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  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

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  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 978-1-4391-0971-7 (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 appearances. Even as a youngster, he refused to come out of his bedroom in his pajamas if his parents had guests. He was also extremely active, prone to leaping across the room rather than walking. Fluent with numbers from a young age—he remembered phone numbers as a small child—Dimon launched his first business at the age of six, attempting to sell greeting cards. The effort failed, but there was no doubt about his enterprising nature.

  In this, he took after his grandfather, Panos. An elegant and intellectual man, Panos spoke several languages, and he dabbled in psychoanalysis while dissecting balance sheets. Young Jamie’s father was also an early influence, particularly in his choice of profession. Dimon later said that he learned a great deal about the brokerage industry “across the kitchen table.”

  For a child from a comfortable background, Jamie exhibited an unusually early desire to be financially successful. At the age of nine, he announced to his father that he was going to make a fortune when he grew up. Whether his parents took him seriously or not, Dimon never wavered from that goal. The family photo collection includes a picture of him at the age of 21 studying J. Paul Getty’s How to Be Rich, a collection of columns he’d written for Playboy on the subject.

  He was, in most other ways, a typical boy, getting into the occasional scrape. Dimon and his twin brother Teddy were in a kids’ “gang” they called Lightning Squad, and they battled older boys (including their own brother) in the courtyard of their apartment building.

  (Dimon’s relationship with his parents has always been close. When he threatened to run away from home at the age of five, his mother replied by asking him where he would go. “To the woods,” he said. She asked him what he would eat: “Wild berries and flowers.” What would he drink? “Water from a lake.” Where would he sleep? “I’ll make a bed from twigs and leaves.” Finally, she asked, where would he go for love? After thinking for a minute, he said, “I’ll come home.” In the end, Dimon decided not to run away.)

  In 1967, when the twins were 11 years old, their parents gave the suburbs another shot, moving to a modest two-story house in the village of Larchmont, just north of New York City. Dimon’s mother remembers asking him at bedtime a few nights after moving how he liked his new bedroom. “I don’t know the shadows in the room yet,” he replied. “But it’ll be OK.”

  Dimon spent sixth grade at Larchmont’s Murray Avenue School before his parents moved the family back into the city, this time to a four-bedroom co-op at 1050 Park Avenue. (Although he has accomplished much, Dimon’s is not a Horatio Alger tale. He has spent the majority of his life within the same five blocks on Park Avenue, home of New York’s upper class.) Ted Dimon, who eschewed borrowing money his whole life, paid cash for the apartment.

  • • •

  Themis Dimon wanted her sons to continue in school together—she was the kind of mother who dressed all the boys in the same outfits—and in April 1968, she applied for them to attend Browning, a private all-boys’ school with 189 students in a pair of converted town houses on East 62nd Street that had been founded by John Browning, a close friend of John D. Rockefeller. (Rockefeller’s son, John D. Jr., attended from 1889 to 1893.)

  The Dimon boys were accepted, and they all completed their high school years at Browning. Dimon was in the school choir for a time, but quit in favor of sports. He played varsity soccer, basketball, and baseball. Browning was a small school, and its basketball court was also its auditorium; Dimon once broke his front teeth on the stage while lunging for a ball. (One nickname in high school was Mad Dog.) The starting center fielder on the school’s baseball team, he hit over .500 during his junior year, though he never loved the sport. “My arm was always hurting and I found it kind of boring,” he recalls. He also preferred to see his girlfriend after school rather than go to baseball practice.

  Two years into their time at Browning, Dimon and his brother Ted Jr. met a friend to whom they have remained close ever since. Jeremy Paul had moved into Manhattan from Connecticut. Often a dinner guest at the Dimon house, Paul remembers Ted Dimon Sr. coming across more as an intellectual than a stockbroker. A student of philosophy and a writer of poetry, the elder Dimon was also a trained violinist, and played in a string quartet in the family living room during social events. Themis, too, had an intellectual bent. The year the twins went off to college, she took classes at the New School, and ultimately got her master’s degree in psychology from Columbia. “Dinner at their house was really fun,” Paul recalls. “It wasn’t just, ‘Pass the potatoes.’ Whatever the topic was that day, it was taken very seriously.”

  In a family of outspoken individuals, Teddy had even more of a mouth than his brothers. He wasn’t afraid to provoke other teenagers, either, in part because he could always count on Jamie to come to his aid. Perhaps as a result, Jamie can be fiercely protective of those close to him. Throughout his career, he has been characterized as having an aggressive personality, and he will not deny that. But he is no bully. He hates bullies.

  The Dimons, who lived at 86th and Park, walked down Park Avenue to school each day, picking up Paul on 77th Street. Already punctual to a fault as a teenager, Jamie Dimon insisted that the only time Paul was late was when it was raining, just to force the Dimons to wait in the rain.

  Dimon had an almost idyllic childhood. Summers were spent mountain climbing in Colorado or taking French immersion at the Université de Poitiers in La Rochelle. Confident, good-looking, and athletic, Jamie was also something of a heartthrob. “In senior year, he majored in his girlfriend,” recalls one friend. When he graduated, her photo graced his personal pages in his yearbook, along with those of his parents, his brothers, and his beloved sheltie, Chippy. When it came to relationships, Jamie Dimon was that guy—the one to whom women were attracted, but who always seemed to have a girlfriend.

  Though not the best student, Dimon never ranked below sixth in his class at Browning. History tended to be his favorite subject, but his best marks were in math, where he demonstrated an intuitive grasp of the subject. In Dimon’s final year at Browning, his calculus teacher suffered a heart attack. Her replacement didn’t know calculus, and the six boys taking advanced placement calculus were told that if they wanted to continue, they would have to teach the subject to themselves. Three of the students decided to throw in the towel, but Dimon and the remaining two—one of whom was Jeremy Paul—spent a challenging year of self-instruction. “As far as working experiences go, that was pretty intense,” recalls Paul. “Each day we’d go into the classroom and there was no teacher, just us. And we’d sit there, trying to work our way through the problems.”

  Dimon also demonstrated an
early capacity for ethical leadership, exemplified by an episode in an American history course. One day, the only African-American student in the class had been acting out and was told by the teacher to leave the room. Once the door closed behind him, the teacher turned toward the class and muttered, “Six hundred thousand died to free the slaves, and this is the gratitude we get.” Dimon stood up, grabbed his things, and walked out the door. “He blasted me for not going with him,” recalls Paul. “And he was right.”

  He was never afraid to challenge authority. Michael Ingrisani, Dimon’s high school English teacher, continually came up against Dimon’s assertiveness, which was usually punctuated by a demand to Ingrisani: “Prove it.” Browning had a policy, for example, that if a student scored above 90 percent during the term, he was not required to take the final exam. In Dimon’s senior year, he had earned 89 percent in English, but he tried on numerous occasions to concoct an argument for why he, too, should be exempt from the final.

  “Wow,” Ingrisani thought, after one of Dimon’s pleading sessions. “He’s negotiating. He’s practicing. And he knows he has nothing to lose by trying.”

  • • •

  Despite having been a smart, popular student, Dimon has mixed recollections of his high school years. He was a little too rambunctious, and his outspokenness grated on some teachers; he had a vague sense that a number of the more traditional among them didn’t really like him. As a result, he was later told, his college recommendation letter conveyed reservations to admissions officers. That was indeed the case. After praising Dimon’s “keen, analytical mind” and “self-motivation and seriousness of purpose” in the letter, Clair Smith, the assistant headmaster at Browning, added a loaded compliment: “His lack of manners, due to habits of making quick judgments and contradicting others, has been greatly improved.” Reversing course once more, Smith finished on an up note: “He will be successful.”