In This Corner! The Contender

Jamie Dimon, the new CEO of J.P. Morgan Chase, is taking a shot at the title of world's most important banker and trying to whip a sprawling financial conglomerate into shape.

By Shawn Tully

April 7, 2006

Just about everyone who works on Wall Street has heard the stories about Jamie Dimon. The one about his shutting down the gyms and pulling the fresh flowers at J.P. Morgan Chase. (That story is true.) And the one about his grilling limo drivers parked in front of headquarters to find out who'd ordered the Lincolns, then screaming at the culprits for wasting money. (That one's apocryphal, but Dimon doesn't mind people repeating it, because fear helps him control costs.)

Here's one you haven't heard. Dimon became president of J.P. Morgan Chase in mid-2004 when it acquired Bank One, where he had been CEO. Soon after, he convened an emergency meeting and ripped into his new colleagues for "letting pay get totally out of hand."

Among the examples that set him off: Regional bank managers at J.P. Morgan earned around $2 million--five times the $400,000 that comparable Bank One people made. Morgan's human resources chief was pocketing better than $5 million. Outraged, Dimon announced he was slashing comp for hundreds of staff positions by 20% to 50% over two years.

"I'd tell people they were way overpaid," Dimon recalls, "and guess what? They already knew it." The kicker: Most of the managers stayed on despite the cuts.

A few months later, at a retirement party for J.P. Morgan CFO Dina Dublon, 52--whom Dimon was replacing with an ally from Bank One--Dimon stepped to the podium and praised her service to the company. Then he unleashed a biting one-liner: "But if you paid one dollar for Texas Commerce bank"--which J.P. Morgan acquired in 1987 for $1.2 billion--"you paid a dollar too much!" The room, studded with Texas Commerce alumni and executives who had championed the deal, went dead silent.

As these stories suggest, Jamie Dimon is not known for subtlety. He has shouted down a U.S. Congresswoman who was pushing Bank One to keep more jobs in Chicago, and told a roomful of J.P. Morgan internal auditors that a colleague "knows as much about accounting in her baby finger as all of you combined."

He will lash out in meetings with trusted confidants--"That's the dumbest thing I've ever heard"--and expect them to come right back at him. ("If not, he won't respect you," says J.P. Morgan asset-management and private-bank chief Jes Staley.)

Yet far from hindering his career, this brash, iconoclastic manner has made Dimon the most watched, most discussed, most loved, and most feared banker in the world today. From Wall Street to the City of London, just mention "Jamie," and everyone knows you're talking about the rampaging rebel who's as loud as he is tight. He's much more than a cost cutter with a colorful personality, and his compulsive candor is just one of his highly effective management tools.

Working alongside boss and mentor Sandy Weill, Dimon helped engineer 12 years of audacious mergers that turned an obscure Baltimore loan company called Commercial Credit into Citigroup, the world's largest financial services company. After being unexpectedly shoved aside by Weill, he re-emerged at a dysfunctional Bank One, turned it around, and sold it in the deal that made him, as of January, CEO of J.P. Morgan Chase, the third-largest financial corporation in the U.S. (2005 revenues: $55 billion), behind Citi and Bank of America.

Now he wants to perfect the model he and Weill created at Citigroup--and defeat the house he helped build. "It's all about having the best systems, the best people, the best products, the best risk controls," he says. "It's all about being the best, the best, the best."

That's why investors, industry watchers, and fellow CEOs trade all those Jamie stories. They see him as the one figure with the skills and opportunity to prove once and for all whether the model of a one-stop-shop financial firm can live up to its promise. And they know that Jamie is just itching to expand his empire with at least one breathtaking deal.

It would be hard to find a company more in need of the Dimon treatment than J.P. Morgan. A hodgepodge of businesses from multiple mergers that were never fully integrated, the giant bank is burdened with a lazy culture and an underperforming stock ripe for reinvigoration. While J.P. Morgan ranks at or near the top in many key categories--second in retail deposits, credit card balances, and investment-banking fees; first in U.S. private-banking assets and cash-management revenues--growth has been tepid and profitability mediocre. J.P. Morgan's return on equity, a crucial yardstick for financial firms, is just 10%, well below that of its top rivals. No wonder the stock has barely moved in five years.

J.P. Morgan, of course, isn't the only financial conglomerate with an identity crisis these days. At Citi, the original incarnation of the do-it-all firm, CEO Charles Prince is struggling to overcome scandals and management turnover.

"Financial conglomerates like J.P. Morgan are feeding grounds for smaller, more nimble and focused players," says Tom Brown, chief of hedge fund Second Curve Capital. "Shareholders of all the supermarkets would be better served if they were broken up." Some analysts are already getting impatient with Dimon. "He told us to expect big progress in 2005," says Meredith Whitney of CIBC. "Now we won't see major improvements until 2007."

But many are betting that Dimon's rare combination of an analytical, Cartesian mind with a passionate, damn-the-social-graces style will end up rewriting the rules of the game. As Larry Bossidy, former Honeywell chairman and a J.P. Morgan director, puts it, "I don't use superlatives lightly, but he's the best guy I've ever seen in financial services."

"It's offensive to me to be called a cost cutter," says Dimon during one of a series of in-depth, exclusive interviews with FORTUNE. Striding about his eighth-floor Manhattan office, the stocky CEO, who took boxing lessons after being ousted from Citigroup, karate-chops the air and punches out sentences in staccato bursts that bear traces of his Queens upbringing. He grabs a pen and begins scribbling on an easel to illustrate how the bank's revamped computer systems work. He pulls out a dog-eared piece of paper that he carries in his breast pocket to jot notes to himself--the "people who owe me stuff" list, he calls it (a surprisingly low-tech tool for someone who considers himself an IT geek).

A huge operation "can get arrogant and full of hubris and lose focus, like the Roman Empire," says Dimon. To prevent J.P. Morgan from falling into that trap, he has imposed rigorous pay-for-performance metrics and requires managers to present exhaustive monthly reviews, then grills them on the data for hours at a time.

"He jumps into the decision-making process," says Steve Black, co-head of investment banking. "If you just want to run your business on your own and report results, you won't like working for Jamie."
To be sure he's getting the real story, Dimon buttonholes staffers in the elevators and calls suppliers out of the blue like a hyperactive gumshoe, collecting scraps of information he can throw back at executives. "In a big company, it's easy for people to b.s. you," he says. "A lot of them have been practicing for decades."

While Dimon's rudeness can be offputting, the sheer force of his passion and intensity can be irresistible. And that's been the story of his life. "He loves misbehaving in places where he's supposed to behave," says his wife, Judy Dimon, who met him when they were fellow students at Harvard Business School.

She vividly remembers the first time she saw him, at an HBS watering hole called the Pub. "The room was a sea of Ivy Leaguers in pastel Lacoste shirts, all grinning, all trying to win each other over," she says. In the middle stood a Johnny Cash-style figure clad in black jeans, a black shirt, and black sunglasses. "He was sphinxlike, taking things in, not trying to be part of the group."

She recalls being astounded by his gall when, in the midst of a party she threw after they'd been dating for a few weeks, Jamie gave her a blunt ultimatum: "I'm going home, and I want you to go with me." That she said yes--and that they've been living together ever since, for 26 years, and have three daughters, ages 16, 18, and 20--is testament to how endearing Dimon's rough edges can be.
Two weeks into Dimon's first year at Harvard, recalls classmate Steve Burke, now COO of Comcast, they were assigned a case about a troubled cranberry co-op. "We'd just arrived, so we were all intimidated by this godlike professor," says Burke. "The professor starts discussing the cranberry case, and Jamie says, 'I think you're wrong!' We were all amazed." Dimon walked to the blackboard and wrote out his solution. The imperious prof was forced to acknowledge, "You're right," and Dimon immediately became a hero to fellow students.

He's had the same inspirational effect on the people who have worked for him over the years, many of whom have followed him from job to job. "Jamie's strength is that he's a leader, not a classic manager," says Charlie Scharf, who started with Dimon at Commercial Credit in the 1980s and is now head of retail banking at J.P. Morgan. "He can't help himself," adds Heidi Miller, chief of treasury and securities services at J.P. Morgan. "He can be a total pain, overdemanding, but you'd trust your life to him."

Dimon shuns the black-tie circuit and never sets foot on a golf course. He yanked Bank One's sponsorship of the Masters golf tournament because the country club hosting the event doesn't accept women members. His taste in food is basic; his favorite dish is a cheeseburger with fries.

He flies home to Chicago every week to be with his wife and youngest daughter, who is in high school there. On Friday evenings he invariably takes the family to dinner at a neighborhood Italian restaurant and orders the same thing: a martini followed by the house salad and grilled chicken Parmesan.
Music is practically his sole hobby. Dimon, who's taking guitar lessons, surprised his aides by practicing chords on a recent flight to China. At home he relishes lying on the couch in his library in a sort of trance, with the stereo blasting a melange of schmaltzy tunes that includes Sinatra's "My Way," "The Impossible Dream," "New York, New York," "What a Wonderful World," and Ray Charles's "America the Beautiful." He throws in "Ave Maria" for high art. (The family is so concerned about the blaring Americana that at the Park Avenue apartment they're renovating in Manhattan the interior walls are being lined with lead soundproofing.)

Of course, you might call cost cutting a hobby too. At home, spying a not totally empty bottle of ketchup in the trash ignites an explosion. At one point Dimon was appalled to see that his daughters were using bushels of towels--so he imposed a strict quota of one a week. He's so frugal that, to the shock of family and friends, he continued to wear T-shirts with the Citigroup logo long after Citi had fired him.

In 1982, armed with his Harvard MBA, Dimon hooked up with Sandy Weill, an old family friend, becoming his assistant at American Express. When Weill was forced out of his post as AmEx's president soon thereafter, Dimon followed him into exile, spending more than a year in a suite in Manhattan's Seagram Building hatching plans to build a financial empire.

During their long partnership, Weill was the strategist with the golden gut, Dimon the nuts-and-bolts operator who made the machine work. Citigroup was the culmination of their grand design. Yet Dimon grew increasingly frustrated at sharing power with other executives at Citi, and his natural combativeness got the best of him: He bickered with co-CEOs Weill and John Reed, among others, and in late 1998 found himself reliving the into-the-wilderness experience when Weill showed him the door.

As Weill and Dimon were building Citi, J.P. Morgan Chase was being cobbled together in its own series of mega-mergers: The old Chemical Bank bought Texas Commerce in 1987, then gobbled up Manufacturers Hanover in 1991, Chase in 1996, and J.P. Morgan in 2000. But unlike at Citi, there was no sustained effort to merge operations or substantially cut costs, and shareholders suffered.

William Harrison, who became CEO in 1999, eventually zeroed in on Dimon as the solution. In 2004 he agreed to buy Bank One. After becoming Bank One's CEO in 2000, Dimon had turned the sickly operation around by combining a crazy quilt of computer systems and imposing strict guidelines on a haphazard set of credit standards, almost doubling the market cap, to $58 billion.

For Dimon the merger represented a return to the big time--and a chance to face off against his old creation, Citi. As president, Dimon immediately set to work on a major makeover, attacking costs, consolidating systems, and instilling an aggressive sales culture. He filled key positions with trusted confidants, including Citi alumni Michael Cavanagh as CFO (replacing Dina Dublon), Charlie Scharf, and Heidi Miller.

Harrison, who was scheduled to stay on as CEO through June 2006, quickly ceded day-to-day control. In October it was announced that Dimon would take the helm in January, six months ahead of schedule (Harrison remains chairman). The truth is, he has been in charge from the moment he walked in the door.

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