Last Man Standing (16 page)

A professional character, Reed also liked to hide in his office and communicate with his staff by memos. In this, he was the opposite of Sandy Weill, a relentless backslapper who liked nothing more than being in the trenches, among his employees. “Reed did not like people,” recalls a longtime colleague. “Give him a whiteboard and an office where he didn’t have to associate with humans and he could lecture for hours. Mind you, if he did run into you, he’d try to prove to you every day that he was smarter than you were.”

But the man
was
smart, smart enough, in fact, to realize that in a fast-consolidating financial services landscape, he had to remain open to any and all ideas about how to keep the company competitive. He realized that the bureaucracy of the giant bank he and his predecessor Walter Wriston had built was stifling the firm, that it needed a dose of adrenaline, and that it could do with a bit of balance. Despite its size and reputation, the company occasionally stumbled in a very big way. Ten years before, for example, it had endured the largest loss in corporate history as a result of the Latin American debt crisis.

Word had gotten out that Reed had recently spoken to Harvey Golub at American Express about combining the two firms, and although nothing came of the discussions, the episode showed an openness that Weill found encouraging. In December 1997, when Weill called Reed to suggest that they get together for a chat, Reed proposed meeting in Washington on February 25, when they would both be attending a Business Council meeting of prominent CEOs.

Reed didn’t quite know what he was in for. When he knocked on Weill’s hotel door at 9:00
P.M
., he thought Weill was going to ask him to spend $25,000 for a table at a charity dinner, or something of that sort. Instead, Weill had his sales pitch all ready to go. Reed was barely through the door when Weill launched into his vision of a merger of equals, a combination of the two firms that would sit powerfully atop the financial world. He proposed sharing the leadership role as co-CEOs, and splitting the board 50-50 with directors from both companies.

Reed did not reject the idea out of hand, and the next morning at 7:00, Weill was on the phone with Dimon. Monica Langley recounts their conversation. “You won’t believe it!” Weill said. “This could be the greatest deal of all time!” Although he’d been kept in the dark about the meeting with Reed, Dimon knew what his boss was talking about. “The mother of all deals?” he asked. “Yeah, the deal to beat all deals,” Sandy replied.

Dimon was floored. This was the dream they’d been talking about for the better part of a decade. From their modest beginnings in Baltimore—indeed, from the listless days in the Seagram Building in 1985—they had somehow managed to get to this point, the absolute pinnacle of their industry. The mother of all deals was no longer just a joke to be bandied about during bullshitting sessions.

Upon reflection, Reed found the idea compelling enough to suggest that Weill continue discussions with Citicorps’ vice chairman Paul Collins, and a second meeting was scheduled for March 2. By this time, Weill felt it important enough to bring both Dimon and the head of corporate planning, Mike Carpenter, into the loop, and the two men joined Collins and Weill on March 5 at Weill’s apartment to continue figuring out how such a combination might work. Over the next few
days, Dimon himself fielded most of Collins’s financial questions about a deal.

• • •

The two companies’ teams agreed to meet in Armonk on March 20 and 21, once Reed had returned from a trip overseas. In advance of that, however, Weill invited Reed to a private meeting on the evening of the nineteenth, and it was over dinner that he secretly dropped the first of several bombs designed to curtail his protégé’s ambitions.

Having noticed that Reed had taken a liking to Dimon, Weill later wrote, he told Reed not to view Dimon as the eventual CEO of the combined firm. “Don’t do this deal in order to get Jamie as a successor,” Weill said. “You’ll have to see for yourself, but there are issues here you aren’t aware of.” Little more was said on the issue, but an inexorable process had begun. (James Robinson had dispatched Sandy Weill in part by co-opting Peter Cohen. Weill would be damned if that was going to happen to him again. This time, he wasn’t going to go “up and out.”)

Over the next two days, the teams hashed out much of the conceptual framework for a merger, including a name—Citigroup—and a plan that the company would have three main divisions: the corporate investment bank, the consumer business, and asset management. Dimon quite reasonably assumed that he would be put in charge of running the corporate investment bank, the same job he had shared with Maughan at Salomon Smith Barney.

What he did not consider, given his place on the boards of Travelers and its predecessor companies for several years, was the possibility that he would not be on Citigroup’s board. And that’s when Weill lobbed bomb number two. In mid-March, while the two men went over details of the deal at Weill’s apartment, he turned to his longtime lieutenant and said, “Jamie, you’re not going to be on the new board.”

This statement marked the final and irreconcilable breach in a relationship that had once been closer than the bond between most fathers and sons, even if the two men chafed at such a notion. It was not just another disagreement. Weill was telling Dimon that he was never going
to become CEO of Citigroup. This was the end, albeit at this point more figuratively than literally.

In the fairy-tale version of Dimon’s career, he succeeds his mentor and leads Citigroup to greater glory. In the fairy tale, Citigroup is not on the verge of extinction 10 years later, while Jamie Dimon is leading one of its only healthy competitors. The future of American banking, in other words, was shaped by this very moment. How much different history might have been had Sandy Weill done what Dimon fully expected him to—assure him that the job would soon be his. But Weill was not yet ready to think past his own career. He was living in the present, and he was sick to death of Dimon’s thinking they were equals. Dimon was his
junior
partner. And he didn’t need a junior partner on the board when he had an equal one in John Reed.

Dimon was dumbstruck. “Sandy, I’ve been building this company for 15 years with you—please don’t do that to me,” he sputtered. Weill then launched into a tortured rationale to explain why it wasn’t possible for him to do what most people assumed was a fait accompli. He had agreed with Reed that no insiders other than the co-CEOs would be on the combined board, he said. Dimon didn’t buy it, arguing that his place on the board could be justified by putting another Citicorp executive such as Paul Collins on it as well. Weill countered with Bob Lipp. What would Lipp think if Dimon were appointed and not he? “Sandy, go ask Bob,” Dimon replied. “Bob will tell you to put me on the board.”

What’s more, Dimon said, there was a point of pride. There had already been much discussion about his being president of the combined company, and he pointed out that in the event he did have the title, he would be one of the only presidents of a major public company not on its board. In other words, it was an embarrassment, a snub. But Weill was resolute. “We’ve decided.” At that point, Dimon couldn’t take it anymore, and left.

Shell-shocked, he later told a friend, “My God. I helped build Travelers.” Frustrated as he was by what he saw as the unfairness of the situation, Dimon somehow failed to grasp the larger implication of Weill’s remark. Sandy Weill had begun to dismantle what had been corporate
America’s longest-running, best-known, and most widely lauded succession plan.

• • •

The next few weeks were filled with phone calls and meetings to make sure the deal went off without a hitch. Weill called Alan Greenspan to make sure they’d at least get preliminary approval from the Federal Reserve. He called Secretary of the Treasury Robert Rubin, who actively lobbied for repeal of Glass-Steagall, ultimately making the transaction legal. (Rubin subsequently resigned from the government and joined Weill at Citigroup. He earned $115 million from Citigroup over the next decade before resigning under a cloud of criticism in early 2009.)

On Saturday, April 4, 1998, the two companies’ boards approved the merger. By Sunday afternoon, Weill couldn’t contain his excitement anymore, and called John Reed to suggest that the two of them call President Bill Clinton. There was no reason they needed to do so, but Reed went along. Weill, after all, had just completed the greatest roll-up in history, culminating with the largest merger of all time—a $70 billion combination.

The deal was announced Monday, April 6.
Fortune
magazine wrote, “We are at ground zero of one of the most fascinating business and management stories ever to come along.” As astonishing as the deal itself was the ability of the two management teams to keep it a secret for as long as they did—further testimony to Weill’s prowess as a deal maker. As a result, his fame rose even higher. In a story in the
New York Times
, Peter Solomon, the onetime vice chairman of Lehman Brothers, paid Weill the ultimate deal maker’s compliment. Weill, he said, “has the audacity to merge up.”

It was more than just one huge transaction. The die was cast for a new model of banking, and competitors had to get with it or get left behind. The industry soon convulsed with deals. NationsBank and BankAmerica merged in a $64.8 billion deal. First Chicago and Banc One entered a $30 billion Midwest marriage. And Bank of New York made a play for Mellon Financial. None of those, however, excited investors
and the press as much as the Citigroup story. That creation, after all, was complete. Advertisements promoting the creation of Salomon Smith Barney had included the line, “We’re just getting started,” Now, in a presentation announcing the Citigroup deal, Dimon flashed a slide that simply said, “We’re done.”

• • •

It was only a few days after the ink had dried on the merger agreement signed by Weill and Reed that Weill launched bomb number three.

Shortly after the announcement of the merger, Weill and Reed met in Bermuda to develop executive roles at the combined company. They were joined by two lieutenants from each side—Dimon and Bob Lipp from Travelers, and Paul Collins and Bill Campbell of Citicorp, that company’s vice chairman and head of retail, respectively. (Campbell was a marketing legend. A Canadian, he’d helped create the Marlboro Man campaign during a 28-year career at Philip Morris.)

Monica Langley writes that when the absence of the four men was noted, they were labeled “the Untouchables,” on the assumption that their attendance at the session practically guaranteed that they would be given the most senior sub-CEO roles in the combined firm.

And at first, that’s what it seemed would happen. Reed, who had demonstrated respect for Dimon’s intellect and drive, had no problem elevating Dimon above other Citicorp executives in the combined company. “I’ve only met two men who can carry a bank balance sheet in their head,” Bill Campbell later observed: “John Reed and Jamie Dimon.” Dimon also felt he had something in common with Reed. “He could be a cold-blooded analytic, and so could I,” he recalls.

Given Dimon’s nearly sterling reputation on Wall Street, no one on the Citicorp side seemed to find the prospect unsettling. In addition to whatever operating role he held, he would be president of Citigroup, right underneath the co-CEOs.

And the first pass at a management structure reflected just that. The men also agreed that Dimon would be chief executive officer of Citigroup’s global corporate unit, which would include both Salomon Smith Barney and the company’s corporate banking business. Beneath him on
the organizational chart were Victor Menezes of Citicorp, head of commercial banking, and Deryck Maughan, chief of Salomon Smith Barney. Satisfied with their work, Lipp, Reed, Collins, and Campbell flew back to New York while Weill and Dimon stayed behind for a meeting with a contingent of brokers. A draft announcement had even been written up, ready to be put through the company’s legal and public relations processes.

There are two competing accounts of what happened next. Weill says that Maughan flatly refused to report to Dimon, and demanded a different arrangement. Langley says the opposite, that Maughan voiced no objection whatsoever. Weill’s version is probably the truth, as it seems unlikely that the proud Englishman would cede authority to Dimon without at least token opposition. Still in thrall to Maughan, Weill more likely than not agreed to a new arrangement without putting up much of a fight. On Tuesday of the week following the retreat in Bermuda, he told the reassembled group that he had rethought his original position, and that instead of having Maughan report to Dimon, the two men should be co-CEOs of the global corporate unit.

To this day, Weill will argue that he brought Deryck Maughan over to Travelers in the Salomon deal
in case
something ever happened between him and Dimon that resulted in Dimon’s leaving the company. “I did it in case of a blowup with Jamie,” he said in an interview in his office in December 2008. “So there would be someone else who knew how to run that business.” But there was Weill, proposing a management structure that was itself very likely to precipitate the blowup. (Dimon’s supporters call the explanation revisionist thinking. “Deryck’s a nice guy,” says one. “But Deryck was not capable of running the company and Sandy knew that. So he’s full of shit when he says that.”)

It wasn’t just Dimon who was baffled by the about-face. Reed, too, was curious as to why a co-CEO structure was necessary. Weill insisted that Maughan would quit. Reed reportedly replied, “Who gives a shit? Let him leave.” But Weill wouldn’t budge, and offered a mealymouthed litany of reasons why his hands were tied.

“You guys are crazy,” Dimon said in a meeting with Weill and Reed. “It’s an outrage. It will destroy the company. I’m shocked you would
even think about something like this. The day you announce it, the troops will be lining up ready to go to war. This will be trench warfare. And by the time you two figure it out, everybody will be so discredited, people won’t know what to do about it.” Sandy countered that he and Reed had agreed to be co-CEOs, to which Dimon responded that having co-CEOs over operating units was a different matter entirely.