- January 20, 2012
Wall Street Bound
What's behind the biggest bank merger in five years? For one, Bank One CEO Jamie Dimon will return
to New York take on his former mentor.
By Adrian Cox and Jack Duffy
Bloomberg News Service
NEW YORK - Five years ago, Jamie Dimon was driven from Wall Street, fired by his mentor, Citigroup Inc. Chairman Sanford I. Weill.
Today Dimon, the 47-year-old chief executive officer of Chicago-based Bank One Corp., is poised to return to New York, helping to run J.P. Morgan Chase & Co., the second-biggest U.S. bank. J.P. Morgan announced earlier this month plans to buy Bank One Corp. for about $55.1 billion in stock.
"This deal's about Jamie Dimon," said Jon Burnham, chairman of Burnham Asset Management Corp., which invests $1.2 billion. "That was the price of J.P. Morgan getting Jamie Dimon to be the next CEO. I guess he's going to be running the show from day one."
J.P. Morgan's acquisition is the biggest bank merger since 1998. It creates an institution with $1.08 trillion of assets to challenge Citigroup, the world's largest financial services company, with assets of $1.21 trillion, where Weill once called Dimon "Robin to my Batman."
The deal combines J.P. Morgan, the No. 2 U.S. bond underwriter and the world's biggest corporate lender, with Bank One, Chicago's biggest bank with more than 1,800 branches in 14 states and the third-largest U.S. credit card issuer. The companies said 10,000 jobs will be cut after the merger.
Only Citigroup and Bank of America Corp. will match the combined bank's investment-banking and commercial-lending businesses, and its 2,300 U.S. consumer branches. The acquisition further consolidates U.S. banks. The combined assets of those three banks will total more than $3 trillion, more than one-third of the $8.9 trillion of bank assets insured by the Federal Deposit Insurance Corp.
Dimon's return to New York as president of J.P. Morgan will put him within a short walk of Weill's office at Citigroup. Weill, now 70, steps down as chairman in 2006, the same year Dimon becomes J.P. Morgan CEO under the deal's terms.
In 1998, Weill fired Dimon within weeks of Citicorp's merger with Travelers Corp. after the Salomon Smith Barney brokerage unit run by Dimon reported a $1.33 billion quarterly loss. Charles Prince, now Citigroup's CEO, replaced Dimon as Weill's closest adviser.
"This return has got to be very satisfying to Jamie Dimon," said Richard Bove, a financial services analyst at Hoefer & Arnett Inc. "I wouldn't be surprised if in five years time J.P. Morgan was bigger than Citigroup." Weill and Citigroup CEO Prince didn't return calls.
'A tough assignment'
Dimon was hired by Bank One in March 2000 and put $56.8 million of his own money into Bank One stock. Over the next four years, he eliminated 7,000 jobs, slashed the bank's dividend and dumped billions in bad corporate loans to return the company to profit.
A successful turnaround at Bank One helped position Dimon for a return to the larger financial stage of New York. Bank One's profit rose by 17.4% in 2001 and 14% in 2002 after a 40% plunge in 2000.
"Jamie had a tough assignment at Bank One and he did it very well," said Jay Fishman, a former Citigroup executive who is currently chief executive of insurer St. Paul's Cos. Inc. "He really rolls up his sleeves and is very close to the people who run the businesses."
Dimon will become president and chief operating officer and succeed J.P. Morgan's William Harrison as CEO in 2006, the banks said in a statement. Harrison, now 60, will remain chairman at that time.
"Even though Jamie Dimon did a great job cutting costs, he hasn't proved himself on the revenue side," said David Hendler, an analyst at independent research firm CreditSights. "He's like a junkyard manager who has taken things that were undervalued and made them somewhat overvalued, but he didn't create a product."
Dimon made $14.6 million exercising stock options in the bank last year and raised his stake in the company by 223,500 shares, according to a July regulatory filing.
The acquisition joins two banks that have recovered from plunging stock prices sparked by acquisitions in the past five years. The purchase may spur an acceleration of consolidation begun by Bank of America's October agreement to buy FleetBoston Financial Corp. for $45.5 billion.
The takeover is the biggest in the banking industry since the acquisition of Bank of America by NationsBank five years ago. J.P. Morgan will pay 1.32 of its shares for each of Bank One's, valuing the sixth-largest U.S. bank at $51.77 a share. That's 14% more than the recent closing price.
The purchase gives J.P. Morgan insurance underwriting, a business it's not currently in. Bank One Corp. last year bought most of Zurich Financial Services AG's U.S. life insurance unit for about $500 million to become the second-biggest U.S. bank insurance underwriter behind Citigroup.
The purchase of Bank One, the sixth-largest U.S. bank and the third-largest U.S. credit card issuer, is the biggest by Harrison. He combined Chase Manhattan Corp. with J.P. Morgan & Co. for $32 billion in 2000 to add investment banking to a commercial bank.
Bank One operates the largest bank-owned mutual fund family. In October, it replaced two executives in its money management unit amid a company investigation into special mutual fund trading privileges given to the Canary Capital Partners LLC hedge fund.
Serious talks between Dimon and Harrison began over lunch in November in Harrison's dining room on the 50th floor of J.P. Morgan's midtown Manhattan headquarters, Dimon said.
They became each other's "trusted advisers" over the past few years, Dimon said, during which they had lunch whenever Dimon was in New York.
Bank One's code name for J.P. Morgan in the secret discussions was "Park" and the bank used "Clark" for itself, after the streets where each company is based, Park Avenue and Clark Street in Chicago. J.P. Morgan referred to Bank One as "Apollo" and to itself as "Jupiter."
Last July, in what now appears as a prelude, J.P. Morgan agreed to buy Bank One Corp.'s corporate trust unit for $720 million.
Signs of Dimon's attachment to New York include a Wall Street bull statue and a Wall Street sign that he keeps in a cabinet in his Chicago office. He also has surrounded himself with former Citigroup colleagues, including Chief Financial Officer Heidi Miller and retail banking chief Charles Scharf. Dimon attended Citigroup CEO Prince's wedding in September.
Only one of the managers in place at Bank One when Dimon was hired is still on staff, David Kundert, who oversees areas including asset management.
"The big rub on people in Chicago was that Jamie always wanted to get back to New York - either to take over somebody or have somebody take over Bank One," said Douglas Nardi, director at Scudder Private Investment Counsel in Chicago, which manages $1 billion and owns Bank One shares.
Dimon hosted a meeting of half a dozen investors in early December in a windowless conference room at Bank One's headquarters, according to participant Thane Bublitz, who helps manage $60 billion, including 3.3 million J.P. Morgan shares and 900,000 Bank One shares, at Thrivent Financial for Lutherans.
Dimon took off his jacket, sat back and listened to the investors speculating about the future of Bank One. "He was listening more than he was talking," Bublitz said.
"He said his goals weren't personal," Bublitz said. "He said he would consider anything as long as it would add shareholder value."
Dimon said he may not move his family back to New York immediately. "I'm really going to do what's right for my family - whatever my wife and my children tell me," he said. "If I have to commute, I'll commute."
Dimon was the first person in the business world to call Burnham after his father I.W. "Tubby" Burnham, who co-founded Drexel Burnham Lambert Inc., died in June 2002 at 93.
"He just picked up the phone and said 'I was thinking about you,' " said Burnham, who has known Dimon since they worked together at Smith Barney two decades ago. "He's clearly very sensitive to people."