The Heist

Illustration by Sean McCabePhoto: Najlah Feanny/Corbis

The Monday after a long working weekend, Jamie Dimon looked a little tired. His collar was unbuttoned, his tie loosened, and he was slouching slightly in his office chair. The week before, he had turned 52 years old—a bunch of balloons was still tethered in the corner of his office—and his hair was whiter than most recent photos show. But he was far from worn out. Dimon, the chairman and CEO of JPMorgan Chase, had just won the biggest game of his life.

Sunday, March 16, 2008, will go down in history one way or another. Depending on how things develop from here, it might be considered the day Dimon helped save Wall Street. While he certainly wouldn’t put it that way, his shocking triumph that evening—an agreement, brokered by Ben Bernanke, the Federal Reserve chairman, to take over Bear Stearns, a Wall Street institution, for the pretty-much-laughable price of $2 a share—may have in the process helped avert a financial panic the likes of which hasn’t been seen since 1929. Or maybe Dimon will have to settle for the trophy for best deal ever, spending just $260.5 million for a company whose last reported net worth was $11.7 billion and whose lavish Madison Avenue headquarters alone is estimated to be worth more than $1 billion.

“We had one and a half days to do this deal, which includes uncertainties we don’t even know about,” said Dimon, in a voice that still contains traces of his Queens upbringing. “So it wasn’t a typical valuation. Two dollars a share is a reflection of the extra risk JPMorgan Chase was taking on in the middle of the night to do something that otherwise might not have gotten done. We had to build in a margin for error, where if we were wrong, we weren’t risking the whole company.”

I asked if there were moments during the weekend when the deal was nearly derailed. “Absolutely,” he replied. “It had its ups and downs, but there was a general feeling that this would be better for everybody.”

It may well be. It was certainly better for Dimon, from whom much had been expected. In many respects, this deal feels like the fulfillment of a prophecy.

Dimon’s creation myth is familiar to everyone on Wall Street. He was 26 years old, just out of Harvard Business School, when he signed on with the banking titan Sandy Weill at American Express. The Amex experience was Weill’s one big blunder; he clashed with the blue-blood culture and was ousted. Virtually by themselves, he and Dimon started over from the bottom, commandeering a third-tier Baltimore lending outfit called Commercial Credit. From there, like banking marauders, they pulled off an audacious string of acquisitions that culminated in the takeover of Citicorp. For a decade and a half, side by side, they built an empire, the world’s first financial supermarket.

But all was not right in the kingdom. Twenty-three years younger than Weill, Dimon was the natural heir to the throne, but as the final pieces of Citigroup came together, the partnership disintegrated. Dimon was cast out, left to wander in the wilderness. Eventually, he would return to slay the father figure (metaphorically speaking) and reclaim the role once ordained to him, as the undisputed king of the land.

Contrast: As you ride up the escalator to the second floor of JPMorgan Chase’s headquarters at 270 Park Avenue, you can actually see the backside of the Bear Stearns building, on Vanderbilt Avenue, which as of last Monday afternoon was full of a bunch of shell-shocked bankers still trying to process what had happened to them. Many were staring out their windows, almost, it seemed, toward JPMorgan itself, as if searching for signs of their fate.

Dimon is no stranger to takeovers, hostile and otherwise, or the jagged ups and downs of life on Wall Street. His father, a second-generation Greek-American, was a broker who worked for Weill and did well enough to move the family from Queens to Park Avenue when Dimon was in junior high. There were three Dimon boys: Jamie; his fraternal twin, Ted; and Peter. Jamie studied economics and biology at Tufts, and after Harvard Business School his father arranged for an interview with Weill.

Weill and Dimon became like father and son, a complementary team, emotional and combative at times but deeply loyal to one another. Weill was the deal-maker; Dimon was the numbers guy who could make the firms fit. The process was simple: Weill borrowed huge amounts of money to acquire companies, then they went into the shop and started cutting costs like mad to pay down the debt. Inevitably, that meant job losses and acrimony. The work required resolve and discipline but also brains, because you couldn’t hurt the business in the process of all that cutting. You needed every last penny of the revenues.

Sandy Weill, left, and Jamie Dimon, then with American Express, at a conference in California in 1983.Photo: Roger Ressmeyer/Corbis

Dimon was extremely well suited to his role, and he and Weill went about assembling a financial conglomerate that investors found irresistible. There would be cross-selling—your retail bank offering you a credit card, an investment banker facilitating a commercial loan, a stockbroker hooking you up with a mortgage—and customers who once did just one type of transaction with the firm would suddenly be providing multiple streams of revenue.

Building this giant brought Weill and Dimon together, but as they neared their goal, Dimon’s pent-up resentments from playing second fiddle to Weill for all those years were unleashed, and his temper started to get the better of him. The tail end of Dimon’s tenure at Citigroup was marked by what many people saw as a level of hostility between Dimon and Weill that would not have been tolerated by any other CEO. “Jamie would say things to Sandy that would leave your mouth open,” says one executive who worked closely with the two men. Along the way, Dimon lost more allies than just Weill. Former Citigroup chairman and CEO John Reed (who was himself ousted by Weill) went from being a Dimon fan to a Dimon foe in mere weeks. “Reed originally thought the light shone out of Jamie’s rear end,” says the executive. “He was going to be the guy to take over from Sandy and John when the two of them walked into the sunset eighteen months later. And then before you knew it, he was saying Dimon had to go.”

In his early years, Dimon was praised for his intellect, his ability to focus on the details of the deals his boss, Weill, conceived of in broad strokes. With success, however, Dimon became harder to manage, certainly harder to control. “Jamie was testosterone—he was loud,” says someone who worked closely with him. “You don’t have to be like that. Ideas can carry the day.”

Others saw Dimon as a victim of Weill’s egomania. “I can still hear Jamie saying, ‘But Sandy!’ with his arm up in a meeting. Without any fear. For the right reasons,” says Marge Magner, the former head of Citigroup’s global consumer group. Whether one’s interpretation favored Dimon or Weill, there was no doubt that the two were behaving like a dysfunctional family. It was awful to watch.

The final blow came during the last merger, the one that joined Travelers and Citicorp. Dimon reportedly wanted to be both president of the combined company and the chief of the corporate investment bank. Weill and Reed thought he needed to share the investment-banking job with two others, Deryck Maughan and Victor Menezes. “Sandy had asked the three of them to come up with a plan to run the bank together,” says one executive who was in on the discussions. “So there’s the meeting at 388 Greenwich when Sandy asks for their plan. Jamie said they couldn’t do it unless only one of them was put in charge. And then he pretty much refused to speak. It was mutiny. Disobedience. If someone had done that to Jack Welch, he would have ripped their heart right out of their chest.”

Dimon was fired in November 1998. Whatever his emotional state, his reputation emerged more or less unscathed. In fact, he was regarded as something of a martyr. There would be a CEO job for him; it was just a question of when the right one would open up. Dimon did not leap at opportunities. He turned down a job at Amazon. Sixteen months went by until Bank One, in Chicago, named him CEO. He moved his family (he and his wife, Judith, whom he met at Harvard, and their three daughters) into a 26-room mansion and took up his customary role as a cost-cutting zealot. A 2002 story in Money magazine reported that he was incensed by the number of newspaper subscriptions paid for by the company, telling one executive, “You’re a businessman. Pay for your own Wall Street Journal.”

Dimon did well at Bank One. One of his virtues as an executive is that he’s blunt and truthful—to bosses, peers, and subordinates alike. He doesn’t tend to mince words or spare people’s feelings. As a younger man, when he was forced to share power, this could turn easily into anger and nastiness. But as his own boss, he used it more effectively. In four years at Bank One, he doubled the value of the company and made it a very attractive acquisition target. In 2004, he persuaded William Harrison, then CEO of JPMorgan Chase, to purchase Bank One for $58 billion, a stupendous deal for Dimon’s shareholders. Dimon, it is said, offered to accept $7 billion less in the deal if he were named CEO immediately, but Harrison reportedly paid the extra to extend his own tenure. Dimon ascended to the CEO job in 2006, when Harrison moved into the chairman role. A year later, Dimon took that title, too. He was back.

Dimon crossing the street from JPMorgan to Bear Stearns last week to meet with employees.Photo: Patrick Andrade/The New York Times/Redux

And that’s where the Jamie Dimon story gets quite boring, at least for a while. He returned to New York at a time when risk aversion had fallen out of favor on Wall Street. Major financial institutions, in hot pursuit of higher returns, were riding a wave of financial engineering. Dimon took a more cautious approach, focusing on the regular spadework of banking, which included renovating old branches and opening a slew of new ones. Citibank, which once dominated the Manhattan streetscape, now has just half as many branches as Chase. Dimon kept up the pressure on cost-cutting by doing things like slashing the number of software applications used by the bank.

Meanwhile, Dimon avoided easy-money gimmicks like so-called structured investment vehicles, or SIVs, one of the black holes of the current credit crisis. SIVs are deceptively simple in concept: A fund is set up that borrows using short-term securities at low interest rates, and then uses that money to buy longer-term securities with higher interest rates. For a while, Wall Street was in love with SIVs, because profits could be manufactured without putting any of the company’s capital at risk. All you needed was easy access to short-term credit.

Then, last summer, the credit markets seized up, and the banks had no way to fund their obligations without dipping into their own capital. Citi had to take $58 billion of SIVs onto its balance sheet, crippling the company.

JPMorgan lost nothing in the SIV debacle. After conferring with Bill Winters and Steve Black, JPMorgan Chase’s co-heads of investment banking, in 2005, Dimon agreed to sell the single SIV the bank had on its books. Why? “Because no matter what kind of equity we might have had to commit toward it, we still considered it an unacceptable return,” Winters told me in late February.

Here another of Dimon’s most referenced character traits—his tendency toward micromanagement—came into play. Did deposed Citigroup chairman Chuck Prince (who got the job that would have been Dimon’s) have conversations with his bankers about whether Citigroup was overexposed to SIVs? If he did, he obviously made the wrong call.

Dimon also steered the bank mostly clear of CDOs, or collateralized debt obligations, another fancy bit of financial gimcrackery that purported to turn risky investments into safe ones, as if by magic. CDOs were one of Merrill Lynch’s great profit centers—in 2007, the firm underwrote $31 billion worth of them, compared with just $4 billion for JPMorgan, and then made the fateful decision to hold on to some of the highest-yielding (and riskiest) portions thereof. You can think of these Wall Street firms as drug dealers who forgot the cardinal rule of the trade: Don’t start taking the junk yourself.

While these faddish schemes came and went, Dimon’s obsession with what he refers to as a “fortress balance sheet” did not let him follow his reckless competitors. This took conviction. “One of the toughest jobs as CEO is to look at all the stupid things other people are doing and to not do them—because maybe you’re the stupid one,” says Bob Willumstad, the former president and COO of Citigroup. Under Dimon, JPMorgan was a plodder, methodically increasing its profits, adding to credit reserves, and expanding market share in a number of different businesses. But as recently as the middle of last year, Dimon had sort of been forgotten. Many analysts lost interest in JPMorgan. Word got around that although he was a skilled cost-cutter, Dimon lacked the imagination to grow the business from within, and that he would soon have no choice but to start hungrily acquiring companies like he had done with Weill. Wall Street always needs a story, and Dimon didn’t have one that people wanted to hear.

Then came the credit crunch, a consequence, most economists agree, of dangerously lax lending standards across the board. JPMorgan took its blows—given the climate, no bank was immune. The company’s mortgage-related, structured-credit, and leveraged-lending write-downs totaled $2.9 billion from the summer through late February, which sounds like a lot until you look at the competition: $22 billion for Merrill Lynch, $20.4 billion for Citigroup, $18.7 billion at UBS, and $10.1 billion at Morgan Stanley.

And along with everyone else, JPMorgan is not in the clear yet. At a shareholder meeting I attended in February, chief financial officer Mike Cavanagh warned that the company already foresaw an additional $450 million in home-equity losses in 2008, a number that will surely grow by the time JPMorgan reports its first-quarter results. Much deeper losses are likely, and there is concern about its portfolio of “leveraged loans”—those made to finance private-equity deals over the past five years. As of the end of January, JPMorgan was sitting on $26.4 billion in loans that it would’ve liked to pass into the secondary market, if only that market still existed.

But here’s the most important thing. Despite its problems, the bank remains on solid financial footing. While many of his peers have gone hat in hand to so-called sovereign funds in places like Dubai and China, Dimon hasn’t needed to raise a dime. “Not having to raise capital from foreign investors says a lot about them at this particular juncture,” says Richard Bove, an analyst at Punk, Ziegel & Company. More to the point: In contrast to the chatter about Citigroup, no one is talking about breaking up JPMorgan Chase. While the cross-selling synergies have proved more elusive than originally anticipated, one clear benefit of a financial conglomerate is the sheer size of its balance sheet—JP Morgan has $1.56 trillion in assets, the kind of heft that allows it to absorb, say, an imploding investment bank with only a couple of days’ notice.

When Bernanke was looking for a financial company with the wherewithal to take over Bear Stearns, there really wasn’t much of a choice. “If not us, I don’t know who else,” Dimon stated matter-of-factly.

While Bear Stearns was, until recently, the fifth-largest pure investment bank, it was relatively small fry among the giants of the financial sector, as well as something of a self-styled outsider outfit. Bear didn’t aspire to the august reputations of Morgan Stanley or Goldman Sachs. They were, by and large, traders, and they suffered from the same credit-market problems that everybody else did. The difference was the fear that began to spread on the Street that the firm was undercapitalized, a situation in which perceptions quickly solidify into reality. Major clients began to pull their accounts, threatening a collapse of the firm.

The rescue mission began on Friday, March 14, when the Federal Reserve and JPMorgan agreed to provide emergency funding to Bear. Dimon had one very good reason to get involved—JPMorgan stood to lose millions itself if Bear went belly-up. But the Fed’s announcement failed to stop Bear’s stock from plummeting as more business partners ran for the exits. Bankruptcy loomed as a frighteningly real possibility. A more intensive bailout appeared necessary, and JPMorgan started quizzing Bear executives and studying their books to assess what they had. Given the state of the credit market, it was hard to place a value on many of the securities. On such a tight time frame, JPMorgan could only guess. The numbers batted around Saturday night were reportedly considerably greater than the $2-a-share figure, but no agreement was at hand, and when JPMorgan executives woke up Sunday, they were determined to go lower. The Fed, too, reportedly pushed for a lower price, to ensure that Bear shareholders, not the government nor JPMorgan’s shareholders, bore the brunt of the losses. That was the Fed’s way of averting the moral hazard of bailing out reckless bankers. Dimon’s inner circle—CFO Mike Cavanagh, investment-banking co-heads Bill Winters and Steve Black, and general counsel Stephen Cutler—put the screws to Bear Stearns’ negotiating team, which reportedly included chairman James Cayne. “It was clearly not the easiest transaction,” says Dimon. “And until the boards voted, there was no deal at all.”

In the end, $2 a share amounted to a token payment. So if that’s the level they were operating at, I asked Dimon, why not $1 a share? “There were a lot of factors involved,” he said cryptically.

The attractions for Dimon were obvious. The Fed has guaranteed some $30 billion of Bear’s less-liquid assets, leaving JPMorgan free to feast on the attractive ones, such as the firm’s prime-brokerage desk (which provides trading and other services to hedge funds), a business that JPMorgan barely competes in. Bank of America is reportedly shopping its own prime-brokerage business for $1 billion. Dimon got Bear Stearns’—the third largest in the industry—for less than a quarter of that, and that’s if you ignore the rest of the business entirely. I ask him what else he likes about the acquisition. “Their securities-clearing operations are excellent,” he said, and went on to mention Bear’s equities and commodities businesses. As if that’s not enough of a haul, Dimon added, “They also have a great building.”

The deal is not yet settled. Bear Stearns employees and shareholders have mutinied against it. Last Wednesday, Dimon and his team tried to present a compassionate face at a meeting with more than 400 outraged Bear Stearns executives. “I don’t think Bear did anything to deserve this,” he said. “Our hearts go out to you.” The crowd refused to be mollified by his remarks. Many in the room had surely lost the bulk of their life savings, but the irony is hard to ignore: Investment bankers, whose actions regularly force drastic cost-cutting and job loss on companies across the world, were reeling from a taste of their own medicine. “You’re acting like it’s our fault, and it’s not,” Dimon argued when one forlorn banker suggested, ridiculously, that JPMorgan should compensate Bear Stearns employees for their losses.

The stock market, for now, is betting that JPMorgan is a winner, and the stock has been rewarded with a 25 percent run-up, boosting Dimon’s own stake to over $200 million. But the benefits go far beyond personal wealth. This might mean that Dimon no longer has to live in Sandy Weill’s shadow. “Has he eclipsed Sandy?” asked someone who knows both well. “Yes, he has. The only positive thing being written about Sandy these days is that Jamie learned from him.” Adds a hedge-fund manager, “Sandy Weill did wonderful things for Citigroup, but forcing Jamie Dimon out will forever taint his legacy.”

When I bring up the inevitable topic of Citigroup with Dimon, he seems exasperated. He is clearly sick of being a character in someone else’s legend. “I left ten years ago,” he said, then corrected himself. “No, I didn’t leave, I was fired. I was kicked out of the nest.”

If he were inclined to, Dimon could easily gloat over the fact that JPMorgan has all but supplanted Citigroup as the preeminent financial conglomerate. The numbers say it all: JPMorgan is valued by investors at $158 billion, Citigroup just three quarters as much. JPMorgan is even mentioned now in the same breath as Goldman Sachs. So ascendant is Dimon’s reputation that he was recently able to lure an ex-Goldman partner out of retirement—a feat which usually takes a governorship or cabinet post—to become the company’s chief risk officer. “There’s no place I’d rather be right now than working with Jamie and his team,” says that new hire, Barry Zubrow.

Dimon seems ready for his new role as Wall Street’s top dog. After explaining how the Bear Stearns deal will likely prove a good one for JPMorgan shareholders, he segued into a rationale for why it might also prove so for the entire economy. “You have to keep in mind the financial conditions of the entire system,” he said, when I asked him whether an appropriate example could have been set if Bear Stearns had been allowed to go under. “Who are you really helping if everyone gets hurt? No, I don’t think highly paid executives at any investment bank deserve to get bailed out. But at some point, you’re just talking about various degrees of suffering.”

Of course, JPMorgan didn’t “save” the system on its own. The loans the company originally provided to Bear Stearns to keep it afloat had been guaranteed by the Fed, effectively making them risk-free. Would Dimon have done the deal without the backstop from the Fed? He pauses. “It would have been very hard to do. Without the Fed to help mitigate the risk, to protect us from an overconcentration in some risky assets, I’m not sure it was doable at all.”

So how worried is Dimon about the risky assets that might be lurking in his firm’s own portfolio, stuff for which he doesn’t have the luxury of a guarantee from the Fed, like, say, the company’s derivatives exposure? JPMorgan had $77 trillion in so-called notional derivatives exposure at the end of 2007, a number that gives some derivatives doubters pause. After pointing out that JPMorgan’s net exposure is only $67 billion—only $67 billion? No worries, then!—Dimon and his team scoff at the analysts’ suggestion that they don’t understand the risks of such exposure. They say they understand them all too well. “Look, if you don’t worry in this business, you’re crazy,” Dimon said. “It’s not lurking in the back of my mind.” He pointed to the center of his forehead. “It’s right here.”

Inside Bear Stearns After the Collapse
A Financial Moron Explains the Crisis

The Heist