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The Two J.P. Morgans

William Harrison spent $41 billion trying to graft a blue-chip investment bank atop Chase-Chemical’s unglamorous loan business. Now both halves of his financial Frankenstein are struggling.


The mood inside the boardroom at JPMorgan Chase headquarters was grim. It was September 17, and CEO and chairman William Harrison had some nasty, surprising news for his board and for the markets. The bank would have to write off a billion dollars in bad telecom debt, and trading revenues had evaporated. “We are extremely disappointed with these results,” he said in a subsequent conference call. The next day, his stock plunged to $19.

What a difference two years makes. On September 13, 2000, Harrison, then the CEO of Chase Manhattan, had engineered the takeover of his life—merging with the illustrious JPMorgan, the blue-chip lender and the one old-money bank still doing business on the Street. His stock was trading at $50, and under the grand old JPMorgan banner, he was ready to take on the investment-banking elites.

Harrison is himself a lifelong commercial banker. He started off as a junior loan officer at Chemical Bank in 1969. Through the seventies and eighties, Chemical made its money grinding out financial sausage: syndicated loans. It was a drab business with low margins, high risk, and not much flash. In the early nineties, the bank bought Manufacturers Hanover, and it merged with Chase in 1996. As the world’s largest syndicator of debt, the bank, under the brash deal-making leadership of Harrison protégé Jimmy Lee, had already begun to bring in investment-banking business.

But Harrison aspired to more. Chase may have been the corporate lender of last resort, but the real lucre was being made by the folks selling wisdom for billions at Goldman Sachs and Morgan Stanley.

So Harrison went on a shopping spree. Since becoming CEO in 1999, he has spent $41 billion (a big-time number, given the bank’s current market capitalization of $37 billion) in trying to graft a fee-generating investment-banking capability onto Chase-Chemical’s stodgy old loan business. Harrison didn’t want any kind of advisory business, either—he wanted pure white-shoe. Which is why, just months before pulling the trigger on JPMorgan, he paid $500 million for an obscure Boston-based M&A boutique called Beacon. 

Running Beacon was one Geoffrey Boisi, a former wonder-boy Goldman Sachs partner and a high-stakes eighties-era takeover player. Harrison tabbed Boisi to replace Lee as investment-banking head and cobble together a world-class investment-banking business.

From the beginning, though, Boisi’s integration into the bank was difficult. Boisi is a cool, nonclubby man with high morals (a devout Catholic, he’s a member of the Knights of Malta) and perhaps even higher ambition. A close adviser to Jack Welch and a believer in partnerships, he’s also a man comfortable being in charge, and he does not easily suffer fools. Making friends was not part of his brief, and during his time at the bank, he made few—firing 8,000 bankers and cutting out $3.5 billion in overhead.

In meeting after meeting, say those within the bank (Boisi declined to comment for this article), Boisi made the point bluntly to Harrison and his team: If we want to be a white-shoe investment bank, we have to act like one. Which means catering specifically to clients’ needs as opposed to pushing loans down their throats—a proposition that cut against the historic grain of the commercial-banking crowd.

Harrison’s close advisers are, like him, lifetime lenders of money and have been with him for years. Syndicated-loan legend and current vice-chairman Jimmy Lee goes back 20 years with Harrison. Risk-management head Marc Shapiro joined up in 1988, and consumer-banking head Don Layton came over from Manny Hanny in 1991. They all owe their executive-committee stature to Harrison and did not take kindly to Boisi’s tough talk and peremptory ways.

Soon it became a class war of sorts: Boisi, the Goldman Sachs culture-carrier whose father was a senior JPMorgan banker, versus the more middlebrow commercial bankers, jealous of their turf and resentful of Boisi’s high hand. The commercial bankers were not shy in back-channeling to Harrison, either: This guy is trying to create his own mini Goldman Sachs within our midst, and he is pissing off a lot of people in the process. You have to do something.

Late last year, according to a number of JPMorgan bankers, Boisi expressed his frustration to Harrison: “Bill, I’ll never leave you in the lurch,” he reportedly said. “But I just can’t keep working like this. If you keep on listening to these guys, well, that’s not the partnership I was expecting.”

Harrison was sympathetic and suggested management changes down the line. (Shapiro was long rumored to be seeking a move back to his hometown of Houston; moving Layton, an awkward co–head of investment banking with Boisi, was also a possibility.) But then Enron hit. Shapiro, a friend of Ken Lay’s, became involved in the early attempts to bail out Enron and stayed. With the stock plunging and Enron revelations spilling out daily, Harrison, too, began to feel the heat. Suddenly, the idea of the relentless Boisi, with his impeccable street cred, building up a power base didn’t sound like such a good idea after all.

In May, Harrison made his move, getting rid of Boisi. As Wall Street beheadings go, this one was particularly brutal. No pabulum about pursuing other interests or spending time with the family. “Geoff and I had differences from time to time on management philosophy,” Harrison said in a statement.

In the eyes of Harrison’s supporters, taking out a guy such as Boisi was the mark of a strong CEO at the top of his game. Citigroup’s Sandy Weill may have looked tough when he recently axed his investment-banking chief, Michael Carpenter, in the wake of the Grubman affair—but Boisi was a heftier Wall Street player and Harrison went after him months before Carpenter. “That was a ballsy move,” says an executive close to Morgan. “Most people wouldn’t have done such a thing.” To others, it smacked of fear and weakness—a show-trial execution, facilitated to please the commercial-banking troops as well as an increasingly concerned board.

For Harrison, it was a necessary move. By Wall Street standards, he is an extremely loyal man. He is also an amiable man—the product of a bank bureaucracy where a premium is placed upon congeniality and consensus. Boisi was making enemies—which would have been fine with the fees rolling in. But as the markets collapsed, shrinking investment-banking fees were dwarfed by losses on loans, some of which dated to Chase-Chemical days. Harrison also had to deal with a legion of investment bankers loyal to a guy hated by most of his pals in the executive suite and one who, some whispered, had designs on his job.

In the end, he listened to the Chemical guys—as he has done for the past 30-plus years. Now the question is, will the board listen to Harrison? Unlike most others on the street, the JPMorgan board is virtually insider-free. While there is a core of directors that has been with Harrison since he joined up in 1991, real power lies with two of the newer directors from the original JPMorgan: former Allied Signal CEO Lawrence Bossidy and Exxon Mobil CEO Lee Raymond. Tough, weathered boardroom operators, Raymond and Bossidy can sniff out weakness in a chief executive when others can’t. And when they see it, they act, as they did with JPMorgan CEO Sandy Warner. Realizing that he didn’t have what it took to keep JPMorgan independent, they pushed him into the merger with Chase.

Now it’s Harrison and the Chemical crowd who are being judged. Can they really build a world-class investment-banking business out of its wobbly loan book? Are the balance-sheet implosions recessionary one-offs, or are they representative of the go-for-broke lending culture that has always characterized Chemical-Chase’s approach?

And if it is a management problem, what is the board to do? Given the extent to which the Chemical people dominate the executive suite, firing Harrison alone is not a solution. Insiders say the directors were taken aback by the Boisi move—We paid $500 million for this guy; now we are firing him?—but were willing to give Harrison the benefit of the doubt. For now at least.

“Its a dilemma for the board,” says a JPMorgan executive. “You can’t just take out one character. These guys have been around forever. They come as a whole package. If there is going to be change, it will be massive change.”



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