Last Man Standing (4 page)

Sandy Weill saw Jamie Dimon for what he was: an ambitious young man with an enormous capacity for hard work. “You can’t bluff your way into being a Baker Scholar,” he thought. And Jamie Dimon saw Sandy Weill for what
he
was: a minor legend on Wall Street who was offering the young man a ride in an express elevator to the executive suite. And American Express was itself a prestigious institution, so it wasn’t as if Dimon were forsaking Goldman Sachs for a bucket shop.

(In the meantime, Jamie Dimon and Judy Kent endured one of New York City’s more painful initiation rites—the apartment hunt. The couple eventually signed a lease at 300 East 56th Street, in a 33-story building known as the Bristol in New York’s Sutton Place neighborhood, and began their adult life as New Yorkers.)

• • •

Just like the Dimon family, the Weills were part of a wave of European immigrants that descended on New York in the early twentieth century. The son of Polish Jews, Sandy Weill grew up in a modest home in Brooklyn. After graduating from Cornell in 1955, he married the former Joan Mosher, then returned to New York for a $35-a-week job as a runner at Bear Stearns.

They lived in a $120-a-month apartment in East Rockaway, where their neighbors were another young Jewish couple, Arthur and Linda Carter. In 1960, Weill and Carter opened their own firm with two other friends, Roger Berlind and Peter Potoma. The firm was called Carter, Berlind, Potoma & Weill (CBPW), and soon carved out a niche as a small “research boutique,” alongside another emerging outfit, Donaldson, Lufkin & Jenrette (DLJ). (As Roger Lowenstein pointed out in a profile in 2000 in the
New York Times Magazine
, ethnic divisions on Wall Street were still strong and resulted in the firm’s nickname: “the Jewish DLJ.”) Along with research, CBPW offered both brokerage and investment banking services.

The firm scratched and clawed for business from the conglomerate builders of the 1960s, including Charlie Bludhorn of Gulf + Western and Saul Steinberg. A couple of fortuitous hires and palace intrigues later, Arthur Carter and Peter Potoma were forced out of the firm, and Arthur Levitt—who later went on to be chairman of the Securities and Exchange Commission—and Marshall Cogan were in. The firm, now Cogan, Berlind, Weill & Levitt (CBWL; nickname: Corned Beef with Lettuce) set up shop in the new General Motors Building on Fifth Avenue, right off Central Park.

Business boomed for CBWL in the late 1960s—the firm brought in $18 million in 1969—so much so that the partners received a call one day that their clearing partner, Burnham & Co., could no longer handle the volume of trading activity they generated. Known on Wall Street as a “back office” function, clearing was vital to a brokerage firm’s existence. A brokerage couldn’t buy or sell stock for clients without someone to take care of the legal and logistical paperwork for it. The partners decided
to build their own clearing operation, and hired Frank Zarb, another Brooklyn-born up-and-comer, to build out a back office. “The idea was simple. We had to conquer the back end of the business as well as the front end,” recalls Zarb. “If we didn’t, we really couldn’t be a leader.”

The company ran a lean operation, but nevertheless poured scarce resources into the expansion. Its timing couldn’t have been worse, as the stock market soon went into a tailspin. But as Monica Langley points out in
Tearing Down the Walls
, her biography of Weill, he had an insight that would shape the rest of his career. “You can’t control income,” he told his worried partners. “It varies based on conditions outside of our control. But you can control expenses.” Taking charge, he slashed executives’ salaries by 25 percent and those of the rank and file by 10 percent. This would be the start of Weill’s reputation as a ruthless cost-cutter, a skill he would pass on to Dimon.

By maniacally focusing on costs, CBWL positioned itself to buy distressed assets from competitors sagging under their own bloated operations. In March 1970, Weill and his partners made their first such move, taking a Beverly Hills brokerage office off the hands of a struggling McDonnell & Co. Next up: Hayden Stone, a nationwide brokerage with 62 branches that was facing its own financial challenges. After a dramatic series of negotiations, CBWL swallowed its much larger rival in September 1970, and changed its own name to CBWL-Hayden Stone.

Over the next decade, Weill and his partners went through the same motions again and again, buying H. Hentz & Co., Shearson Hammill (the deal that brought Ted Dimon Sr. into the fold), and Loeb Rhoades. “We had this machine,” Weill told the
New York Times Magazine
. The firm changed its name with similar frequency. In 1974, it was Shearson Hayden Stone; in 1979, Shearson Loeb Rhoades.

Weill’s growing reputation was rife with contradictions. Somewhat inarticulate and unpolished, he nevertheless had “the vision thing” and had the ability to see several steps ahead and sniff out opportunities for deals. Despite his growing stature, he continued to think of himself as an outsider. His religion was a part of that perspective. Sandy Weill was Jewish, and although he and his partners had built the second-largest
securities firm in the country after Merrill Lynch by 1980, and there were plenty of successful Jewish firms on the Street (Goldman Sachs, Bear Stearns, and Lehman Brothers, to name three), anti-Semitism still loomed large in other quarters.

A broker from the start, Weill never lost the habits of the profession. “The joke about Sandy was that you could stand on his desk and take all your clothes off and he wouldn’t take his eyes off the tape,” recalls Mary McDermott, who started working for Weill right out of college and went on to work with him for the better part of the next 30 years.

For much of the 1970s, too, Sandy Weill had a young protégé named Peter Cohen, who had originally been an assitant of one of Weill’s partners, Marshall Cogan. When Cogan left the firm, Cohen essentially became Weill’s shadow. A tough and analytic study, he was a precursor to Dimon, a man who pledged his early career in allegiance to Weill. He was both Weill’s numbers man and his hatchet man, and had the tough-guy looks to go with his role.

After several years as Weill’s go-to guy, Cohen surprised his boss by announcing in 1978 that he was leaving the firm to run Republic National Bank for the billionaire Edward Safra. Weill soon enticed Cohen back, but the mentorship was over. Cohen was now a player in his own right at Shearson.

As the 1980s started, Weill was still in deal-making mode. In early 1981, he began talking to American Express’s chairman and CEO, Jim Robinson, about a possible union. Both men saw the consolidation trends in financial services, and they agreed that the idea of the large brokerage firm partnering with the iconic credit card company made sense.

In March 1981, Prudential Insurance announced its purchase of Bache Halsey Stuart Shields, a brokerage firm. Suddenly Weill was up against a firm with far more financial resources than his own, and he realized that he needed to make a deal. Within a month, Weill and Robinson announced a transaction. American Express bought Shearson for a cool $1 billion. Shearson Loeb Rhoades became Shearson American Express. Sandy Weill remained CEO of the brokerage business and became chairman of the American Express executive committee. Soon afterward,
he ran into Ted Dimon Sr. “Now they can’t get to me anymore,” Weill said, revealing, not for the first or the last time, the deep-seated insecurity that drove him to succeed.

• • •

When Dimon first hooked up with Weill at American Express in 1982, Weill still believed he had made the right decision in selling his company to Robinson. Enjoying the social whirl of New York’s corporate elite, he had a car and driver and the prestige he had long craved. “Sandy nearly forgot how to drive while he was at American Express,” recalls Weill’s longtime PR chief, Mary McDermott. He also got down to business, quickly negotiating the purchase of two regional brokerage firms to bolster Shearson: Foster & Marshall in Seattle and Robinson Humphrey in Atlanta.

Dimon felt he’d made the right decision as well. Most MBAs toil in obscurity for years before they get their shot at the big time. Dimon was immediately exposed to deal making at its highest levels. Weill later concluded that perhaps he gave the young man too much responsibility too soon, inflating an ego that would cause Dimon problems in getting along with others. At the time, however, having such an ambitious and intelligent aide more than outweighed the frustration of putting up with his impatience.

Dimon and Weill’s first major project together was not a Sandy Weill special. Instead of snapping up a cheap competitor that was on the ropes, in 1982 he and Dimon found a way to help American Express dump a poor investment without having to swallow the associated losses. At the time, the economy was reeling because the Federal Reserve chairman Paul Volcker had raised the federal funds rate to 20 percent in 1981—this was the tough medicine he thought necessary to cure the stagflation of the 1970s. The result was the worst recession since the Great Depression, with unemployment levels not seen since the 1930s. The rate increase also caused the fixed-income market to crater, leaving American Express with long-term municipal bonds that were now significantly underwater.

Coincidentally, American Express had been planning to lease space
in the World Financial Center (WFC), then being built by Olympia & York—the investment vehicle of Canada’s Reichman brothers—just above Battery Park. Throwing Dimon headlong into his first deal, complete with late-night negotiations at a suite in the Waldorf-Astoria hotel, Weill came up with something akin to a three-way trade in baseball. Instead of leasing space, he argued, they should buy a new building in the WFC. In exchange for buying a building in what was an extremely tough real estate climate, the Reichmans would then buy American Express’s old corporate headquarters. The company could then use the gain from that sale to offset the losses from selling the municipal bonds, thereby avoiding a situation in which it would have to report a significant earnings decline. In the process, Amex traded out of municipal bonds that yielded just 1.375 percent, for treasury securities yielding 11.5 percent. “Jamie was an important part of building a fact base so we could make our points to other people in the company or on the board,” recalls Weill. “He was a very quick student.”

That success notwithstanding, it wasn’t long before Weill began to feel stifled by the formal, bureaucratic American Express. It was nothing like Shearson. He realized that his role as chairman of the executive committee was a hollow one that gave him no authority whatsoever. And in January 1983, when Alva Way, the president of American Express, resigned, Weill made a serious miscalculation. At Robinson’s request, he ceded the role of CEO of Shearson to Peter Cohen in exchange for a “promotion” to president of the overall company. What he’d done was relinquish control of an operating business, and he became, as Monica Langley put it, “a president without portfolio.” After buying his company, Robinson had taken less than two years to effectively castrate Weill. (Cohen played his part, too. He later told the reporter Jon Friedman that he had pushed Weill “up and out.”)

Despite seeing Weill treated this way, Dimon remembers Robinson fondly. He saw Robinson as a smart man who worked hard and was well connected, although also as one who ran an unnecessarily bureaucratic shop. “They protected that Amex brand like you wouldn’t believe,” Dimon recalls. “The customer service was fabulous.”

Shorn of operating responsibilities, Weill decided that he needed
another deal to keep himself relevant. His first target: Investors Diversified Services (IDS), a Minneapolis-based provider of financial services. With his trusty B-school tool in hand—the Hewlett-Packard HP-12C calculator—Dimon played a central role in the negotiations, shuttling between New York and Minneapolis, where he met with IDS’s financial team in a hotel. In a shock to Weill, Peter Cohen effectively blocked the deal when it first came up for a vote. Weill’s onetime protégé had stabbed him in the back. And although the deal eventually got done, Weill still felt marginalized by Cohen, and in need of yet another deal.

Around this time, Dimon reported to Tufts that he was vice president and assistant to the president of American Express. He described his job as “exhilarating, demanding, and a lot of fun.” There was no doubt it was demanding, especially considering that there’d been no training program or guidebook to help him navigate his entrée into the world of high-stakes deal making. Even Sandy Weill would admit that he has never been much of a teacher, and that if Dimon wanted to learn the ins and outs of the business, it was largely up to him to be a self-starter. Luckily for Dimon, he was exactly that.

• • •

Jamie Dimon has always been a man in a hurry, and in matters of the heart, he was no different. He’d proposed to Judy Kent while they were still at Harvard. When it came time to actually get married, however, there was one issue that the couple needed to navigate. Kent was Jewish. Her parents, after briefly entertaining the notion that Dimon might convert to Judaism, realized the folly of the idea when Kent explained to them that while Dimon respected other peoples’ faith, he did not want to be confined by organized religion and “that there was no point in raising the conversion issue whatsoever.”

Dimon, referring to himself as “the great compromiser,” agreed to meet the rabbi who was to marry them. “I wasn’t even speaking to him at that point, as I was so mad,” Judy Dimon recalls. “Things were getting pretty tense.” The two men had a brief conversation in which the rabbi tried to convince Dimon that he need not
change
to become Jewish. But Dimon wouldn’t budge. “I am what I am,” he said, and the issue
was closed. When he and Judy next spoke, Dimon informed her in no uncertain terms that although he would allow the rabbi to marry them, he would give the man just ten minutes. She could write her vows, and he would write his own. The ceremony, on May 21, 1983, in Washington, D.C., went off without a hitch.

Judy was working at Shearson at this point, as an assistant to Joseph Plumeri, the colorful Italian-American director of marketing and sales at the firm. Plumeri remembers Kent as whip-smart but always a little frazzled. She always had runs in her stockings, so he once gave her 25 pairs for Christmas.