Last Man Standing (5 page)

Judy Dimon worked at Shearson for three years as a vice president in marketing before quitting her job two months after the arrival of Julia, the couple’s first child, on May 25, 1985. Almost immediately, though, she dove into a second career in the nonprofit sector, taking a job as executive director of the Spunk Fund, a foundation focused on improving the lives of impoverished young people. She later became involved in the Children’s Aid Society in New York, helping support inner-city schools. Her sacrifice was rewarded by Dimon’s own commitment to family, however constraining his career demands might be.

The conventional wisdom about Dimon is that he has few interests outside the office, a simplification that irritates him. “I love music and I read a lot and I exercise and play tennis and I ski,” he says. “So I don’t play golf. So what? I think it would be fair to say that when the kids were born, they became my outside hobby. I cut way back on the other stuff and devoted as much time as I could for the family. I still do. Until they were about 15 we never took a vacation without them. The kids and their friends would say I was around a lot, even though I thought I wasn’t. But they probably felt that way because when I was there, I would
be
there.”

• • •

In late 1983, Weill had a new mission. The American Express subsidiary Fireman’s Fund, a property and casualty insurer, had run into operational and accounting problems and was dragging its parent down with it. Playing fast and loose in a highly competitive insurance environment,
the unit’s management had boosted premium growth without a coincident increase in reserves, and a sudden spike in insurance claims was causing massive losses. Worse, it appeared that executives had tried to cover up their miscalculations. In late 1983, a $230 million increase in the Fireman Fund’s reserves caused American Express to report its first earnings decline in 36 years.

Robinson asked Weill to head to San Francisco and resolve the problems. Weill was reluctant to do so—it wasn’t hard to see that he was being exiled—but he also realized he really had no choice and acquiesced. He took Dimon along with him, as well as Bill McCormick, a senior American Express executive. The three spent several weeks together before launching an audacious turnaround in early 1984, in which Weill fired 15 percent of the unit’s employees and raised premiums. This stanched the losses, but the division remained a drag on American Express’s balance sheet—the unit needed another $200 million in fresh capital in November—and Robinson soon decided he wanted to unload it. Weill saw an opportunity.

Knowing that Robinson wouldn’t be too sorry to see him go, Weill proposed to his boss that he buy Fireman’s Fund from the company. Though concerned about giving the impression that Weill had gotten the better of him, Robinson nevertheless allowed him to explore the possibility of a deal. At this point, Dimon suggested that Weill approach Warren Buffett. The two men met with Buffett briefly in New York and then flew to his Omaha headquarters to pitch the legend on the idea of funding a buyout.

Buffett was interested in their proposal—he offered to buy 20 percent or more of the unit if it was sold—and the pair left Omaha thinking an opportunity was at hand. In May 1985, Weill made his proposal to the board: American Express would keep 40 percent of the business, Warren Buffett would own 40 percent, and Weill would own 20 percent, pursuant to a number of conditions and guarantees. Weill had hired Morgan Stanley to represent him in the deal.

For reasons of its own—including a desire not to be embarrassed if Sandy Weill managed to take profit that could be theirs alone—the board rejected the idea. “It was a weird situation,” Dimon recalls.
“Someone said at the time that American Express couldn’t do a deal if Sandy, Morgan Stanley, and Warren Buffett were on the other side. That’s part of the reason Sandy had offered to let them keep 40 percent, so if they thought it was a little cheap, they’d make it back on the back end. But I really hope that wasn’t the reason they didn’t do it, because that would be pretty stupid.”

The prospect of partnering with Warren Buffett was dead. Weill sensed that Robinson had outmaneuvered him. He’d given up his operational responsibilities, and was now being treated as an adversary by the board of the very company he worked for. He decided he had to resign, and he did on Monday, June 25, 1985. “Sandy never fit in there anyway,” recalls Alison Falls McElvery, one of his assistants at the time. “On the one hand, you had all these upstanding, pressed, and beautiful people like Jim Robinson who just reeked of money. And then you had Sandy who would yell down the hallway to ask someone how their weekend had been.” (This despite the fact that Weill had a greater net worth than Robinson.)

The question for the 29-year-old Dimon: should he go with Weill? Jim Robinson offered to keep Dimon on as a vice president in another role, and by that point he could have worked anywhere else he wanted, maybe even at Goldman. “It was a complex decision,” Dimon recalls. Many friends, including Stephen Burke and Andrall Pearson, president and chief operating officer of Pepsi, told Dimon this was
his
chance to cut bait, to admit that his gamble on Weill had not panned out. After all, he now had a wife, and a child just a few weeks old, to care for, and Weill wasn’t getting any younger. Dimon discussed the future with his Harvard buddy Peter Maglathlin that summer on vacation at the Kents’ summer house in Delaware’s Bethany Beach. “Is this guy washed up?” Maglathlin asked. “Does he even have another act?” “I have faith in Sandy,” Dimon replied. “Something’s going to happen.”

It was surely a mix of factors—loyalty, an appetite for adventure, a conviction that Sandy Weill had another run left in him—that led Dimon to ignore his friends’ advice and resign from American Express along with his boss. Weill offered to pay Dimon $100,000 a year to stay on as his assistant, although American Express covered the cost temporarily.
McElvery decided to join Weill as well. Dimon remembers being reluctant to take money from Weill, despite the fact that Weill was by that point a very rich man. “I didn’t like it,” Dimon recalls. “We weren’t earning anything. I figured I could take money on the come for a while, and if we figured anything out, I could get paid then. I wasn’t particularly fond of the idea.”

• • •

New York City is chock-full of former Wall Street highfliers who have offices paid for by the companies they used to run but no actual job to speak of. They’re called elephants’ graveyards. At the time, American Express was large enough to have graveyards in several locations including offices in the Seagram Building at 52nd and Park. Weill chose that location, in no small part because The Four Seasons restaurant—home of the original “power lunch”—was on the building’s ground floor.

In his earlier heyday, Weill had promised John Loeb Sr. of Loeb Rhoades an office for life when Shearson bought Loeb Rhoades, an obligation American Express had taken on when it had subsequently purchased Shearson. It was Weill’s turn to go to the graveyard now, though, and in an ironic twist he found that American Express had put him in a suite with Loeb.

After settling into their offices in July 1985, Weill, Dimon, and McElvery expected new job opportunities to come pouring in. Letters of support did arrive, but there were no jobs to speak of. The two men often had lunch together at The Four Seasons—they called it the “company cafeteria”—and Weill’s taste for martinis led to afternoon naps on the couch in his office. He ate in The Four Seasons’ exclusive Grill Room so often that the restaurant assigned him a “negative reservation”—his table would be waiting for him unless he called to tell them he was
not
coming to lunch that day. Weill wore a suit to work every day, just in case a chance meeting might pop up. Dimon also took his non-job very seriously. “Jamie would sit on the floor and open up annual reports to see what we could do next,” McElvery recalls. “Once, we’d created our own merchant bank model, and Sandy hit some button on the WaNG
computer and erased it before I had a chance to save it. Jamie nearly killed him.”

James Calvano, who’d been vice chairman of American Express Travel Related Services—he’d run Avis Rent-A-Car previously—lasted just six months more than Weill at the company, and was now in the same boat, looking for his next gig. While playing golf with Calvano one day, Weill asked him, “What do you want to do?” Calvano replied that he wanted to run a company. “Well, come with us,” Weill responded, “We’ll go find one.” Calvano was intrigued. “Who have you got?” he asked. “Me and Jamie,” was Weill’s unembarrassed response.

By that, Weill meant he would have meetings with people, then return to the office and offload any research about a prospective opportunity on Dimon, whose desk was littered with prospectuses and financial statements. Buried in the numbers for 12 to 14 hours a day, Dimon grew especially fond of Warren Buffett’s missives out of his Omaha-based Berkshire Hathaway. “He was smitten whenever anything came out from Berkshire Hathaway,” recalls McElvery. “He would say, ‘You have to read this! It’s the greatest annual report I’ve ever read! He’s brilliant!’”

One meeting that stuck in Dimon’s mind was with Ivan Boesky, then the reigning practitioner of “risk arbitrage” on Wall Street. His specialty was betting on whether proposed mergers would come to fruition or failure, and he was one of Wall Street’s flashiest players. “I remember thinking he was a little paranoid,” recalls Dimon. “Because in his office he had this phone bank from which he could listen into any one of his employees’ phone calls. It looked like a cockpit. And he had cameras in every room. It was totally bizarre.”

The first exciting possibility for Weill and Dimon came in late fall 1985, when Warren Hellman, the former president of Lehman Brothers who had moved to San Francisco, alerted Weill to a possible opportunity. BankAmerica, one of the country’s most prestigious commercial banking franchises, was bedeviled by a rash of underperforming loans, its stock was in free fall, and the company’s management team was under fire. It was possible, Hellman told him, that the board might consider wholesale change at the top.

After meeting with Hellman in San Francisco, Weill and Dimon crunched the numbers and determined that if Weill could arrange a $1 billion capital infusion—plus $10 million of his own money—he could reasonably propose to BankAmerica’s board that they install him as CEO. Weill even swallowed his pride and asked Jim Robinson and Peter Cohen if they wanted in on the deal by providing a commitment letter for the $1 billion. (Cohen was by this point a true Wall Street
macher
. He’d bought Lehman Brothers Kuhn Loeb the previous year for $380 million. It didn’t bother him, as Bryan Burrough and John Helyar pointed out in
Barbarians at the Gate
, that one critic of the deal—Lehman’s in-house chef—mused, “Shearson taking over Lehman is like McDonald’s taking over 21.” He had emerged from Sandy’s shadow once and for all.)

Around this same time, Mike Holland, the former CEO of both Salomon Asset Management and First Boston Asset Management, who was now running money for himself and some friends out of his own office in the Seagram Building, read an article in which Weill complained that no one called him for lunch anymore. And so Holland picked up the phone and invited him to lunch.

The two men agreed to meet—at The Four Seasons, naturally—and upon sitting down, Weill began talking about his plans for a potential takeover of BankAmerica. Holland was friendly with Bill Wyant, a leading analyst of commercial banks at the time, and he proposed to bring the two men together in Weill’s office. When Holland and Wyant walked into Weill’s office, they found that they were to be questioned by both Weill and Dimon.

“Who’s this young pup?” Holland thought to himself. Wyant tried to convince Weill that the deal didn’t make sense, that the bank’s balance sheet didn’t provide the solidity to do with it what Weill was hoping. Dimon countered that the banking analyst didn’t know what he was talking about. “Sandy let that little whelp go on as if he were some sort of senior statesman, didn’t he?” Holland said to Wyant when the two men departed.

BankAmerica’s board rejected Weill’s entreaties not once but twice. It was back to the drawing board. Adding insult to injury, it turned out
that Joan Weill’s psychiatrist had engaged in insider trading of Bank America’s stock after she told him about her husband’s attempted power grab at the firm.

In May 1986, while he and Dimon were still casting about for something that they could sink their teeth into,
Fortune
’s Carol Loomis wrote an article with a tongue-in-cheek headline in the form of a classified ad: “Sanford Weill, 53, Exp’d Mgr, Gd Refs.” It was praise and critique rolled into one, because despite his “Gd Refs,” Weill still lacked meaningful employment. His second career had taken on a distinct whiff of failure by this point, and Jamie Dimon couldn’t help wondering what life might have been like had he taken that job offer at Goldman. “I was looking into the abyss a little bit, pretty much a kid who was not getting experience nor making money in the meantime,” recalls Dimon. “Of course I thought I might have made a mistake.”

Having stuck by Weill through his trials at American Express and in the empty days that followed, Dimon certainly knew that his position at Sandy’s side would be inviolate if a big deal ever did come to pass. But that was starting to seem like one big “if.”

When he graduated from Harvard Business School, Jamie Dimon could never have imagined that within four years, he’d be working for a bottom-of-the-barrel lending operation in a financial backwater—and that he’d be thrilled to have the chance. But that’s how it played out.

Sandy Weill and Jamie Dimon found their next gig at a decidedly unglamorous operation called Commercial Credit, a Baltimore-based lender to a huge but overlooked sector of the population: the 45 million people who shopped at Wal-Mart, with household income between $15,000 and $45,000. These were people that financial services companies generally tried
not
to do business with. (In the popular lexicon of 2008–2009, one would call Commercial Credit a subprime lender. It was a business to be shunned in the 1980s, but the pell-mell pursuit of these very customers some 20 years later would be one of the proximate causes of the financial crisis.)