgan's return on equity, a crucial yardstick for financial firms, is just 10%, well below that of its top rivals. No wonder the stock has barely moved in five years.

J.P. Morgan, of course, isn't the only financial conglomerate with an identity crisis these days. At Citi, the original incarnation of the do-it-all firm, CEO Charles Prince is struggling to overcome scandals and management turnover (see "The Unlikely Revolutionary").

"Financial conglomerates like J.P. Morgan are feeding grounds for smaller, more nimble and focused players," says Tom Brown, chief of hedge fund Second Curve Capital. "Shareholders of all the supermarkets would be better served if they were broken up." Some analysts are already getting impatient with Dimon. "He told us to expect big progress in 2005," says Meredith Whitney of CIBC. "Now we won't see major improvements until 2007."

But many are betting that Dimon's rare combination of an analytical, Cartesian mind with a passionate, damn-the-social-graces style will end up rewriting the rules of the game. As Larry Bossidy, former Honeywell chairman and a J.P. Morgan director, puts it, "I don't use superlatives lightly, but he's the best guy I've ever seen in financial services."

"It's offensive to me to be called a cost cutter," says Dimon during one of a series of in-depth, exclusive interviews with FORTUNE. Striding about his eighth-floor Manhattan office, the stocky CEO, who took boxing lessons after being ousted from Citigroup, karate-chops the air and punches out sentences in staccato bursts that bear traces of his Queens upbringing.

He grabs a pen and begins scribbling on an easel to illustrate how the bank's revamped computer systems work. He pulls out a dog-eared piece of paper that he carries in his breast pocket to jot notes to himself--the "people who owe me stuff" list, he calls it (a surprisingly low-tech tool for someone who considers himself an IT geek).

A huge operation "can get arrogant and full of hubris and lose focus, like the Roman Empire," says Dimon. To prevent J.P. Morgan from falling into that trap, he has imposed rigorous pay-for-performance metrics and requires managers to present exhaustive monthly reviews, then grills them on the data for hours at a time.

"He jumps into the decision-making process," says Steve Black, co-head of investment banking. "If you just want to run your business on your own and report results, you won't like working for Jamie."

To be sure he's getting the real story, Dimon buttonholes staffers in the elevators and calls suppliers out of the blue like a hyperactive gumshoe, collecting scraps of information he can throw back at executives. "In a big company, it's easy for people to b.s. you," he says. "A lot of them have been practicing for decades."

While Dimon's rudeness can be offputting, the sheer force of his passion and intensity can be irresistible. And that's been the story of his life. "He loves misbehaving in places where he's supposed to behave," says his wife, Judy Dimon, who met him when they were fellow students at Harvard Business School.

She vividly remembers the first time she saw him, at an HBS watering hole called the Pub. "The room was a sea of Ivy Leaguers in pastel Lacoste shirts, all grinning, all trying to win each other over," she says. In the middle stood a Johnny Cash--style figure clad in black jeans, a black shirt, and black sunglasses. "He was sphinxlike, taking things in, not trying to be part of the group."

She recalls being astounded by his gall when, in the midst of a party she threw after they'd been dating for a few weeks, Jamie gave her a blunt ultimatum: "I'm going home, and I want you to go with me." That she said yes--and that they've been living together ever since, for 26 years, and have three daughters, ages 16, 18, and 20--is testament to how endearing Dimon's rough edges can be.

Two weeks into Dimon's first year at Harvard, recalls classmate Steve Burke, now COO of Comcast, they were assigned a case about a troubled cranberry co-op. "We'd just arrived, so we were all intimidated by this godlike professor," says Burke. "The professor starts discussing the cranberry case, and Jamie says, 'I think you're wrong!' We were all amazed." Dimon walked to the blackboard and wrote out his solution. The imperious prof was forced to acknowledge, "You're right," and Dimon immediately became a hero to fellow students.

He's had the same inspirational effect on the people who have worked for him over the years, many of whom have followed him from job to job. "Jamie's strength is that he's a leader, not a classic manager," says Charlie Scharf, who started with Dimon at Commercial Credit in the 1980s and is now head of retail banking at J.P. Morgan. "He can't help himself," adds Heidi Miller, chief of treasury and securities services at J.P. Morgan. "He can be a total pain, overdemanding, but you'd trust your life to him."

Dimon shuns the black-tie circuit and never sets foot on a golf course. He yanked Bank One's sponsorship of the Masters golf tournament because the country club hosting the event doesn't accept women members. His taste in food is basic; his favorite dish is a cheeseburger with fries.

He flies home to Chicago every week to be with his wife and youngest daughter, who is in high school there. On Friday evenings he invariably takes the family to dinner at a neighborhood Italian restaurant and orders the same thing: a martini followed by the house salad and grilled chicken Parmesan.

Music is practically his sole hobby. Dimon, who's taking guitar lessons, surprised his aides by practicing chords on a recent flight to China. At home he relishes lying on the couch in his library in a sort of trance, with the stereo blasting a melange of schmaltzy tunes that includes Sinatra's "My Way," "The Impossible Dream," "New York, New York," "What a Wonderful World," and Ray Charles's "America the Beautiful." He throws in "Ave Maria" for high art. (The family is so concerned about the blaring Americana that at the Park Avenue apartment they're renovating in Manhattan the interior walls are being lined with lead soundproofing.)

Of course, you might call cost cutting a hobby too. At home, spying a not totally empty bottle of ketchup in the trash ignites an explosion. At one point Dimon was appalled to see that his daughters were using bushels of towels--so he imposed a strict quota of one a week. He's so frugal that, to the shock of family and friends, he continued to wear T-shirts with the Citigroup logo long after Citi had fired him.

In 1982, armed with his Harvard MBA, Dimon hooked up with Sandy Weill, an old family friend, becoming his assistant at American Express. When Weill was forced out of his post as AmEx's president soon thereafter, Dimon followed him into exile, spending more than a year in a suite in Manhattan's Seagram Building hatching plans to build a financial empire.

During their long partnership, Weill was the strategist with the golden gut, Dimon the nuts-and-bolts operator who made the machine work. Citigroup was the culmination of their grand design. Yet Dimon grew increasingly frustrated at sharing power with other executives at Citi, and his natural combativeness got the best of him: He bickered with co-CEOs Weill and John Reed, among others, and in late 1998 found himself reliving the into-the-wilderness experience when Weill showed him the door.

As Weill and Dimon were building Citi, J.P. Morgan Chase was being cobbled together in its own series of mega-mergers: The old Chemical Bank bought Texas Commerce in 1987, then gobbled up Manufacturers Hanover in 1991, Chase in 1996, and J.P. Morgan in 2000. But unlike at Citi, there was no sustained effort to merge operations or substantially cut costs, and shareholders suffered.

William Harrison, who became CEO in 1999, eventually zeroed in on Dimon as the solution. In 2004 he agreed to buy Bank One. After becoming Bank One's CEO in 2000, Dimon had turned the sickly operation around by combining a crazy quilt of computer systems and imposing strict guidelines on a haphazard set of credit standards, almost doubling the market cap, to $58 billion.

For Dimon the merger represented a return to the big time--and a chance to face off against his old creation, Citi. As president, Dimon immediately set to work on a major makeover, attacking costs, consolidating systems, and instilling an aggressive sales culture. He filled key positions with trusted confidants, including Citi alumni Michael Cavanagh as CFO (replacing Dina Dublon), Charlie Scharf, and Heidi Miller.

Harrison, who was scheduled to stay on as CEO through June 2006, quickly ceded day-to-day control. In October it was announced that Dimon would take the helm in January, six months ahead of schedule (Harrison remains chairman). The truth is, he has been in charge from the moment he walked in the door.

Dimon's strategy for J.P. Morgan is deceptively simple: boost revenues at a healthy pace while keeping a lid on costs. "If the market is convinced you'll keep the cost line flat and that you have the disciplines to raise revenues faster than your competitors, your stock price can rise in double digits," says Dimon. "But you have to do both."

In pursuit of those goals, he doesn't get bogged down in a search for consensus or worry about hurt feelings. At a meeting early last year, Todd Maclin, head of J.P. Morgan's commercial bank, complained to Dimon that the investment bankers were hoarding hundreds of so-called middle- market firms--those with annual sales of $500 million to $2 billion--on their "prospects" list, keeping the commercial bankers from approaching them.

Dimon dropped everything and convened the top executives of the investment bank. "Are you calling on this company?" he demanded. "How often? How much business are you doing with them?" When it became clear that many prospects were being neglected, Dimon started reassigning them to the commercial bank. "The room was filled with hollering and yelling," says Maclin. But Dimon was adamant. "You're protecting clients you don't do business with," he said.

That was only half the battle. Dimon wanted Maclin's crew to have strong incentives to steer business to the investment bank. Maclin and his investment-banking counterpart, Douglas Braunstein, worked out an arrangement: The commercial bank gets 25% to 50% of the fees from M&A, debt, and equity deals involving their clients. The system is a success. Last year the investment bank sold almost $500 million in services to middle-market customers, twice as much as two years ago.

It's a prime example of how Dimon thinks a financial supermarket should work. Having a mix of businesses, he believes, has two advantages. It adds stability to earnings--consistent profits from branch banking, say, help smooth out swings in trading--and it should also lift sales, if you make sure that different divisions feed one another.

Dimon has already revamped J.P. Morgan's retail-branch system to encourage greater selling of mortgages, credit cards, and other products. When he arrived, branch personnel got the same pay for pushing products as for dozing behind their desks; 50% of branch managers received bonuses of $8,000 to $18,000. Today, under the watchful eye of retail-banking head Scharf--who instituted a similar plan for Dimon at Bank One--the firm pays big bucks to stars and fires laggards.

Branch managers are ranked based on how much they raise both profit and revenues; the top group gets bonuses as high as $65,000, and the lowest quintile zip. Salespeople in the branches can do even better, collecting "points" for selling credit cards, mortgages, and other products. Last year the biggest point-gatherer pocketed a $145,000 bonus. If you don't make your quota, you're out.

Dimon is bringing that kind of rigor to every corner of the firm. In the old J.P. Morgan, big units combined their results, so it was difficult for top management to figure out which ones were really making money. "Strong businesses were subsidizing weak ones, but the numbers didn't jump out at you," says CFO Cavanagh. "With the results mashed together, it was easy for managers to hide."

The hiding game is over. Right after the merger, Dimon split J.P. Morgan into six major profit centers--investment banking, retail, and cards are the three biggest--with dozens of units that must report like separate companies. Each month, division heads send Dimon 50-page books packed with data, from the ratio of overhead to sales on every product to BlackBerry bills per employee. Then Dimon goes over the reports in grueling sessions that last hours.

"He'll ask, 'Why do we have three times as many HR people in Europe as in Asia?'" says private-banking chief Staley. "'Are we doing something better in Asia?'" Last year the exercise led Dimon to have the communications and marketing department replace expatriates with local hires in its overseas offices, saving more than $100,000 per post.

Transforming the bank's technology is another pillar of Dimon's plan. When he arrived, J.P. Morgan was saddled with mismatched computer systems inherited from Chase, Chemical, and Texas Commerce. Lots of expensive software and interfaces were needed for the different systems to talk to one another, making J.P. Morgan's costs per transaction among the highest in the industry.

The computer confusion also hampered the bank's ability to market more products to existing customers. Sitting with a client, a branch banker couldn't call up much more than a checking history. Nothing popped up about whether the customer qualified for a mortgage or credit card.

On a Saturday in mid-February 2004, a month after the Bank One deal was announced, Dimon brought together the top IT people. He dazzled them with his grasp of protocols and software costs, then told the managers to choose a single platform in any area where multiple systems were in place. "If you don't do it in six weeks," he warned, "I'll make all the choices myself."

The IT managers met the deadline. Now, for example, J.P. Morgan has just one system for credit cards. The new platform, called TSYS, has helped bring down the bank's annual cost of processing statements to $52 per customer from $80. That makes J.P. Morgan one of the most efficient operators in the industry.

In the branches (all of which now carry the Chase brand), computers are now sales tools; the screens prompt bankers to offer customers every Chase product they qualify for but don't have, from home-equity loans to financial planning. One example of the new culture at work: Chase increased the number of credit card accounts opened in the branches by 55% in 2005.

In cleaning up the computer mess, Dimon displayed another tenet of his philosophy: Keep a firm grip on IT. Last year he canceled IBM's seven-year contract to manage J.P. Morgan's computer systems. IT isn't a sideline, he believes, but rather an essential skill the firm should totally control.

"When you're outsourcing it's almost impossible to do the integration, because people don't care that much," he says. "We want patriots, not mercenaries." And of course, he also hates paying the markup for having outsiders do the work.

Cutting costs isn't just about saving money --for Dimon it means freeing up capital to seed new growth. Retail banking is a case in point. When Dimon arrived, the bank employed five people and spent some $750,000 per branch in back-office costs, compared with two employees and $250,000 at Bank One. Consolidating the computer systems helped cut that down--as did eliminating nearly 2,000 support jobs in New York City. Now Chase is approaching Bank One's efficiency.

But Dimon has also spent heavily to upgrade dowdy branch facilities and to take on competition. Dimon and Scharf fired back at New York--area invaders like Bank of America and Wachovia, blitzing the Big Apple with fresh TV, radio, and billboard ads. Chase installed 270 ATMs in heavily trafficked Duane Reade drugstores, the first such arrangement by any bank with a big retailer in New York.

Across the U.S., Chase hired 3,000 new salespeople. Despite the new spending on advertising, systems, and the opening of 150 new branches, Chase managed to raise operating earnings at the retail bank 8% in 2005, to $3.4 billion.

One area that Dimon has not yet tamed is J.P. Morgan's wildly inconsistent trading operation. By its nature, proprietary trading--where firms bet their own capital on the direction of stock prices or interest rates--is risky. J.P. Morgan's problem is that it both makes less money and suffers from far more volatility than rivals like Goldman Sachs and Morgan Stanley.

And while J.P. Morgan's investment bank is raking in fee income (its take tops all rivals but Citi), the division lives and dies on trading. In the fourth quarter of 2005, for example, when the proprietary traders lost several hundred million dollars betting that both oil prices and interest rates would jump, profits at the investment bank slumped 29% from the previous quarter.

Still, Dimon embraces trading, for a simple reason: It's extremely profitable, despite the swings. So he's instituting stricter controls and spreading risks by diversifying beyond fixed-income and derivatives trading into energy and mortgage-backed securities--two fields where competitors were cleaning up. Last year J.P. Morgan hired a crack energy team from Morgan Stanley and recruited mortgage traders from all over Wall Street. Dimon is promising far smoother trading results in 2006. "We'll have less volatility, and we'll get paid more for the swings we do have," he says.

While Dimon would seem to be moving at lightning speed, things are actually going more slowly than he'd hoped. Getting J.P. Morgan's house in order has "probably taken longer than I thought," he says. "We had to increase spending in a lot of areas more than I initially said we would." Ultimately, he expects that spending to lead to greater profits and a higher stock price.

And a higher stock price is important, because even as Dimon lasers in on operations, dealmaking is never far from his mind. Harrison and board member Bob Lipp are out hunting for prospective partners. J.P. Morgan needs to expand its retail-branch footprint in California and Florida, the two big domestic markets from which it's absent. There are a number of banks Dimon could buy to fill those gaps, including SunTrust, Wachovia, and Washington Mutual.

But his grand dream, according to those close to him, is to create a worldwide retail network that rivals Citigroup's--so he also wants to ride the growth wave of the future, Asia. An ideal merger partner would be HSBC, which boasts interests in retail networks spanning from Mumbai to Shanghai. It's that quest that gives added urgency to fixing J.P. Morgan's operational problems and boosting its stock price. It's only when you accomplish those things, says Dimon, that "you earn the right to do a deal."

An extraordinary reunion took place last summer. Citigroup CEO Chuck Prince invited a dozen current and former colleagues, including Sandy Weill and Dimon, to dinner. They gathered in a renovated mansion on the grounds of Citi's Greenwich, Conn., retreat, a place many of them had been coming to since the late 1980s when Commercial Credit bought it. Back then, the building was a ramshackle relic with leaky plumbing and worn furniture, decorated in a style they called "early frat house."

For Dimon, the evening was a replay of good times--lavish dinners lubricated with rare wines from the mansion's hidden cellar--and bad: Seven years earlier, Weill had summoned Dimon to another building at the retreat to fire him. The mood was light, though, as the group joked and reminisced about the old days at the "frat house."

"You finally fixed it up," Dimon said, admiring the sumptuous renovations. Of course, Dimon is deep into a renovation of his own. What was unspoken that evening is that he wants nothing more than to vanquish the very people with whom he was swapping memories. And that's one Jamie story that remains to be told.


REPORTER ASSOCIATE Eugenia Levenson contributed to this article. Top of page

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Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.

Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.