Dimon is the new John Pierpont Morgan but the coming men are the wonk and the axeman
For 16 years, Jamie Dimon and Sandy Weill were the ultimate Wall Street power team, starting with a tiny finance company called Consumer Credit and building it through aggressive acquisition into Citigroup, the largest bank in the world.
For 16 years, Jamie Dimon and Sandy Weill were the ultimate Wall Street power team, starting with a tiny finance company called Consumer Credit and building it through aggressive acquisition into Citigroup, the largest bank in the world. But after Citigroup’s creation in 1998, the couple split, acrimoniously: Weill fired Dimon in a move which was to have far-reaching consequences. Dimon was at that point not only the co-architect but also the heir apparent of Citigroup; with his departure, it was left to Weill to articulate and implement his vision of an all-encompassing financial supermarket. But it turned out that neither he nor his successors were up to the task: Citi’s stock, which closed at $34 a share on the day the merger was announced, is now, a decade later, $10 lower than that, and the bank is generally considered too big to manage.
Dimon is a talented executive, but even he would probably have been chewed up by the sheer impossibility of running a company with as many bickering parts as Citigroup. And that’s assuming that he would have taken over from Weill if he hadn’t been fired, which is far from obvious. When Weill stepped down as chief executive, Citigroup was so mired in scandal that Wall Street might not have been impressed by the elevation of his longtime right-hand man.
Thus did Jamie Dimon dodge a bullet. Banished from Citigroup, he resurfaced as chief executive of a troubled Midwestern lender, Bank One, which he eventually sold to JPMorgan Chase for an astonishing $58 billion. (By contrast, when Dimon and Weill bought Citicorp in the transaction which created Citigroup, they paid just $36.4 billion.) And this time, quite according to plan, he became chief executive. Dimon’s JPMorgan Chase is now worth more than Citigroup, but that’s a feat which probably owes more to managerial incompetence at Citi than it does to Dimon’s expertise.
It is in a different manner that Dimon has eclipsed his former mentor, Weill: in a time when bankers are considered to be greedy over-reachers who have ended up devastating the entire financial system, Dimon has positioned himself as the good guy, the man who largely sidestepped the subprime crisis, refused to play games with off-balance-sheet financing vehicles, and — most importantly of all — the person who stepped up over the course of a sleepless weekend in March and promised to honour all of Bear Stearns’s contracts, thereby averting global financial disaster.
Dimon, at this point, is seen not so much as the successor to Sandy Weill, but more as the heir to John Pierpont Morgan himself, he who stepped in to save the day during the panic of 1907. It’s a role which should by rights have been played by Hank Paulson, the man who stepped down as chief executive of Goldman Sachs to take over as Secretary of the US Treasury. But Paulson has generally been seen as being one step behind the curve, a man who would always prefer to talk the markets around rather than actually do something. Dimon, by contrast, has said relatively little over the course of the past few months, but his actions have spoken very loudly indeed.
Even Dimon, however, is ultimately just playing his part in a drama being directed by the Federal Reserve. And while the Fed president Ben Bernanke attracts the media limelight, the man who is shouldering the lion’s share of the most important work at the Fed right now is Tim Geithner, the president of the New York branch.
Bernanke is an expert when it comes to deciding when to cut interest rates and when to raise them. But the Fed, in recent months, has been doing a great deal more than simply cutting interest rates. It announced brand-new financing facilities, it slashed the punitive rates at which it will lend to banks and most dramatically of all, it decided to lend to unregulated investment banks at the same rates and against the same collateral as it lends to regulated commercial banks.
Economist Jim Hamilton calls this ‘monetary policy using the asset side of the Fed’s balance sheet’, and it’s largely uncharted territory for the Fed generally and in particular for Bernanke, who knows much more about macroeconomics than he does about finance.
Into the breach, then, has stepped Geithner, a finance wonk charged with being the prime liaison between Wall Street and the Federal Reserve. It’s his job to make the really hard decisions: is this bank insolvent, in which case it should be allowed to fail, or is it merely illiquid, in which case the Fed should probably help keep it afloat? And more generally, when does Fed activity ratify the irresponsible behaviour of financial institutions in the past, and when does it save the economy from unnecessary turmoil?
Geithner, a career technocrat who’s perfectly comfortable rooting around in the minutiae of capital adequacy requirements and the like, is as good a man as you could hope to be making such determinations, and Bernanke is very lucky to have him at the New York Federal Reserve.
Of course, the best efforts of Dimon, Paulson, Bernanke, Geithner and many others are not stopping New York’s investment banks from seeing their deal-flow dry up. Many jobs have already been lost; more will surely go. Which means that the most in-demand skill-sets have nothing to do with coming up with clever new structured products and brokering giant mergers. Rather, they have to do with firing people.
To that end, Citigroup has poached Mark Rufeh from Credit Suisse, giving him the bland-sounding title of ‘chief administrative officer and head of productivity for the institutional clients group’. In reality, Rufeh is a master at the art of culling the greatest number of people while making sure that those who remain still manage to earn as much money for his company as possible. If Rufeh and his counterparts elsewhere on the Street really get cracking, there could be tens of thousands of layoffs over the course of this year – which in turn means billions of dollars saved in annual bonuses come January. Gone are the days of the rainmakers and dealmakers: the wonk and the axeman cometh.
Felix Salmon blogs for Portfolio.com