Last Man Standing (15 page)

Finally, there was the issue of culture. Salomon’s “Big Swinging Dicks” had been lampooned in Tom Wolfe’s popular 1987 book
Bonfire of the Vanities
(in which Wolfe coined the term “Masters of the Universe”) and in Michael Lewis’s 1989 insider account
Liar’s Poker
. Both books had painted a culture in which the client was viewed more as prey than partner, and the Treasury bond scandal had revealed a moral vacuum at the top levels of the firm. Weill and Dimon had only recently rid themselves of the overweening personalities of Greenhill and Lessin. In Salomon, they were quite possibly buying an entire firm of such characters.

But Sandy Weill was nothing if not an opportunist, and spurred in part by the failure of the J.P. Morgan deal, he pressed ahead in his quest for Salomon, figuring he could solve the in-house problems once he got his hands on the firm. After a few weeks of due diligence, he pushed the board and audit committees toward a deal. Dimon, the board member Joe Wright recalled, was inclined toward the deal as well, although by his very nature he was more focused on the risks they’d be taking. And there was no question that this was a departure from their plain vanilla heritage. Plain vanilla is just fine with Jamie Dimon. A business doesn’t
have to be sexy to get him excited; it just needs to be reliable, profitable, and growing.

Good times make for good results, Dimon knew, even if a company wasn’t on the perfect path. But if the good times were to end, Salomon’s enormous risks posed a threat to Travelers’ overall health. Awareness of any potential downside was one of Dimon’s most ingrained character traits, and although he eventually came around to the merits of the deal, he obsessed over its risks much more than Weill. This is not to say that Dimon was risk averse. But he was a numbers man to the core, and he needed to able to calculate as best he could what the risk was before he could be comfortable taking it on.

Warren Buffett liked the idea of a deal with Travelers. Maughan had been a sensible choice to run Salomon because in 1991 he’d been in the firm’s Tokyo office and was untainted by the trading scandal. But Maughan was incapable of the powerful leadership that Buffett sensed Weill and Dimon could provide. Salomon, rife with fiefdoms, had resisted Maughan’s efforts at wholesale change; a principled attempt on his part to tie compensation more closely to performance had blown up in his face. But both Weill and Dimon were by that point legendary for their intolerance of fiefdoms, and Buffett saw an opportunity to finally put the place right.

After just a month of negotiations, a deal was struck. On September 24, 1997, it was announced that Travelers was buying Salomon Brothers for $9 billion. The market read it as a good deal for Buffett and Salomon, sending Salomon’s shares up several points. But the judgment was different when it came to Travelers. Investors wondered whether Weill and Dimon understood the kinds of risks they were taking on with the fast-and-loose culture of Salomon. Travelers fell 4 percent.

Buffett wrote a note, which was included in the press release for the deal, praising Weill for showing “genius in creating huge value for his shareholders,” a fact many observers pointed to while second-guessing the rationale for the deal itself. It was known that Weill disliked arbitrage. So what was he doing buying a firm that lived and breathed on just that? Did he just want to do a deal with Buffett, to show he was now operating in the highest spheres of financial deal making? He’d
been denied the chance more than 10 years before with the Fireman’s Fund, and it appeared that he wasn’t going to let the opportunity pass him by again. “Sandy spent nine billion dollars to get a piece of paper from Warren Buffett saying what a great investor he was,” an insider later told the journalist Roger Lowenstein. “He was running around showing it to people like a kid in a candy store.”

Still, the deal did push Travelers a little higher up the Wall Street food chain, at least in terms of market value. By October, the company’s market value was $55 billion, far exceeding that of Merrill Lynch ($24 billion) and even Morgan Stanley Dean Witter ($44 billion). The deal also vaulted Smith Barney up in the investment banking league tables. But the announcement of the deal did nothing to bridge the widening chasm between Dimon and Weill. When the two men joined a few Salomon executives at The Four Seasons for celebratory drinks after the announcement, they were at each other’s throat within minutes.

• • •

As if he needed another one, Jamie Dimon also had a new bone to pick with his boss. Although he’d been effectively running Smith Barney by himself since Greenhill’s departure, the Salomon deal brought Deryck Maughan along with it, and Weill told Dimon that he had decided to make Maughan a co-CEO of the unit alongside Dimon.

Dimon was enraged. He reminded Weill that in previous negotiations with Salomon, Weill had indicated that Dimon would have complete control. But now, with the deal done, Weill refused to budge on the matter. Weill later wrote that he considered the co-CEO arrangement an insurance policy against his deteriorating relationship with Dimon. He may actually believe that. But from Dimon’s perspective, it looked more like another way that Weill, after elevating him to the level of a near-equal, seemed intent on undermining him and limiting his power.

(When Travelers had flirted with the idea of buying Salomon the previous year, Weill had told associates that he would fire Maughan if the deal was completed. To view Maughan now as the answer to his problems was a stunning about-face.)

Dimon was not the only one who thought he was caught in a
Groundhog Day
nightmare. The financial press jumped on the issue, asking Maughan on the day of the announcement how he thought the power sharing would work out. “We will agree,” responded Maughan, diplomatically. “For the sake of the firm, we are obligated to find agreement.”

This was not a situation that could be dealt with privately. In October,
Business Week
published a story titled “How Long Can These Two Tango?” Both men dutifully gave the answers that were expected of them. “We want to operate as a team,” said Maughan. “The idea of partnership is not foreign to us.” Dimon chipped in with a perfunctory, “There’s plenty of work for both of us to do here.”

Within Travelers, there was a long-running joke about Sandy Weill’s fickleness. If you walked by Weill’s office and saw a new face, you might be moved to ask, “Who’s that?” The answer: “That’s Sandy’s new best friend.” For a long time, that had been Dimon, but Weill kept finding new supplicants. There had been Greenhill and now there was Maughan. But while Greenhill’s talents as a deal maker were unimpeachable, Deryck Maughan was something else entirely—a product of a culture whose values and priorities were the antithesis of Travelers’. Forget whether or not Dimon could get along with Maughan. Could Dimon even trust him?

Weill might have been impressed by Maughan’s European polish, but there were aspects of his personality—and his wife’s—that did not portend well for his relationship with the no-nonsense Dimon. A scathing 1995 piece by Suzanna Andrews in
New York
magazine made the case that Maughan had been in over his head at Salomon yet had a tendency to say things like, “I am the hardest-working man at Salomon Brothers.” Most top executives also thought he put politics ahead of the interests of the firm, a conclusion arrived at after he seemingly forced the star trader John Meriwether out of Salomon—Meriwether had gone on to found Wall Street’s hottest hedge fund at the time, Long-Term Capital Management. A stream of talented partners had also left during Maughan’s tenure.

Then there was the issue of Maughan’s wife, Va. A onetime Pan Am reservation agent who had changed her name from Lorraine
Hannemann, Va Maughan was a gossipmonger’s dream. Stories floated around that it was she, and not Maughan, who had negotiated his pay packages at Salomon. She reportedly once refused to allow a Salomon executive the use of her car and driver to take his sick baby to the hospital, and she also was said to have bragged about a relative in the Japanese mafia. Shortly after the merger, at a 1997 company retreat at the Phoenician in Scottsdale, Arizona, Va threw a fit when she found out that Jamie and Judy were in a room across from the Weills, whereas the Maughans were in a different building. The Dimons switched rooms to keep the peace, but the event foreshadowed an ugly and career-changing confrontation the next year.

• • •

There was no honeymoon after the Salomon deal. Just a month later, on October 27, the Dow Jones skidded 554 points—7 percent—when investors panicked over a developing crisis in Asian currency markets. After a decision by the Thai government to cut the “peg” of its currency to the U.S. dollar, the Thai baht itself collapsed, and the region’s currencies fell like dominoes, with similar collapses in both South Korea and Indonesia. Salomon lost $50 million in the process.

Weill and Dimon also received a quick lesson in the kinds of risks they’d taken on by bringing a bet-the-farm culture under the Travelers umbrella. Salomon’s equity risk arbitrage unit suffered a loss of $100 million betting that British Telecommunications would purchase MCI Communications. Steve Black disbanded the group, but the firm’s much larger fixed income arbitrage group remained intact.

Although the losses only intensified Dimon’s distaste for Maughan and the whole Salomon culture, the two men briefly found common cause, in a surprising situation. They combined to block another attempt at inappropriate nepotism by Weill.

Just as Weill had argued in 1996 for his daughter’s advancement against Dimon’s wishes, in early 1998 he pushed to have his son Marc, then 41, placed in charge of the firm’s fixed income arbitrage group. Dimon and Maughan were united in their conviction that the division
was a potential powder keg in the wrong hands—and that Marc Weill’s were definitely the wrong hands.

When Marc was hired, Dimon had seen the possibility that Weill might mishandle his son. Accordingly, Dimon had insisted that Marc report to him, not to Weill. Dimon even had a conversation with Weill’s wife, Joan, and had pleaded with her to make sure her husband left Marc alone to do his job. Still, Dimon knew Marc’s limitations, and categorically refused to put him in charge of Salomon’s arbitrage desk. Weill backed down. In the future, when Dimon was no longer in his way, Weill pushed his son into roles beyond his capabilities, with far more money to manage—he ultimately oversaw $60 billion as well as the firm’s private equity initiatives—and even added him to the firm’s management committee. At that point, the pressure was too much, and he left the company in 2000. He later formed his own venture capital firm and focused on hobbies including collecting mineral specimens and flying radio-controlled helicopters.

The year did end on a somewhat high note. Travelers stock was the top-performing member of the Dow Jones industrial average in 1997, soaring 78 percent. Dimon earned $23.1 million plus another $37 million in stock options. To outsiders, it might have even seemed that he and Weill had pulled off another daring deal. At a Goldman Sachs investment conference in November, Weill said of himself and Dimon, “I’m Batman; he’s Robin.”

Behind the scenes, however, the trading losses at Salomon had put everyone on edge. Dimon and Maughan continued to circle each other warily, and Weill continually turned up unannounced at meetings. Dimon found the intrusions frustrating and disruptive, because the focus was usually the intricate details of the business that Weill was uninterested in—so that, invariably, Weill threw the meeting off course. As a result, Dimon sometimes scheduled important meetings for times when he knew Weill was out of town. Insecure about losing control, as had happened with Peter Cohen at Shearson, Weill resolved that he wouldn’t stand for such insubordinate behavior, even if that subordinate was named Jamie Dimon.

In 1998, Jamie Dimon and Sandy Weill completed their 16-year climb to the top of Wall Street. But Dimon wouldn’t have long to admire the view. By the end of the year, he was facing the end of the partnership that had defined his career.

At Travelers’ regular planning group meeting in Armonk in December 1997, the topic was pure Weill: What next? Mike Carpenter, Travelers’ head of corporate planning, took the group through a number of possible merger candidates, including American Express, Goldman Sachs, J.P. Morgan, and Merrill Lynch. At some point, the name Citicorp was tossed into the ring, resulting in a chorus of incredulity. Citicorp was simply out of Travelers’ league—too big, too powerful.

Dimon remembered the idea for what it was—“the mother of all deals.” Conceptually, a merger made all the sense in the world. Citicorp was the global leader in virtually every banking product that existed, from credit cards to checking accounts, and Travelers was strong in almost every financial product outside banking itself, with Travelers’ insurance, Salomon Smith Barney’s brokerage and investment bank, and Primerica’s financial advisers.

But there was a glaring problem. Despite the reputation of Weill and Dimon as deal makers par excellence, Citicorp loomed high above them as the Tiffany of financial services companies. Travelers, by comparison, was a deal maker’s concoction, an agglomeration of parts. Although the deal might make sense in terms of complementary businesses, there was hardly any reason for the highly regarded, patrician CEO of
Citicorp, John Reed, to consider ceding the top post to Sandy Weill in the event of a merger. And it was hard to see how Weill would accept anything less than being the boss.

But in raw numbers, Weill noted that Travelers’ market capitalization was not too far from that of Citicorp itself. His company’s brand might not be as respected as the global bank’s, but a decade of delivering for investors had pushed Travelers’ value to such a high level that the suggestion of such a deal could not be laughed off.

• • •

John Reed was a standout in the world of commercial banking. Considered the most visionary banker of his time, he saw the power of technology before most of his peers, giving Citicorp a leg up in the ATM business as well as in the use of databases to ferret out new business opportunities with current and prospective customers. He was a pinstriped banking man to the core, and he sat atop one of the world’s most admired companies, with $21.6 billion in 1997 revenues and $3.6 billion in net income.