Last Man Standing (11 page)

For a time, the executive team held an annual end-of-year retreat at The Point resort on Saranac Lake, a lush “camp” not far from Lake Placid. With below-freezing temperatures, there was invariably a roaring fire. One year, when Dimon threw an empty FedEx shipping box into the fire, it was sucked up into the chimney, which became blocked. Soot spewed all over the room. It took the staff about three days to clean out the room, during which time Lipp teased Dimon relentlessly about the stupidity of the move.

Following in the path of other legendary financiers, Weill eventually bought his own camp—Green Bay—on Upper Saranac Lake in 1990. Like the most famous Wall Streeter turned Adirondack outdoors-man,
John Pierpont “Jack” Morgan Jr., Weill spared little expense on the property. With a sizable main lodge surrounded by green-and-white guest cabins, the camp included a winterized boat dock, a fitness room for Sandy, and a two-lane indoor swimming pool for Joan. Unlike Morgan’s, however, it did not have two Steinway pianos on the premises.

Despite his devotion to cost-cutting at work, Dimon later would not deny himself some of the trappings of an oligarch at home. In November 2006, he paid $17.05 million for a weekend house in Bedford Corners in Westchester County, the highest sale price in Westchester for the year. Nestled on a 34-acre estate on the small Howlands Lake, the 1930s mansion has a guesthouse, tennis courts, and apple orchards. When asked why he didn’t buy a house in Greenwich alongside his fellow titans of finance, he replied, “I don’t want the same scene on weekends that I have when I’m here. The weekend house is for family. It’s for us to hang out together, to go to the local restaurants—and not even the nicest ones at that. I want to go to the local Indian or Italian place. That’s what I like.”

By 1993, Dimon effectively had day-to-day control over Smith Barney Shearson, whereas Frank Zarb approached his role more from a 30,000-foot perspective. The arrangement worked for a while. But running an important business without explicit acknowledgment of his role soon began to grate on Dimon.

Weill later wrote that Dimon began pestering him about what he saw as Zarb’s managerial weaknesses, and that Dimon soon began working hard to “annihilate Zarb.” Others, including Steve Black, now head of capital markets at Smith Barney Shearson, also began telling Weill that it was time to make a change.

Movement at rival firms offered Weill a radical solution to the problem, albeit one in contrast to his well-honed reputation for fiscal prudence. Morgan Stanley’s chairman, Richard Fisher, had recently embarrassed Weill’s old pal, the investment banker Bob Greenhill, by demoting him from president to “senior adviser.” Greenhill had an enviable roster of corporate relationships, but Wall Street gossip was that he couldn’t stay focused on the more mundane issues of running an entire company.

Weill and Greenhill had been close for years. In Weill’s darkest days after getting thrown out of American Express, Greenhill had stuck by him, even helping to try to orchestrate the Fireman’s Fund buyout. More recently, Greenhill had worked with Weill and Dimon on the Primerica transaction, and Weill’s instinctive loyalty kicked in. That,
and his ambition. Seeing an opportunity to buy a one-man investment banking franchise, Weill floated the idea of bringing in Greenhill as Zarb’s replacement.

Greenhill, known as “Greenie” on the Street, was respected for all-night negotiations and his almost total lack of human emotion in the thick of business combat. A Yale graduate who had served in the navy in 1960, he once kept an Al Capp cartoon on the wall of his office in which Fearless Fosdick was riddled with bullets. The caption: “Mere Flesh Wounds.”

Some say Dimon was excited to have a first-class banker on the company’s starting line. Others say he was lukewarm about the idea. Why, he mused, was Weill proposing to replace one ineffective manager with another? “The entire world knows the reason he was demoted was because he couldn’t manage a lemonade stand,” said one senior official at Smith Barney. “And we want to hire him to be CEO of our company?”

Weill ignored such concerns and forged ahead. He and Dimon negotiated with Greenhill, eventually agreeing on a $20 million yearly salary plus 2 percent of Smith Barney’s profits over $50 million. In late June, they sealed the deal, and Weill “promoted” Frank Zarb to the role of vice chairman of Primerica. Weill seemed to try to camouflage the true intent of the move by also promoting Bob Lipp—whose talents were never in doubt—but few failed to understand what Weill was up to. The press soon called such a move “being Zarbed”—the Sandy Weill equivalent of being kicked upstairs.

Greenhill instantly got off on the wrong foot. Before meeting a single person at Smith Barney Shearson, he lined up a few dozen Morgan Stanley bankers to bring along with him—he ultimately hired 32, including his own trusted sidekick, Bob Lessin, who was tasked with running corporate finance, along with another young gun, Mike Leavitt.

The message to the Smith Barney team: you people are not top-tier, even though I’ve never even met any of you, and my people are. To the Morgan Stanley crowd, Smith Barney, for all its efforts, remained a mediocre outfit. But they were going to change all that. Mergers and acquisitions
bankers were the studs of Wall Street, and brokers were just its rank and file. Greenhill and Lessin did big, exciting deals, and they promised to do more of the same at Smith Barney.

For a time, it was a believable proposition. Morgan Stanley’s chairman, Dick Fisher, at least, must have had reason to second-guess Green-hill’s demotion in the months ahead. On one occasion, when the CEO of one of Morgan Stanley’s clients was leaving Fisher’s office, Fisher asked where he was headed. “To Smith Barney,” was the response. Fisher asked if he knew how to get there. The CEO’s deadpan reply: “I presume I go down the elevator and follow the groove.”

And at first, Dimon tried to be as accommodating as he could be. Whereas Smith Barney had become accustomed to operating on a tighter budget than most investment banks—its people flew coach—the Morgan Stanley people demanded the same perquisites they had received in their old jobs: personal refrigerators, orthopedic chairs, town cars to take them home at 7:00
P.M
. instead of at Smith Barney’s 10:00
P.M
. cutoff. “Don’t worry about it,” Dimon told those who were wondering about the double standard, even though he was worrying about it himself.

In a serious miscalculation, however, Greenhill lost the support of one potential ally from the get-go: the head of capital markets, Steve Black. Concerned about his friend Black’s reaction to Greenhill’s hiring, Dimon had personally assured Black that his position at the firm was safe: he was going to be made a vice chairman of Smith Barney Shearson along with Lessin. Black would run all of Smith Barney’s capital markets businesses, and report to Greenhill.

Just a few days later, however, Greenhill informed Black that he planned to have him oversee only the equity side of the business, and that he was bringing in another Morgan Stanley veteran, Jack Lyness, to run fixed income capital markets. Also, Lyness was going to report straight to Greenhill, not to Black. Insulted, Black called Dimon and threatened to quit, along with his deputy Jim Boshart.

Completing the circle, Dimon then called Greenhill and read him the riot act. Greenhill still got his way about hiring Lyness, but it was an inauspicious start. Before he’d even begun working, he’d run up against
the phenomenon known as Jamie Dimon. It was the first time, but it would not be the last.

Greenhill had demanded, in his negotiations with Weill and Dimon, that he be given the entirety of Smith Barney Shearson to run, not just the investment banking division. Weill agreed, but as an insurance policy encouraged Dimon to spend as much time as possible keeping an eye on operations.

It wasn’t long before Dimon concluded that Greenhill was spending excessive sums on people who weren’t worth the price—he regularly doubled Morgan Stanley bankers’ pay in order to lure them to the firm, in addition to giving them substantial signing bonuses. More worrisome, though, was the growing anger among the unit’s gigantic brokerage force about the new crowd’s diverting a disproportionate amount of the company’s profits. Greenhill, a career investment banker, was focused merely on the top line—bringing in revenues—while Dimon was, as usual, focused on the bottom line, the return on shareholders’ equity; and thus the two men were on an inevitable collision course.

Worse, it seemed that the institutional arrogance bred at Morgan Stanley prevented the new hires from adapting to their new organization. Instead of seeking any way to put together a blended culture, they built a mini–Morgan Stanley within Smith Barney. Lessin, in particular, surprised the old guard with his presumption. He saw himself as equal to Dimon, a view shared by precisely no one. (One jarring difference: Lessin was prone to walking around the office with no shoes on, a habit that would be inconceivable to Dimon.) In any event, the question became moot shortly thereafter, when Lessin suffered a stroke and was forced to downsize his role at the firm.

Greenhill might have worked out if he had been able to deliver where it mattered: with market share and on the bottom line. Yes, he was throwing around huge sums of money, but if he succeeded in building an investment banking franchise, the thinking went, everybody would come out ahead. And he started off with a bang, landing an advisory role on the $8.2 billion takeover of Paramount by Viacom in 1993 that brought the firm $33 million in fees. That was followed by advice to Viacom on its purchase of Blockbuster Entertainment in 1994. The
firm, which had come in twenty-second in mergers and acquisitions advisory rankings in 1992, vaulted to sixth place for 1993. By 1995, however, it was down to eleventh place, and the grumbling about Greenhill’s spending grew louder.

Dimon could tolerate Weill’s getting all the credit in the press for the company’s success, but what he could not countenance was being saddled with partners who made a job he could easily have done himself a little more difficult. Coworkers came to see in Dimon a man both impatient to get the job done and able to relax when the time was right. “He worried a lot about substance, not so much about form,” recalled Plumeri. “He always used to say, ‘I just need to know the facts. I don’t want to hear some long story. Just give me the facts.’” And then, at the end of a long day, Dimon might invite a few junior analysts into his office on the thirty-ninth floor of 388 Greenwich Street to share a nice bottle of wine. He was still only in his mid-thirties.

• • •

At the same time that he was engaged in the audacious experiment with Greenhill, Weill decided that the time might be right to propose to Ed Budd at Travelers that they fold the remaining 73 percent of the insurance company into Primerica. In addition to consolidating control of Travelers’ operations—which would allow the Primerica team to truly do a number on its finances, instead of merely exerting influence at the board level—there was also the lure of the Travelers name and the company’s well-known logo, its red umbrella.

Although the Primerica people had helped Ed Budd and the Travelers’ team whittle down the insurance company’s real estate exposure over the past year, Weill sensed that Budd was sick of heading the still sluggish company and would be ready to do a deal if the terms were right.

Negotiations lasted just two days in September 1993; Budd accepted Weill and Dimon’s offer of a $4.2 billion stock swap. (Representing Travelers in the negotiations was First Boston’s Gary Parr, a man whose path would cross Dimon’s innumerable times over the next 15 years.) The combined company assumed the name Travelers Group, and the
deal doubled Primerica’s assets to $100 billion. The transfer of power was also complete. Weill was named chairman and CEO of the parent, Dimon president and chief financial officer, and Bob Lipp CEO of the insurance group. Budd was named chairman of the executive committee, a role with no actual responsibilities.

With the completion of the deal, Weill told anyone who would listen that he was finally back. In an article in
Business Week
in October, “The Contrarian—While Others Retrench, Sandy Weill Builds a Financial Services Empire,” he called out his former employer. “Travelers is bigger than American Express,” he told the magazine. (Travelers would do its own retrenching, cutting 4,000 jobs by the end of the next year.)

When Joe Wright, a friend of Weill’s since the 1970s and longtime board member, cautioned Weill that Primerica might be ceding some of its terrific reputation in the financial markets by changing its name to the more consumer-oriented Travelers, Weill was even more blunt. “Be clear,” he said. “I am the one who had the reputation in the financial markets, not Primerica.” Regardless of this moment of megalomania, Weill also knew enough to give credit where credit was due. In November, he bestowed on Dimon yet another title: chief operating officer of the Travelers Group.

• • •

In addition to trying to prevent Greenhill from blowing millions on his Morgan Stanley cronies, Dimon had to deal with another top executive who was giving him headaches: the company’s head of brokerage operations, Joseph Plumeri. A motivator in the Sandy Weill mold, Plumeri was the kind of guy who could bring himself to tears rallying the troops; but the voluble Italian-American was an erratic manager. He had been unable to properly integrate the Shearson and Smith Barney units, and brokers were whispering to the press that the computer systems didn’t always work and the bureaucracy was stifling.

Plumeri was also prone to making promises to brokers that he could not deliver on—such as guaranteed compensation—and resorted to petty threats when called on the carpet for them. A constant refrain, to
either Greenhill or Weill, was that Plumeri was going to quit and take his 9,000 former Shearson brokers with him. Hearing of the threats, Dimon sat Plumeri down one day to put the older man in his place. “Joe,” he said. “Just so you know, the first time that you say that to me, I am going to fire you. But you should know that you can raise any issue.” Plumeri’s response: “Perfect. We’ll have a great relationship.”