The big truck rumbled slowly through the narrow streets of trendy Tribeca, its crimson cargo reflecting in the windows of the neat row houses. As a chilly winter dawn broke across the Hudson River, the truck pulled up in front of the Travelers Group headquarters building at 388 Greenwich Street, where Clive Chajet anxiously waited. Chajet, the corporate identity guru, had already advised Sandy Weill to slap the Travelers red umbrella logo on everything from T-shirts to business cards. Now he was here to supervise the installation of a 16-foot-high umbrella sculpture in front of the thirty-nine-story headquarters building. The sculpture had been Chajet’s brainstorm, and he had overseen its design and construction. Knowing full well how powerful—or ridiculous—a symbol can become, Chajet had considered every facet of the project. The larger-than-life umbrella, made of 5,300 pounds of structural steel, would be anchored by piles sunk 30 feet into the ground. “If the symbol of security and protection toppled over, what a corporate identity crisis that would cause!” Chajet said, laughing nervously to Jeff Lane, who was observing. Welders carefully sealed each seam to ensure that no leaks would drench employees or customers. And to prevent Manhattan’s innumerable pigeons from soiling Travelers’ image, the umbrella’s spokes were coated with a substance intended to repel birds by quivering jellylike under their feet. “The red umbrella will protect against anything,” Chajet said proudly as the workmen rushed to complete the installation in time for Sandy to inspect it at 9:00 A.M.
At precisely nine, the front doors of the Travelers building swung open and out walked Sandy, arm in arm with another man. Chajet’s eyes widened as he instantly recognized Sandy’s companion: James Robinson! Here was the former chairman of American Express and Sandy’s old archenemy chatting away with Sandy as if they were the best of friends. For a moment Chajet thought it was mere coincidence. But then he realized that this almost certainly had been planned. After the embarrassments Sandy had suffered at image-conscious American Express, he now was obviously delighted to be showing off his own powerful symbol. And Robinson was playing right along, admiring the huge umbrella and complimenting Sandy.
“I’ve just learned a life lesson,” Chajet whispered to Lane. “Guys at that level never close a door.”
Chajet was astute. Twelve years after Robinson had ousted Sandy and three years after he himself had been ousted from American Express, he and Sandy had just come from breakfast in Sandy’s private dining room on the thirty-ninth floor of the headquarters building. Now sixty-one years old, the former American Express chairman was starting over. He and his son, James Robinson IV, wanted to launch a fund to back start-ups and young companies involved in information technology. Sandy agreed to provide $15 million, a paltry sum by Travelers standards. But the money was important to Robinson, both as seed capital and as a way to show the investment community that he was still in good standing despite the turmoil surrounding his last days at American Express.
And, of course, Robinson had something to offer Sandy, as well, something that money literally couldn’t buy. When he took over Travelers, Sandy had gotten a peek into the rarefied world of golf at its most elite. As a sponsor of the annual Masters Tournament at the Augusta National Golf Club, Travelers received a few highly sought-after passes to the world-famous tournament. A longtime golfer and voracious social climber, Sandy was enamoured of both the manicured greens tucked among stately dogwoods and brightly colored azaleas and the idea of belonging to this exclusive club. But the rules were so rigid that one couldn’t simply apply for membership or even seek a spot on a waiting list. Only by invitation could someone hope to become a member. Microsoft founder and billionaire Bill Gates, a man accustomed to getting whatever he wanted, had been snubbed by Augusta after brashly—and publicly—seeking membership.
But Sandy now had an ace in the hole. Jim Robinson might have lost a lot of clout on Wall Street and in Manhattan social circles, but in his home state of Georgia the Robinson family name still garnered respect. And not only was Robinson one of the three hundred elite members of Augusta National, he was willing to push Sandy’s membership. The first step was a round of golf to introduce Sandy to the club and the club to Sandy. After landing in Augusta, Sandy and Robinson drove up Magnolia Lane to the clubhouse, where a plaque with gold lettering sternly warned GENTLEMEN ONLY. Inside, Robinson was provided with his green jacket, freshly pressed, which can be worn only on the club’s grounds. As they made their way down the narrow hall to the dining room Sandy glimpsed oil paintings of Bobby Jones and Clifford Roberts, who had co-founded the club in 1931, and a bronze bust of Augusta’s most celebrated member, President Dwight D. Eisenhower. That night Sandy stayed in one of the club’s white Colonial-style “cabins.” He arose the next morning to play the storied eighteen holes that each April challenge the luminaries of the sport playing in the Masters.
When Sandy returned to his New York office, Mary McDermott couldn’t wait to hear all about it. She had made the annual trek to Augusta each spring to see the Masters with one of Travelers’ passes, and she knew that Sandy would be bursting to describe the scenes inside the clubhouse. But Robinson had warned Sandy that talking about Augusta was absolutely verboten: Members can be kicked out for being indiscreet, and prospects can forget about ever again stepping foot on the hallowed grounds if they brag about playing there.
“Well, tell me all about it!” McDermott urged.
Sandy bit his tongue. He wanted in so badly. “Eat your heart out” is all he said.
A few weeks later the invitation to join came by mail. The Brooklyn boy who started as a runner on Wall Street was now joining one of the last old-boy networks still in power. And his long-ago rival, Jim Robinson, had opened the door for him.
Reflecting on his empire in 1997, Sandy was generally pleased. Profits at Travelers were higher than they had ever been and so was the company’s stock price. He was also beginning to think about another big takeover. But something was a little out of kilter and it irritated Sandy. Given his company’s profits, the stock price should have been even higher. The ratio of Travelers’ stock price to its earnings per share—the P/ E ratio, in financial shorthand—stood at 16, yet other financial-services companies were sporting P/Es as high as 23, indicating that investors valued those companies more highly. Particularly galling to Sandy was the P/E of 21 that investors were granting American International Group, the multinational insurance company run by Sandy’s friendly competitor, Maurice Greenberg. If Sandy was going to go on a big shopping trip soon, Travelers needed a higher P/ E. While there are many reasons investors give one company a higher P/ E than another, chief executives automatically turn to one person to “fix” a problematic P/E: the head of investor relations.
“I’m producing the same results as some of these companies, but they’re getting higher multiples,” Sandy complained to Bill Pike. “Our stock isn’t being valued properly.”
One problem, the young investor-relations head told him, was that Sandy simply wasn’t getting the word out to enough big investors. “We have to put you out there more,” Pike explained. “When you’re in front of an audience you can hear a pin drop when you’re asked about your vision of the future.”
“What’s a vision?” Sandy scoffed. Not only did Sandy not think in terms of “visions”—he was more interested in the moment and taking advantage of unexpected opportunities—but he was still deeply insecure in front of audiences. He was willing to subject himself to the torture of the podium only at the most important gatherings of analysts, typically hosted by such powerful names as Goldman Sachs or Merrill Lynch.
“That’s part of the problem,” Pike continued. “We have to combat the perception that you’re an opportunist more than anything else. You’ve earned the right to be a visionary.”
Basking in Pike’s flattery, Sandy agreed to step up his activities to promote Travelers stock by engaging in a series of “road shows” that would take him to meetings with big investors interested in picking the brains of CEOs. For his boss’s first such venture Pike arranged for Sandy to travel with a leading analyst friendly to Travelers. Joan Solotar, of Donaldson, Lufkin & Jenrette, had issued recommendations that investors buy Travelers stock. Now she jumped at the chance to introduce Sandy to some of Donaldson, Lufkin’s most important clients.
Their first meeting on March 14, 1997, took Sandy back to Baltimore, where he sat down with fund managers at T. Rowe Price, the big mutual-fund company. The fund managers, many of whom already owned some Travelers stock in their portfolios, peppered Sandy with detailed questions about profitability and trends in individual businesses. Full of smiles and quick comebacks, Sandy clearly loved the rapid-fire banter and demonstrated once again his deep understanding of all facets of his company. “Most CEOs like to keep it at thirty thousand feet,” Solotar happily observed to Pike. “Sandy’s the opposite.”
His easy manner disappeared as the managers escorted him to the dining room, where he was expected to make a brief speech. As usual, he lurched uncomfortably into his remarks but was suddenly granted a reprieve: Dow Jones & Co. had just announced that Travelers would become one of the thirty stocks that make up the famous Dow Jones Industrial Average, the best-known barometer of the stock market. “Let’s check our stock price,” Sandy said excitedly, ready to abandon even food—and certainly the hated podium—to watch his company’s stock price go up.
After leaving T. Rowe Price, Sandy, Pike, and Solotar took the Travelers jet for the short hop to their next stop, Philadelphia. En route Sandy asked Solotar her opinion of the CEO at a rival brokerage firm.
“I don’t know him very well,” she replied.
“I never want you to have to give that response about me,” Sandy said. “I want analysts and investors to feel they know me.”
As the trio left the jet to go to their meeting with managers of the Vanguard Group of mutual funds, Sandy left instructions with the flight crew to order two pizzas with extra jalapeños for when they returned. Solotar thought Sandy had simply forgotten that the Vanguard managers would be serving dinner at the meeting. Worried that rich, heavy food might distract them from the business at hand, she had asked that fish be served. Sandy, however, made it very clear that he was disappointed with such light fare. As the jet returned them to New York, Solotar munched a slice of pizza and watched in amazement as Sandy devoured most of one pizza, washing it down with gin.
The trip paid off just as Pike predicted. The next day, Solotar released a report on Travelers reiterating her “buy” rating and noting the company’s “unmatched M&A prowess,” “conservative management philosophy,” and “diversified business mix.”
Sandy was surprised at how much he had enjoyed the trip. “It’s a great way for me to get out and hear what a lot of different people are thinking,” he told Pike. Encouraged, Pike began to set up regular jaunts, always being careful to warn each audience about what foods Sandy liked and what kind of gin he drank. The highlight of these dog-and-pony shows was a trip to London to meet money managers. Pike planned an easy schedule, and both Bob Lipp and Jeff Lane, now vice chairmen at the parent company, came along to keep Sandy company. As they boarded the Travelers jet to cross the Atlantic, Pike found the cabin’s table covered by a buffet spread of cold lobster, sliced lamb, and other delicacies. “This is enough food for ten people,” he exclaimed but soon realized that this was standard fare for Sandy on a long trip. As soon as they had buckled their seat belts, Sandy said, “Okay, let’s talk deals. Do you realize our market cap is bigger than J.P. Morgan’s?”
So that’s the next target, Sandy’s colleagues surmised. He’s setting his sights on the world’s most prestigious bank.
At the London airport, the Travelers team was picked up in a luxurious three-tone dark brown Bentley with a soft top and driven to the refined Lanesboro Hotel. The first full day in London included meetings with portfolio managers interspersed between meals. Pike quickly learned that when Sandy asked, “Where are we going next?” he meant to which restaurant, not to which investment firm.
Dinner that night was at the famed Le Gavroche restaurant, one of London’s finest and certainly among its most expensive. Sandy had been to the restaurant many times in the past—in fact, he sent Travelers chefs to train at Le Gavroche—and tonight the owner, Albert Roux, escorted the Travelers executives to a private bar, where he served them his own special-reserve port. After drinks and small talk, they were escorted to the dining room. The three older men focused all their attention on the wine list. This is what really wealthy, powerful men do, Pike thought. They talk about wine, deals, their second and third homes, their wives. He wasn’t really part of the conversation, but he didn’t care; he was eating the best meal of his life and lapping up the most expensive and delicious wine he had ever tasted. When an elaborate dish of tiny birds was served, Pike was amazed: He was eating cailles en sarcophages (quails in coffins), the signature dish of one of his favorite films, Babette’s Feast. The whole scene felt cinematic to him.
After dinner Sandy requested his usual Calvados apple brandy and ordered one for Pike as well. “Have you ever tried it?” he asked. Sheepishly, Pike admitted he never had. He took a sip.
“Do you like it?” Sandy asked eagerly.
“No, not really,” Pike answered.
“Fine, I’ll take it,” Sandy said as he snatched Pike’s glass and gulped it down.
Finally, Sandy stood to leave. He put his hand on Pike’s shoulder. “Look at this kid,” he said admiringly. “He can keep up with me.”
In the year since Jamie Dimon had promoted Robert Druskin to oversee all of Travelers’ asset-management businesses—and passed over Jessica Weill Bibliowicz for the post—relations between Sandy’s daughter and Sandy’s closest deputy had continued to worsen. Although Jessica reported to Druskin and thus didn’t attend many meetings at which Dimon was also present, the few times the two were in the same room it was painfully clear to others that the rift was deepening. No one, least of all Dimon, disputed that Jessica did a wonderful job as the spokesperson for Smith Barney’s mutual funds. Her charm and wit got the attention of television producers and newspaper reporters, and she was frequently quoted or interviewed. “That’s free promotion for our products,” Dimon told her approvingly.
But when Dimon and Jessica were involved in a meeting about operations or financial performance, Dimon frequently found fault with her presentations and her lack of knowledge. “You’ve got to know the details,” he admonished her at one meeting. He also pushed her to boost the sale of Smith Barney’s own funds, which carried much bigger profits than other mutual-fund companies’ products that Smith Barney also offered. At other big brokerage firms, in-house funds accounted for half or more of all sales, but they were only about a third of Smith Barney’s sales.
“You’ve got to sell more, do more, make more,” Dimon told Jessica in his staccato style.
Jessica suggested that to get their brokers to push their in-house funds, Smith Barney should pay the brokers bigger commissions to sell them.
“I refuse to do that,” Dimon countered. “It gives the wrong incentives. Customers should want to buy our funds because of performance and service, not because the broker pushes them harder so he can put more money in his own pocket. That’s not in the customer’s best interest.”
Dimon’s cocksure demeanor and his moralistic argument were typical of him, his colleagues knew. But they also sensed that it was embarrassing to Jessica to be lectured that way.
When Jessica introduced a new mutual-fund product, the Concert Series designed for corporate 401(k) programs, Dimon dismissed it to colleagues as “a lot of noise, a lot of mirrors.” The funds didn’t sell well. And as Jessica continued to fall short of his standards, Dimon saw to it that her job became more one of public relations than operations. Although Jessica was nominally the head of Smith Barney’s mutual-funds operation, Dimon relied on the operations managers more like himself. Jessica’s isolation was exacerbated because colleagues kept her out of the information flow for fear she would report to her father.
Finally, Jessica decided she should remove herself from the contentious environment at headquarters and take up Dimon’s standing offer to manage one of Smith Barney’s retail operations. When Dimon told his top branch-operations executives that Jessica wanted to join their division to “run retail,” the executives began suggesting branches she might like to run.
“Guys, we’re not talking about a single branch,” Dimon said. “She wants to run a whole region of branches!”
“That’s a big stretch,” one Smith Barney executive responded. “I’m all for Jessica taking a branch of her own to learn the business, but a whole region?”
That’s what she wants, Dimon assured them and asked for suggestions.
“If we’ve got to make it work, we’ll make it work,” replied Michael Panitch, the tough and seasoned vice chairman of Smith Barney’s retail division.
Because the West Coast regional manager was retiring, Jessica sought the California-based position. There she could work without the constant stress of being the boss’s daughter. Dimon and his retail-brokerage executives worried that such a large territory would typically go to an experienced branch-operations manager. They considered lopping off part of the region if Jessica took the West Coast territory.
It wasn’t long before both Jessica and Sandy got wind of the efforts to give her a cut-down territory. Sandy went straight to Dimon.
“You’re insulting my daughter,” he charged.
“Sandy, what difference does it really make if she runs one hundred twenty branches or one hundred fifty branches?” Dimon replied. “That’s no reason to refuse a perfectly good region.”
But Sandy’s tirade confirmed what Dimon already suspected: Far from the “hands-off” policy that Sandy publicly proclaimed regarding his daughter’s career at Travelers, he was pushing to get her promoted. Still, Dimon was unrepentant. He was supremely confident that his approach was the right one, both for Smith Barney and for Jessica. He was Smith Barney’s chairman, and he would do what was best for the entire company.
Then, in February 1997, Dimon named four more executives to the Smith Barney planning group, bringing it to eleven members, including its first woman, Joan Guggenheimer, the firm’s senior deputy general counsel. Jessica, he told colleagues who inquired, had not even been considered.
Once again Jessica found out from others that she had been passed over for a slot that she thought should have been hers. Publicly she remained stoic, but she couldn’t hide her feelings from her father. They discussed her frustrations at family gatherings, where Sandy became deeply upset. Shortly after the four new appointments to the planning group were announced, Sandy and Joan had dinner with longtime friends Joe and Ellen Wright.
“Why did Jamie do it?” Sandy asked Joe Wright, who served on the Travelers board. Wright sensed that his old friend thought Dimon was purposefully hurting Jessica.
“Jamie didn’t treat her any differently,” Wright responded. “Maybe he should have.” For the first time since he had gotten to know Sandy and Dimon, Wright began to have doubts that this rift could be healed.
Another Travelers director close to Sandy, Arthur Zankel, was surprised at Dimon’s action. “This isn’t your finest hour,” Zankel told Dimon. When Dimon protested that Jessica wasn’t ready to be on the planning group, Zankel dismissed his reasoning.
“Come on, Jamie. It was your prerogative as Smith Barney president to pick your own asset chief last year, but you could have put Jess on the executive committee,” Zankel told the unapologetic Dimon. “As businessmen, we all have to live with this stuff occasionally.”
But Dimon still believed he was right. There were several longtime Smith Barney executives who ran much larger and more profitable divisions, such as global equities, fixed income, and systems, where they managed thousands of people and yet weren’t members of the core group. “It would have been a joke,” an exasperated Dimon told colleagues. “It would have been done only because she’s Sandy’s daughter.”
Smith Barney executives privately backed their boss. If Dimon thought Jessica wasn’t ready to move into top management, then she probably wasn’t, they told one another around the coffee station and in the executive dining room. Dimon, they knew, had little time or patience for office politics, and he was driven to run a meritocracy in which only the best rose to the top. Still, as the tensions between Dimon and Jessica—and now between Dimon and Sandy—rose, the speculation began: Who would be the first to go?
In the spring of 1997 Jessica told Sandy she was on the verge of taking another job. She had been secretly negotiating a position with John A. Levin & Co., a successful but virtually unknown money-management firm in New York, and it looked like things there would work out.
Shocked and hurt, Sandy begged his daughter to reconsider. “Stick it out with Smith Barney,” he urged her.
The next day, he ripped into Dimon. “Jessica won’t be around this company much longer,” he said. “I’m warning you, she’ll leave if you don’t do something—fast.”
Tired of the office politics that were making her miserable, Jessica felt deep down it was time to go. The only way she could stay at Smith Barney was to move out of New York and into the branch network. She resolved that if Dimon gave her all of the West Coast, she would stay; if he split up the region, she’d take the other job offer.
Dimon offered her the West Coast job, but gave her only half of the golden state. “California is big and it’s tough,” he said, explaining why she would manage the retail offices of only part of the state. Jessica was deeply disappointed. She had looked forward to moving with her architect husband and two young sons to California, where Joan’s mother lived. Now she felt she had no choice, and blamed herself for thinking she could be effective in a company so dominated by her imposing father.
On Tuesday, June 10, Jessica told Sandy she was quitting to become the president and chief operating officer at Levin. She put the best possible spin on it: “We’re going to be father and daughter again,” she said.
When Sandy quizzed her to determine if her departure was Dimon’s fault, Jessica maintained that Smith Barney wasn’t working out for many reasons. For starters, she said, she never knew if colleagues were talking to her or to Sandy’s daughter.
Jessica next dropped in to Chuck Prince’s office and announced, “I’m leaving, and I have a great new job.”
“I can’t believe that,” replied the general counsel, who was startled that the friction between Dimon and Jessica was enough to drive her away.
As Jessica was informing other executives of her decision, Sandy marched straight down the hall to see Dimon, who hadn’t heard the news. He stormed into Dimon’s office.
“She’s leaving! I told you this would happen,” Sandy lashed out. “You drove her out!”
“It might be the right thing for your daughter and the company,” Dimon calmly replied.
“No, you’re wrong!” Sandy thundered as he stomped out.
In the hall Sandy practically crashed into Irwin Ettinger, who told Sandy he was sorry Jessica was quitting.
“Jamie is the reason Jessica is leaving,” the Travelers chief roared. “Jamie was unfair to her.”
By the end of the week, John A. Levin & Co. announced its new high-profile executive. With her marketing savvy, Jessica made the best of her resignation as the head of the $78-billion Smith Barney mutual-fund group to run an $8-billion money-management firm. “I have an exciting new opportunity,” she told reporters. “It’s very entrepreneurial.”
Asked if her departure upset her legendary father, the thirty-seven-year-old said she had his full support in the new venture. “He’s done it a few times himself,” she said. “He saw the twinkle in my eye, and he knew I was going to do it.” Then she added: “When you’re a child of somebody very well known, you want to make sure that you are in a position where you can be judged for what you are.”
Sandy was deluged with calls from reporters asking what impact Jessica’s resignation would have on Jamie Dimon, his forty-one-year-old heir apparent.
“I have never made it clear to anybody that Jamie is my successor,” Sandy bristled. He was sixty-four years old now. “I have no plans to leave this company,” he declared.
Instantly a chill descended over the thirty-ninth floor. Sandy was furious at Dimon for Jessica’s departure. Dimon was furious at Sandy for blaming him. Their quarrels became petty and mean-spirited. When one executive casually mentioned that Dimon had approved a course of action, Sandy sputtered, “I don’t care what Jamie thinks. You run it by me.”
At the next off-site planning group meeting, Sandy and Dimon fought viciously over a particularly minute, complicated point. Colleagues gathered in the guest house watched the spectacle nervously. This was way beyond the usual Sandy-Jamie “debate.”
Later, during cocktails, Sandy walked up to Chuck Clarke, who had been added to the planning group to represent the old Travelers insurance company.
“How come you didn’t support me?” Sandy asked.
“I didn’t understand what the hell you two were talking about,” Clarke answered.
“I don’t care,” Sandy replied as he drank his wine. “In the future, you should—”
“Wait a minute,” Clarke interrupted, incredulous. “The two most brilliant financial people in the world are arguing a point I don’t understand, much less have an opinion on, and you want me to step in the middle of the two of you and take sides?”
“Yes. My side,” Sandy said, deadly serious.
Bob Lipp, who had long been close to both Sandy and Dimon, was sufficiently concerned that he drew the two of them aside later that night.
“You’re torturing each other,” Lipp told them. “It can only go downhill.”
Both men tensed. Lipp suggested, “Let’s somehow try to get this back on the right track.” Without responding, both men turned and walked in opposite directions.
A few other executives had noticed the huddle and asked Lipp what was happening.
“I only took Psych 101.” Lipp shrugged. “Don’t ask me.”
The tension between Sandy and Dimon also became apparent to the board of directors. At its next meeting, directors noticed that Sandy, who typically praised his young protégé effusively, led the board through much of the material that Dimon usually presented. When the meeting was about to adjourn, Dimon realized no one had introduced Heidi Miller and other executives who had been added to the planning group. He stood up to make a brief welcoming speech.
That night Dimon’s phone rang. “How dare you do that?” Sandy screamed at him when he answered.
Flabbergasted that Sandy would be offended by such a small gesture, Dimon said, “I thought I was doing the right thing.”
Sandy slammed the phone down.
While the tension between Sandy and Dimon clearly was mounting, neither of the seasoned executives would let their differences stand between them and the possibility of another deal. Acquisitions were the lifeblood of the financial empire they had created. Maybe a deal would do them both—as well as Travelers—a lot of good.
Ever eager to “trade up” for a better name with more prestige, Sandy this time targeted the bluest of the blue chips: J.P. Morgan, the esteemed bank that for decades had been at the very heart of American capitalism. That he would even consider such a deal was testament to the immense changes sweeping through the financial-services industry. First, the very idea of a once-dowdy insurance company taking over the world’s most prestigious bank would have been laughable. But Travelers Group, now one of the nation’s largest financial empires, had a market capitalization twice that of J.P. Morgan and, more important, a higher P/E ratio. No longer would Sandy be the minnow swallowing a whale—now he was the whale. A few decades earlier it would have been equally preposterous for a Brooklyn-born Jew to think he could land an important job at J.P. Morgan, much less take it over. Yet Sandy was now a member of one of the world’s most exclusive clubs, a club whose membership included Douglas “Sandy” Warner III, the chairman of J.P. Morgan, with whom Sandy had recently played a few rounds at Augusta National. And while it would have been unthinkable ten years earlier for J.P. Morgan to give up its cherished independence, the signals now were clear: Only the biggest and strongest financial institutions would survive the cutthroat global competition threatening them all. The precedent had already been set: Morgan Stanley, the white-shoe investment bank that resulted when John Pierpont Morgan’s empire was divided by government fiat following the Depression, had agreed in February 1997 to a $10-billion merger with the decidedly downscale Dean Witter Discover & Co.
With such thoughts spinning through his head, it was coincidence that Sandy found himself attending an insurance industry conference hosted by J.P. Morgan in its stone-and-glass headquarters at 60 Wall Street. As he walked through the dark-paneled corridors adorned with oil portraits of former J.P. Morgan chairmen, the Travelers CEO decided then and there that he wanted this stately bank as part of his empire. Also by coincidence, it happened that Sandy Warner wasn’t jetting to or from any of J.P. Morgan’s worldwide network of offices that day. When Sandy stuck his head in Warner’s door, the J.P. Morgan chairman greeted him warmly. The two had long been friendly, not least because neither viewed the other as a competitor. The 136-year-old bank had for the most part tended to the financial needs of the great commercial concerns of the world and coddled the wealthy heirs of the men who had founded them. More recently, Warner and his predecessor, Dennis Weatherstone, had been intensely focused on reinventing the institution to make it a global investment bank with dominant positions in fixed income, risk management, and mergers and acquisitions. Travelers, of course, sold insurance, loans, and stocks to the great masses.
Sitting in Warner’s history-laden office, Sandy couldn’t help but be impressed by the wall of leather-bound books that once belonged to J. P. Morgan himself. Over Warner’s mahogany rolltop desk hung a portrait of Morgan, with his thick moustache and stern stare. The display of Morgan’s storied past prompted Sandy to jump to the future.
“We should talk about merging our companies,” Sandy blurted out with no preamble.
Warner wasn’t entirely surprised. Everyone on Wall Street knew about Sandy’s acquisitiveness. And the Morgan Stanley–Dean Witter merger had prompted many discussions between financial executives and their investment bankers about how to respond to the increasing globalization of the financial-services industry.
“We could start a conversation and see if it makes any sense,” the fifty-year-old Warner ventured.
Sandy was ecstatic! He hadn’t been rejected outright.
“Let’s start talking right now,” he said.
Whoa, thought Warner. He had to slow the pace of this thing. He stood up and walked over to the hundred-year bond in a gilt frame that bore J. Pierpont Morgan’s signature. Warner treasured the bond, issued in 1896, which the firm paid off at maturity in 1996. “I like this bond for the statement it makes,” Warner lectured Sandy. “Sure, we have to change and adjust, but J.P. Morgan is here one hundred years later because we have been true to our traditions, our good name, our culture.”
Culture didn’t impress Sandy. “Sounds like you’re talking about yogurt,” he said.
Still these two men, as different as their institutions, had enough camaraderie and self-interest to continue talking. Because of banking laws that separated commercial banking from insurance underwriting, Warner simply assumed that Sandy wanted to explore a combination of J.P. Morgan with Smith Barney. It didn’t cross his mind that Sandy would be talking about combining J.P. Morgan with all of Travelers, including its insurance and blue-collar consumer-loan operations. So without confirming his assumption, Warner agreed that they should get their teams to the table in a few days for exploratory talks.
Thrilled at Warner’s response, Sandy practically floated all the way back to Travelers headquarters to huddle with his top executives.
“How can we take over J.P. Morgan?” he demanded.
Aware from the many hints that Sandy had dropped that Travelers might next try to take over a bank, Chuck Prince had been doing his homework, researching every possible loophole in the Glass-Steagall Act and other banking legislation. On the face of it, the banking laws appeared insurmountable. Still, the general counsel explained, the laws did allow a “non-bank” financial institution like Travelers to buy a bank with the proviso that the insurance operations be spun off within two to five years to avoid the conflict that Glass-Steagall had intended to eliminate. Prince’s thinking was that two to five years might be enough time to actually get the law changed. The Travelers team knew Congress had considered repealing, or at least relaxing, the restrictive laws for years, although nothing had been done. But they also believed they might have an ally in Alan Greenspan. As the chairman of the Federal Reserve, Greenspan was the single person most responsible for ensuring that the nation’s financial system remained sound. There had been indications from time to time that he was willing to consider allowing the creation of broader financial conglomerates that would be better able to compete against European financial institutions, which weren’t hobbled by any similar restrictions.
“I know the law cold,” Prince assured his boss, even though his proposal was radical and untested. “I’m absolutely convinced we could get through the door on a merger.”
“That’s it!” Sandy exclaimed. “I’ll call Greenspan.”
“We’re thinking about buying a bank,” Sandy told the Fed chairman a few days later. As Prince had predicted, Greenspan indicated that he was “open to the logic” of the innovative legal argument that Travelers was proposing.
Emboldened by Greenspan’s response, Sandy called Warner to let him in on this latest development. The J.P. Morgan CEO was stunned, first to find that Sandy wanted to merge all of Travelers with J.P. Morgan, then to discover that Sandy had already consulted the chairman of the Federal Reserve.
“Inconceivable! Impossible!” Warner responded. When he realized that Sandy was serious, Warner tried to apply the brakes again.
“First, our interest is only to swap Smith Barney for a piece of J.P. Morgan—” he began.
“No, I want to do the whole thing,” Sandy interrupted. “I don’t want to sell Smith Barney.”
“Second, a merger of the two companies isn’t worth talking about,” Warner continued. “I’m sure you’re not being disingenuous about your conversations with Greenspan, but I believe a full merger would be illegal at worst or pose a huge execution risk at best.”
Ever the salesman, Sandy wasn’t deterred. He persuaded Warner to bring his top associates to visit Travelers for more discussions. Although it was clear to Warner that he and Sandy weren’t seeing eye to eye on the scope of a deal, he consented to sign the necessary confidentiality agreements and continue talking.
The due-diligence teams from each company proceeded warily. The Travelers executives quickly got the impression that the J.P. Morgan team regarded them as second-class citizens.
“They treat us like the huddled masses,” Marge Magner complained after one meeting. “They’re the landed gentry, the town-and-country crowd.”
Dimon was particularly incensed. “We may be the ragtag team that was cobbled together, but the United States was cobbled together, too! Are we supposed to respect them just because they have a name?” Still, Dimon agreed with Sandy that J.P. Morgan represented a unique opportunity worth pursuing. Both sides spent the summer of 1997 secretly exchanging volumes of information, evaluating areas of overlap, and considering new activities that could be undertaken if some form of combination was worked out.
During that summer, Sandy and Travelers director Arthur Zankel flew to San Francisco for a benefit on behalf of Carnegie Hall, where both were directors. On the return flight Sandy confided to Zankel that he was negotiating with J.P. Morgan.
“That’s one of the worst ideas I’ve ever heard,” Zankel told him, his long friendship with Sandy allowing him to be blunt. “They’ll never sell to a guy like you, up from the streets, un-Gentile. You’d be fighting the establishment all over again. You’ll never live long enough to be the chief executive officer of that company.”
Then Sandy brought the matter of the merger to his full board of directors, who he hoped would be more supportive than Zankel had been. He was wrong.
“The culture between Travelers and J.P. Morgan would be oil and water,” said Joseph Califano, who was in a position to know. He had married Hilary Paley, daughter of the wealthy CBS patriarch William Paley. “Morgan handles the trusts for my wife’s family, and the cultures would never go together.”
Now Sandy was worried. He had to know directly from Sandy Warner if these discussions were bound to be futile. Warner had retreated for the month of August to his family summer house in the little hamlet of We-quetonsing, Michigan, near the shores of Lake Michigan. But that didn’t stop Sandy from insisting on a face-to-face meeting. The Travelers jet could land at the small airport in Pellston, Michigan. Tucking his favorite gift into his briefcase, he asked Chuck Prince to ride along to plot strategy. This might be their only chance to convince Warner to move ahead with the merger.
Sandy and Prince brainstormed various scenarios on their way to Michigan. One concession that Sandy was more than happy to make: keeping the J.P. Morgan name. “There isn’t a better name,” he told Prince. As the plane settled onto the runway in Pellston, Sandy was clearly riding high. Prince, who would remain on the plane while the two titans negotiated, tried to bring his boss back down to earth: “My impression is the Morgan people basically would be happy to merge if we would all just disappear.”
Warner was waiting on the tarmac, attired in casual summer clothes. He welcomed Sandy to “the country,” as they climbed into his Jeep. When the pair arrived at Warner’s house, a rustic, uninsulated version of a Victorian cottage, Sandy presented his gift to the J.P. Morgan chairman: two ties decorated with floating umbrellas against different-colored backgrounds.
“Let’s work out a merger so you can wear these ties,” Sandy said optimistically, trying to get the conversation started on a positive note.
As they sipped coffee on Warner’s porch overlooking Lake Michigan, the two men, unencumbered by anxious aides or corporate trappings, cut straight to the chase: Who would run the merged company if a deal was done?
The fifty-year-old Warner clearly expected to be running his company for years to come. Yet the sixty-four-year-old Sandy had no intention of stepping down from the CEO post. The Travelers chairman offered a compromise: They would share the senior post. “We’ll be equals,” he said.
“No,” Warner answered immediately. “Lack of clarity in leadership is very bad.”
Sandy didn’t like the sound of that, particularly when Warner noted that J.P. Morgan had a mandatory retirement age of sixty-five.
“Sandy, I think the world of you, but when are you going to retire?” Warner asked.
“I don’t want to retire,” Sandy responded. “I don’t think my shareholders want me to retire.”
“Well, Sandy, if you’re going to stay around, this isn’t going to work out,” Warner said.
The Travelers chairman offered other possibilities: split duties, clearer lines of command—anything to keep the merger alive.
“Let’s be sensible,” the J.P. Morgan CEO countered. “When do you want to retire? We’ll work back from that.”
Suddenly Sandy was being asked to commit to something he had never really considered: When would he leave his business, his very life? He tried to be coy, but Warner was clearly becoming frustrated.
“A transition of twelve to eighteen months would be reasonable for you to stay,” Warner insisted. “Having both of us hanging around indefinitely is unappealing to me.”
Both men then turned away from the impasse and continued talking generally for an hour or so. Each hoped the other would capitulate on the leadership issue, but neither did. As Sandy walked from the Jeep to the jet’s stairway, Prince could see that his boss’s earlier high spirits had been dashed.
“He wants me to leave in a year,” Sandy told Prince, who had become a close confidant.
“Whenever you leave, a number of other people will leave the company,” Prince said.
“What?” Sandy asked. “You don’t really think that, do you?”
“Of course I do,” Prince responded. “This is your company, and we have relationships with you. For one, I’ll leave when you do.”
Tenacious as always, Sandy refused to give up. Back in New York he phoned Warner, pushing the J.P. Morgan chairman to reconsider his need for “management clarity” and to think about selling to Travelers. Sandy also wanted to get some feel for the price Warner might demand.
“No one in the world will get J.P. Morgan without paying a significant premium,” Warner cautioned Sandy.
The Travelers chairman pressed Warner for a price.
“If you’re determined to proceed on this basis, we’ll give you a hypothetical number,” Warner said, carefully leaving himself an escape hatch in case Sandy accepted the price. On August 14 Warner dispatched one of his top executives to Travelers to present Sandy with a “hypothetical” price for a merger: $30 billion.
Sandy was floored by the outrageous demand. The moment he was alone again, he called Warner. “I appreciate your hypothetical price,” he told Warner, “but hypothetically, there’s no way in hell we would pay this kind of price.”
“I sort of knew that, Sandy,” Warner replied. “Look, we’re not even on the same page—not just on price, but on what to merge. Besides, you and Travelers have a very different culture and history than ours here at J.P. Morgan. You’re not the same kind of institution. It won’t work.”
The insult was subtle, but not so subtle that Sandy missed it. After grumbling that Warner cared more about J.P. Morgan’s good name and stellar past than about using that name to push into the future as a bigger, more diversified financial powerhouse, Sandy acknowledged defeat and hung up.
The J.P. Morgan deal was dead and Sandy was grieving. But that same day came a telephone call that suddenly forced J.P. Morgan right out of his thoughts. It was Deryck Maughan, the chief executive officer of Salomon Brothers.
“Sandy, I just want you to know that I’m going to do something about Salomon Brothers before the end of the year,” Maughan said. “I’m giving you the first call. If you don’t want to talk, just tell me, because I’m serious.”
Sandy knew deal talk when he heard it! Maughan had been cagey enough that he could deny it, but he had just revealed to Sandy that Salomon Brothers was for sale.
Salomon Brothers! The toughest trading firm on the street. Its boisterous offices were dominated by the bedlam of trading and bore no resemblance at all to the hushed tones and reverential demeanor in the House of Morgan.
Founded in 1910 by Arthur, Herbert, and Percy Salomon, the sons of an Orthodox Jewish immigrant from the Alsace region of France, Salomon had long since abandoned its origins as a money brokerage firm to become a gunslinging bond dealer. In its heyday during the 1980s, John Gutfreund, Salomon’s gruff chairman, had driven his hotshot investment bankers to the top ranking as underwriters of corporate bonds. But the firm had also been a big risk taker, buying and selling bonds for its own account. Salomon’s testosterone-fueled traders labeled themselves “Big Swinging Dicks,” and the journalist Tom Wolfe, who studied Salomon’s trading operations for his acutely observed novel The Bonfire of the Vanities, called the traders “Masters of the Universe.”
But Salomon’s profane, bare-knuckled atmosphere went too far in 1991, when it was discovered that the firm had manipulated U.S. Treasury auctions by submitting false bids. Nobody, but nobody, messes with the U.S. Treasury. Salomon paid nearly $300 million in fines, Gutfreund was forced out, and billionaire investor Warren Buffett, the soul of probity and already the owner, through his Berkshire Hathaway Inc., of a substantial Salomon stake, took the reins at Salomon to save it. Buffett chose Deryck Maughan, then a little-known executive in Salomon’s Japanese operations—far from the scandal that nearly wrecked the firm—as the new chief executive. Maughan’s British reserve and charm were rare at Salomon, previously dominated by unpolished, irreverent traders.
In 1992, a year after he took the reins at Salomon, Maughan had gotten a phone call. “Hello, this is Sandy Weill, and I’d like to get to know you,” the caller boomed. “Why don’t you join me on the board of Carnegie Hall?”
“I’m flattered,” Maughan responded.
“Do you like music?” Sandy continued.
“Sure,” Maughan replied, knowing full well that musical tastes had little to do with board membership. Once on the board, Maughan used his dry wit and political skills to ingratiate himself with Sandy. They became friends, often riding to and from board meetings together.
While Maughan had soothed angry regulators and executed Buffett’s wishes in the early 1990s, he produced decidedly mixed results later in the decade. By most measures, including absolute profits, return on equity, and standings in such key categories as stock underwriting, Salomon couldn’t quite regain the stature and moneymaking prowess it had enjoyed before the bid-rigging scandal. Maughan became the subject of an unflattering cover article in New York magazine titled “The Crash of a Wall Street Superhero.”
Then earlier in 1997 came the Morgan Stanley–Dean Witter merger. The combination confirmed Sandy’s strategy of building a broad-based financial empire, but it once again highlighted the lack of a significant investment-banking presence within Travelers. At the same time, it convinced Maughan of the merit in adding a retail side to Salomon’s mostly corporate work. Because of his friendship with Sandy, the Salomon CEO put out his first feeler to him.
“I’m going on holiday now, but we could sit down and talk when I get back,” Maughan offered.
“What are you doing tonight?” Sandy asked.
“I’m packing,” Maughan replied.
“No, let’s have dinner,” Sandy insisted, unabashedly eager to do some deal talk.
Half expecting such a response, the Salomon CEO agreed to set up a dinner. He knew exactly where to go: the Four Seasons. “I’m bringing Sandy,” he told the maître d’. “Please serve a wine that he will like.” The forty-nine-year-old Maughan felt like he was getting ready for a first date: He wanted to play a little hard to get, but he also wanted the evening to go perfectly.
Few first dates go as well as that dinner. The youthful Maughan, his silvery hair carefully groomed, arrived first and ordered the roasted crispy duck for them both. He and Sandy lingered for hours as they sipped expensive red wine. As the evening wore on, Sandy was clearly smitten with Maughan, a coal miner’s son who went to King’s College and worked as a low-level employee of the British Treasury before joining Salomon as a bond trader. Sandy’s friends had long noticed his tendency to “fall in love” with the latest person to impress him. Now Maughan was picking up signals that Sandy would be very receptive to a deal. Maughan decided to seize the moment.
“I’m not going to start with you if we’re not going all the way,” he told Sandy coyly.
Sandy began taking off his Hermès tie decorated with umbrellas. He handed it to Maughan as a sign of his good intentions. When they stood to leave, the rotund Travelers chairman embraced the tall, strapping Maughan in a rib-crushing bear hug right in the middle of the Four Seasons dining room.
The next morning Maughan headed straight for the office of Robert Denham, a lawyer who had long represented Warren Buffett’s interests. Buffett had put Denham at the head of Salomon’s parent firm to keep an eye on things. “Oh my god,” Maughan said giddily, “Sandy is really interested. What are we going to do?”
“We’d better call Warren,” Denham answered. He agreed with Maughan that Salomon would be hard-pressed to remain competitive without a bigger partner. But he also knew that Buffett wouldn’t want to “shop” Salomon Brothers around to different buyers. That would make Salomon’s clients nervous. “Be careful,” Denham warned Maughan.
As planned, Maughan left for his end-of-summer vacation in Hawaii with his wife and teenaged daughter. Relaxing in Honolulu two days later, Maughan answered the phone.
“I have to meet with you,” Sandy said.
“Fine, I’ll be back in one and a half weeks,” Maughan said. “I’ll be happy to get together.”
“No, come back now,” Sandy persisted.
“I can’t,” Maughan replied. “I’m on holiday in paradise.”
“Well, I want to meet you as soon as you get back,” Sandy grumbled before hanging up.
Then he called Denham. “This really might go somewhere,” Sandy told him. “Does Warren have any objection?” Denham had already checked: Buffett was a willing seller at the right price, but it had to be the entire company, not just part of it.
At the August meeting of the planning group, Sandy sought the counsel of his senior executives. Dimon expressed the most serious reservations. He worried that Salomon was too vulnerable to the unpredictable ups and downs of financial markets and that it took on too much risk by trading so heavily for its own account. Colleagues wondered if Dimon’s reaction had more to do with his worsening relationship with Sandy than with the deal’s merits. He seemed particularly irritated when Sandy praised Maughan.
“Deryck and I have known each other for five years at Carnegie Hall, where I’ve seen his thought process, his ethics, and his ability to be a team player,” Sandy said. That struck some of the executives as a jab at Dimon for pushing to be his own man. “Deryck’s created a comfort level with me to move ahead.”
Early in September executives for both sides settled in to do their due diligence. To prevent any leaks, the companies took two suites at New York’s stylish Four Seasons Hotel, which had no relationship with Sandy’s preferred eatery. Travelers executives dubbed the effort “Project Global,” signifying their keen interest in Salomon’s international heft, particularly in London, Asia, and South America. But they remained leery of Salomon’s proprietary trading. Each day the firm bet hundreds of millions of dollars on market moves, and most of the time the firm’s traders got it right. Still, Sandy wanted to be sure he wasn’t just buying a big casino. He directed Dimon and his son, Marc Weill, to apply special scrutiny to Salomon’s proprietary “book,” including measures of capital at risk, inventory, balance sheet, and historical profit-and-loss data.
Maughan explained to the Travelers officials that Salomon had to provide a significant market-making function to back up its extensive underwriting business. “If you’re going to be a big underwriter, you have to commit capital and trade the securities,” he explained, uncertain if Sandy could tolerate that kind of risk.
Dimon sat down for a lengthy tutorial with the chief of Salomon’s proprietary trading unit, Shigeru “Sugar” Myojin. Myojin operated out of London, where he oversaw, or personally placed, many of Salomon’s biggest bets. More important, he won a lot more of those bets than he lost. Consequently, his salary and bonus made him one of the highest-paid financial executives in the world: In 1996 he earned $31 million in cash and stock, more than twice Maughan’s compensation. Dimon, whose own staccato conversation could be difficult to follow, struggled to keep up with the explanations that Myojin made in precise, rapid-fire English. By the end of the session, Dimon felt better about Salomon’s risk profile. “Trade by trade, this isn’t hard to grasp,” he said, “although overall, it’s much tougher to accept.”
As the Travelers team’s concerns about risk eased, the deal pieces began to fall into place. Then Sandy dropped a bombshell on Dimon.
“I want you to be co-CEO with Deryck,” Sandy announced to Dimon after the two had returned to their offices from a session at the Four Seasons.
“I don’t think that’s right,” Dimon shot back. “I don’t know why we need to do that.”
“We need to have overlap in leadership,” Sandy said. “It will smooth the way for the two sides to work together.”
Dimon, upset, stalked out of Sandy’s office. A few minutes later he was back.
“I don’t think it’s right for the organization, and I don’t think it’s right for me,” he told Sandy.
Sandy didn’t give an inch and remained quiet as Dimon spent the next few days pacing back and forth between their offices, stopping in periodically with another argument why Maughan should not share power with him. Dimon had helped build the Travelers empire. He considered Maughan a sweet-talking ass-kisser who was far less capable than himself. Dimon had already shouldered the burden of running Bob Greenhill’s feeble excuse for an investment bank, and he shouldn’t have to do it again just because Sandy had fallen head-over-heels in love with Deryck Maughan.
“It’s a stupid way to organize things,” Dimon told Sandy. “I don’t want to be co-CEO with Deryck.”
Finally, as the due diligence and contract negotiations were coming to a head, Sandy ended the argument. “We’re going ahead with this deal and this is the way we’ll do it—you and Deryck are co-CEOs.”
“Okay, if you’re going to, I can’t stop you,” Dimon replied. “You’re the boss, but I think it’s wrong.”
Sandy didn’t immediately tell Maughan of his decision. Before he did that, he wanted to set a price. Sandy and Bob Denham met at Sandy’s apartment on a sunny Saturday morning. The two narrowed their differences on the ratio of an exchange of Travelers stock for Salomon stock but couldn’t quite settle on a figure. Their bids were close enough that Sandy called Maughan.
“What do you want to do?” Sandy asked him.
“You should just decide about Salomon, and the management will be up to you,” Maughan replied, in a show of deference that Sandy relished, particularly after his bruising encounters with Dimon.
“Would you consider co-CEO with Jamie at Salomon Smith Barney?” Sandy asked.
“That would be great,” Maughan said. “Is Jamie okay with that?”
“Yes,” Sandy replied.
The deal quickly fell into place: Salomon shareholders would get 1.13 shares of Travelers stock for each share of Salomon stock. It worked out to a $9-billion purchase of Salomon. By most standards, that was cheap. Sandy had gotten a discount because everyone else who might have been interested in taking over Salomon would have been put off by the huge risks the firm took. But it was also the biggest deal Sandy had ever done. He felt reassured that Warren Buffett had agreed to vote Berkshire Hathaway’s substantial Salomon stake in favor of the merger.
On Monday Sandy called the ratings agencies to set up appointments “to review my ratings.” He said he would bring Dimon and “Theo Terro-fore,” a name the ratings executives had never heard before. When Sandy strolled in with Deryck Maughan beside him, it was instantly clear to the agency executives what was happening. “Good god, Deryck!” one rating executive exclaimed. “Oh, no, Sandy, you haven’t bought Salomon, have you?” The agencies weren’t thrilled with the deal: Here was Sandy Weill, the financial Rock of Gibraltar, in bed with a gunslinging trader. Nevertheless, they assured Sandy that Travelers was big enough that the acquisition of Salomon wouldn’t result in a lower rating.
The deal drew a similar reaction from Travelers directors. “We have to be the banker of choice, and we aren’t,” Sandy told the board. “Salomon Brothers helps get us there.”
“You don’t have the stomach for trading losses,” Arthur Zankel warned Sandy.
Sandy said Travelers could handle the increased trading risk, which would amount to less than 10 percent of the combined companies’ profits. He also noted that Salomon’s trading operations had been extremely profitable over the past seven years. The board unanimously approved the deal.
Just before the Salomon directors were to vote on the deal, Sandy asked Bob Denham to get a quote from Buffett to put in the news release that was being prepared. Buffett took a piece of paper and began writing by hand: “Over several decades, Sandy has demonstrated genius in creating huge value for his shareholders and skillfully implementing…” He stopped to scratch out “implementing” and wrote “blending” over it, then continued, “and managing acquisitions in the financial-services industry. In my view, Salomon will be no exception.”
Denham took the paper back to the telephone to read the quote to Sandy. “Will you save it for me, the actual piece of paper?” Sandy implored. As soon as he got his hands on it, Sandy had the paper framed for his office.
On September 24, 1997, Travelers and Salomon Brothers announced their deal before the stock market opened. Many industry analysts and Travelers employees reacted just as did the ratings agencies, fearful that the volatility and risk inherent in Salomon’s business might hurt Travelers.
“Aren’t you concerned that Sandy will shut down proprietary trading?” Joan Solotar, the Donaldson, Lufkin analyst, asked Maughan. In his clipped British accent he responded, “Well, why would he buy Salomon and then shut down the crown jewel?”
Later, in a meeting with Travelers employees, one person asked Sandy how someone who deplored risk as much as he did could buy Salomon Brothers.
“I have been risk averse, but now we are so big, with the insurance and consumer-finance companies, I can deal better with risk,” Sandy explained. “I can probably take a loss of fifty million dollars if I had to.” Then he quickly turned to Maughan, also on the platform. “Of course, I don’t want to.”
Just three weeks later, though, Sandy’s new appetite for risk was put to the test. Asian markets were beginning to unravel and Salomon was hit with a loss of almost $50 million. Suddenly Sandy was getting a fast education in how costly trading can be. That hit was followed a few days later by a stunning $100-million loss: Salomon’s famed traders had bet wrong that British Telecommunications would acquire MCI Communications, which was snapped up instead by WorldCom.
That was it. Whatever stomach Sandy thought he had for risk was gone now. Salomon’s proprietary trading unit was largely disbanded, its traders reassigned. Sugar Myojin and other senior traders saw the handwriting on the wall and left. The word went out: Salomon was to be recast into the mold of the much more conservative Smith Barney. Sandy would receive daily reports on the results in all revenue areas of Salomon Smith Barney. Gossip on Wall Street asked if Sandy’s biggest deal was his worst deal. When Sandy took a group of top Salomon officials golfing at Augusta National, Eduardo Mestre, Salomon’s investment chief, asked how he was feeling.
“Today I’m feeling sorry I ever met you guys,” Sandy replied with no trace of humor.
Salomon’s trading imbroglio prompted Sandy to begin poking his nose, Sandy style, into everything going on in the brokerage operations. Whether intended or not, his interference further enraged Dimon, who had become accustomed to calling his own shots. When Sandy asked Heidi Miller to resolve a complicated reserve issue, she sought Dimon’s help. After all, he could probably explain the problem in just a minute.
“Figure it out yourself,” Dimon barked at her. “I don’t have a role in it.”
Miller quickly retreated. She knew her friend hadn’t intended to be mean. He was just chafing under Sandy’s rule.
With their relationship clearly on the rocks, both Sandy and Dimon were constantly on edge. As 1997 drew to a close, Travelers Group stock had gained an astounding 78 percent, ranking far and away as the best-performing stock in the Dow Jones Industrial Average that year. But nobody seemed in the mood to celebrate. Sandy barged into a Salomon Smith Barney management meeting that Dimon was running. He began firing questions without taking any notice of Dimon’s agenda or answers. As the meeting concluded, Dimon drew his boss aside.
“You’re flitting around all over the place,” he said, his temper barely in check. “You were disruptive. We had serious work to do.”
Sandy, his face flashing scarlet, yelled so loudly the entire floor could hear.
“Goddammit, Jamie, this is my company!”