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J.P. Morgan Is In For A Shock


Watch out, J.P. Morgan Chase & Co (JPM). By buying Chicago-based Bank One Corp. and making the 47-year-old Jamie Dimon chief operating officer, you may have let the lion into the tent. Don't expect Dimon, a Queens (N.Y.) native who boxes for fun, to pull many punches as he squares up to his new job.

What will a Dimonized J.P. Morgan look like? Dimon isn't saying yet, and the merger won't be final for another six months. But his past conversations with BusinessWeek and his moves at Bank One offer big clues. Within less than a year of his arrival there in 2000, he replaced all but one of the 13 executive committee members -- many with lieutenants from his days at Citigroup (C), where he was fired as president in 1998 after a falling-out with Chairman Sanford "Sandy" I. Weill. Then he overhauled the bank's board, slicing it from 22 to 13 directors. Next he eliminated such perks as 401(k) matches for top earners and company cell phones for everyone; staffers must now even pay for their own newspaper subscriptions.

The bottom line: In less than a year, he took a sprawling, unfocused outfit that had made more than 100 acquisitions over 15 years and turned it into a humming financial machine fully prepped to reenter the deal game as a power player.

It's doubtful that Dimon will be able to move so fast at J.P. Morgan. He's slated to serve as No. 2 until he takes over in 2006. Until then, he's supposed to focus on the bank's retail side while Chief Executive William B. Harrison Jr. looks after the corporate business. But the wait is unlikely to cramp his style. "He'll have more influence sooner," predicts longtime Dimon-watcher Brian Rohman, managing director of Weiss Peck & Greer, a New York institutional money manager that owns J.P. Morgan stock. "He will not stand for the politics of, 'he's on retail and the other guy's on corporate."'

The arrival of the tightfisted Dimon will likely complete the transformation of J.P. Morgan from a tony white-shoe private bank with roots in the 19th century to a technology-driven megabank catering to everyone. His eye for cost-cutting and insistence on quick returns promises to finish the job of chopping expenses started when another storied bank, Chase Manhattan, bought J.P. Morgan in 2000. At Bank One, "he installed a culture of cost control and efficiency," says John R. Hall, who has served on the board of Bank One or its predecessors since 1987. "He [has] really gotten in there and reduced the cost of operating the bank." Already, Dimon and Harrison have started trolling for the $2.2 billion in annual savings and 10,000 layoffs that the bank says it wants by 2007.

IMPATIENT. At first, Dimon and Harrison will operate through a supersized -- and probably unwieldy -- network of top managers. But expect the planned 16-member board of directors and 27-member executive committee to be scaled back before long. The impatient Dimon prefers to work in small groups where, he says, execs can't hide and it's easier to make changes. Bank One's board has just 13 directors, four fewer than Bank of America's (BAC), and a 13-strong executive committee, vs. a 47-member committee at Citigroup.

Executive perks are likely to follow execs out the door. There's a good chance that Dimon will snatch back company cell phones and pagers unless they're deemed essential. Bank One staffers are reimbursed when they use their phones, but not for buying them. Also, Dimon has restructured Bank One's options so that they expire after just six years instead of the usual 10. That prods managers to move faster to boost profits -- and the company's stock price.

The skinflint approach didn't deter highfliers from joining Bank One. Now, nine of the executive committee members whom Dimon hired or promoted are joining the new J.P. Morgan committee. "He does an extraordinary job of recruiting top talent," says John W. Rogers Jr., another Bank One director. "He gets very strong, dynamic leaders for his organization."

For J.P. Morgan customers, though, the most striking post-Dimon change might be at the 530 Chase branch offices. To drive home the message of a unified operation, Dimon's retail-banking honcho, Charles W. Scharf, may put Chase tellers and loan officers into uniform shirts and ties just as he did at Bank One. Chase bankers will be pushed to adopt a more aggressive style, pitching mortgages and credit cards along with certificates of deposit and checking accounts. Once the merger is final, bankers can expect a quick decision -- backed by consumer research -- on whether to stick Chase or Bank One signs on the combined bank's 2,300 branches.

Dimon's knack for tapping marketing-savvy managers rescued Bank One's once-troubled credit-card operation and should give J.P. Morgan's Chase cards unit a similar boost. Another Dimon lieutenant, William Campbell, will surely push for more creativity in designing and marketing cards -- a major key to success in the oversaturated card world, in which the combined banks' $125 billion of receivables run a close second to leader Citigroup. Bank One's offerings now include such novel deals as one with Starbucks Corp. (SBUX), where holders of the futuristic-looking, translucent Duetto Visa card can charge their purchases and store cash for instant debiting while earning rewards for their Starbucks buys. Look, too, for more affinity marketing to get Chase cardholders to carry more plastic that benefits their alumni associations or professional groups.

As well as rolling out splashy new products, Dimon was methodically fixing the electronic plumbing at Bank One. He put the scores of banks his predecessors had accumulated across 14 states onto a single computer system -- a complex and costly task that many banks never accomplish. At J.P. Morgan, he must fold several computer systems into one while knitting its myriad investment-banking clients into a unified data system.

Many of J.P. Morgan's investment bankers say they're excited that a person with Dimon's charisma is coming aboard. But that reception won't stop him from taking a hard-nosed look at some of J.P. Morgan's riskier operations. He could, for instance, be tempted to scale back the bank's own trading in stocks and bonds from which earnings swing widely from quarter to quarter, says Lehman Brothers Inc. (LEH) analyst Brock Vandervliet. "I don't think Dimon has a tolerance for that," Vandervliet adds. Morgan may still trade but perhaps not as much. Dimon might also rein in private-equity investing, where the company sinks its own money into long-term ventures, says Vandervliet. Dimon's healthy respect for risk is a hallmark of his Bank One tenure. "Jamie changed the culture of Bank One to be more conscious of credit risk and to provide sufficient reserves," says director Hall.

For all that he brings to the match, Dimon has something to learn from Morgan. His key shortcoming at Bank One has been an inability to build revenues. By hiving off money-losing businesses, Dimon cut annual revenue from $17.7 billion in 1999 to $13.9 billion in 2000. Last year it was still just $16.2 billion. He acknowledges he was too savage in cutting loans to midsize companies, which fell from $30.3 billion in 2002 to $26.6 billion last year. "He has run a very conservative shop," says U.S. Bancorp Piper Jaffray (USB) bank analyst Andy Collins. "I don't think he's going to be allowed to run rampant in terms of taking an ax to J.P. Morgan."

That's probably true, if for no other reason than that he will join a J.P. Morgan in far better shape than he found Bank One. On Jan. 21, J.P. Morgan said that it earned $6.72 billion last year, more than quadruple its 2002 profit of $1.66 billion.

Over a couple decades of dealmaking and empire-building, Dimon learned crucial lessons from his onetime mentor, Citigroup's Weill. Chief among them, he says, is to be bold, to demand quick profitability -- and to make sure every move and every business unit contributes to shareholders' wealth. Now, on a far bigger stage than he has had at Bank One, Dimon will have to act on those lessons -- and maybe even upstage Citi as well. By Joseph Weber in Chicago


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