There is seldom a smooth line between prosperity and popularity. For banks, perhaps uniquely among society’s core institutions, a healthy bottom line gives no guarantee that they will be loved, liked or even grudgingly respected.
In December 2017, a decade after the collapse of the US subprime mortgage market started a spiral towards a global financial crisis, then prime minister Malcolm Turnbull conceded that a royal commission was the only means of restoring faith in the Australian banking industry.
Amid the pre-millennial angst of 1999, with banks nervous about whether their computer systems would survive the Y2K bug expected to arise from the century date change, this image problem was no less acute. For Westpac, perceptions could be poisonous, with the bank’s internal reforms and its comeback from near-extinction having done little to endear it in the eye of the beholder. ‘The community hated us,’ Morgan acknowledges. ‘None of our constituents seemed to trust us. They thought our profits were too high, that our service was ordinary at best, that some of our fees were egregious and unfair. They still saw us, essentially, as a cosy oligopoly.’1
The flaws in the external face of the company were mirrored in diminished staff morale. Banks’ annual reports would, by nature, try to give even the gravest shortcomings the rosiest tint, but Westpac’s 1999 instalment was candid in admitting that employee satisfaction had sunk into the bottom quartile just two years earlier.2
Noel Purcell, until 1996 the head of operations in North Asia, discovered as much for himself when he returned home from Tokyo to Sydney. Westpac’s overarching philosophy in the nineties, of shrinking to survive, had created a damaging dissonance between its historic place as a pillar of Australia and its modern incarnation as a bank that slashed jobs and services while amassing vast profits. Public anger spilled out on to the streets, stoked not just by a spate of rural branch closures but by Westpac’s sideline as a custodian of the controversial Jabiluka site in the Northern Territory, which mined uranium on Aboriginal lands. ‘I just couldn’t believe what I came back to,’ Purcell says. ‘Staff wouldn’t even wear their uniforms on public transport for fear of being abused.’3
Morgan was passionate about purging any such negative connotations, sending a note to his executive team that spelt out how he had barely slept in the six weeks since learning of his accession to CEO. ‘Most people,’ he wrote, ‘spend their entire professional lives without getting close to the opportunity we have to create a truly world-class, truly great Australasian company.’4 Leading and motivating Westpac’s 32,000 people more powerfully became, from the outset, a key plank of his rationale, as he emphasised the importance of taking pride in one’s work and of behaving in a way that gave no cause for cynicism or ethical concern.
In his twenty-seventh-floor office at Martin Place, with views of Sydney Opera House and the Botanical Gardens, he was discovering that a major bank CEO’s division of labour represented almost an exact reversal of his former duties at Treasury. In Canberra, he had been accustomed to devoting 80 per cent of his time to finding policy solutions and the remaining 20 to persuading the government to throw its weight behind them. This time, perhaps 20 per cent of his energy was expended on plotting the right course of action and 80 on convincing a small army of staff to follow his lead.
If there had been a criticism of the Bob Joss era, it was that the disavowal of the ‘old cardigan brigade’, as Phil Chronican labelled the Westpac warhorses, had encouraged too drastic a lurch in the other direction. A burst of external American hires, including Drew Tanzman in retail and Mary Carryer in consumer marketing, had sown, in Morgan’s view, a certain concern among insiders that they ‘may not have been competing on a level playing field’.5 In response, he made it an article of faith of his tenure that Westpac, in everything it did, should strive for equilibrium, instead of careening to extremes. He likened it to the armada principle of banking, where, in the delicate task of meeting the needs of all the core constituencies, from staff to shareholders, customers to the community, the speed of the fleet tended to be governed by the slowest ship.
The conundrum for Westpac was encapsulated in the first half-year results issued under his command, in May 1999, where a record net profit of $679 million was offset by dwindling customer satisfaction. For all its reach and renown, the company was struggling to sell more than one product to each of its seven million customers, the worst cross-selling rate in Australia and lamentable by the standards of the world’s better-performing banks.6 The market was unimpressed, with Westpac underperforming the All Industrials Index by two per cent and its peer group by nine per cent.
Such problems were far from terminal, given the reliable influx of money from housing, credit cards and funds management. But the wider scepticism offered a reminder, even after the strides taken under Joss, of how much progress still needed to be made. Indeed, as Morgan put it at the results announcement, there was ‘greater urgency’ to complete the ‘unfinished business’ left over from his predecessor’s reign.7 He stressed, too, that he wanted to hear the unvarnished truth about every corner of the business. To this end, he dramatically upgraded the discussion forums with Westpac’s top 2500 people, devoting around twenty days per year to meeting them, up to 400 at a time, across the country to ensure that he was appraised of any problem or grievance.8
Emphasis was shifting, fundamentally, from the expression of a grand strategy for the bank’s next phase to the raw, often unglamorous graft of bringing it to fruition. It was a task to which Morgan, with his natural punctiliousness, was well matched.
Execution was the watchword, even if this simple concept formed a lacuna in the business literature of the time. There was, Morgan believed passionately, a world of difference between knowing what to do and making it happen. Helen Lynch, a key ally in his reshaping of the retail bank, was inclined to agree. ‘Bob Joss was the person deciding the strategy, but strategy is the easy part,’ she says. ‘It is the execution that is hard. If people subscribe to that view, then it would be David who saved the bank.’9
As the first of his four chiefs of staff in the CEO’s role, Trudy Vonhoff would see this consuming preoccupation with detail at close quarters. ‘His perfectionism was off the charts,’ she says. ‘No matter who or what he was engaged with, he saw it as a failure if he was not 100 per cent “on”. This applied from the tiniest procedural point, such as a piece of lost paper, to the deepest conversation about a deal.’10
The temptation for any freshly minted chief executive was to chase the splashiest, most headline-grabbing deal possible, thus defying the doubters in one fell swoop. For Morgan, the Australian division of Bankers Trust (BT), the US wealth and investment banking giant subsumed into Deutsche Bank in 1998, offered itself as an alluring potential acquisition after only three months in the job. The jackpot on the table was tantalising: Westpac, with a single mighty bound, could vault above AMP to the summit of the wealth league, bringing $62 billion in funds under its management.
Inevitably, there was fierce competition, as both NAB and CBA kept their eyes firmly on the same prize. Morgan, though, was eager to outflank his rivals, eventually reaching an agreement in principle to buy BT for $2.2 billion – a gigantic enough sum to stir unease among some shareholders, but still far below Deutsche’s asking price of $3 billion. Come the evening of 2 June, all that remained to be done, as the two parties convened on the fifteenth floor of BT’s Chifley Tower offices in Sydney, was for Westpac and BT’s would-be wealth arm to convince each other that they were the right fit.
Morgan was joined in the room by just two people: BT’s Ian Martin, who had worked under him at Treasury on financial deregulation, and chief executive Rob Ferguson, a man not shy of admitting he had a ‘bit of brashness’.11 Soon enough, the ambience assumed a certain froideur, as Ferguson, sensing he was speaking from a position of strength, became defensive about the BT culture, demanding that his company should retain an exceedingly high degree of independence and warning that his clients would pull their money out if the integration went awry.12 The tactic made Morgan bristle, and he grew anxious that hubris and a warped sense of autonomy had infected his prospective business partners.
‘What came through was their arrogance,’ he says. ‘They thought they were doing us a favour, failing to understand that contemporary wealth managers really needed to tie up with distribution to a customer base. Never mind strategic logic, they wanted outrageous money. Ian had just received a $10 million bonus and insisted lavish remuneration for his people continued.’13 Weary of these outlandish terms, Morgan wound up the meeting at around 11 pm and made the short walk back to his desk at Martin Place. The night air brought clarity to his thinking, as he left a note for his executives that he had serious misgivings about the lack of compatibility.
By morning, key lieutenant Pat Handley, Morgan’s bullish CFO, remained gung-ho about the deal. Morgan, recounting the awkward discussions of the previous evening, eventually peeled him off the ceiling. Just before 3 pm, he called Clive Smith, Deutsche’s chairman, to break the news that they no longer had a buyer for their most sought-after business. A tie-up he had so keenly pursued was, after a few hours’ summit talks, dead in the water.
Chronican, speaking for many within Westpac, was glad of it. ‘The right thing to do was to walk away,’ he says. ‘My own view is that they should never have gone so far down the line. A large factor was Pat, who never saw a bank he didn’t want to buy. They were stretching the valuation much too far when David pulled the plug. It was with a sigh of relief from most of us that he did so.’14
In a litmus test of his substance as a CEO, Morgan had shown that he was inherently risk-averse. In mergers and acquisitions, he knew, deals often ended up benefiting the seller far more than the buyer. Here, the carrot of a glitzy, market-shaking deal had been dangled, and he was content to let it slide. On the one hand, this was a sign that even the most enticing acquisition could be sabotaged by a cultural clash. But on the other, it gave an insight into how Morgan viewed the essence of leadership, where a CEO was defined by the chances he took and also by the chances he turned down.
***
As Australia hurtled towards the dawn of the next millennium, preparations were underway for an event that would give the nation its greatest global showcase. The 2000 Sydney Olympics, prefigured in pyrotechnic splendour at the city’s New Year’s Eve fireworks, were mere months away. Mammoth in scale, eye-watering in budget, they represented, according to French newspaper L’Équipe, ‘Australia’s road to recognition in the eyes of the world’.15
Morgan had been a close observer at each stage of the Games’ gestation. Kelly had been sports minister in 1993; Morgan had been standing beside her in Monaco when it was announced that Sydney had beaten Beijing by just two votes to be chosen as hosts. ‘We had received a tip-off after the ballot,’ he recalls. ‘Sure enough, we won.’16
Six years on, he found himself thrust into the Olympic frame once more, with Westpac designated as the occasion’s official bank and partner. For all that the year 2000 presented complications for the banking industry, as Morgan forswore New Year revelries to resolve any glitches from the Y2K virus – one of technology’s strangest false alarms, as it transpired – it also offered, for Westpac in particular, a historic moment.
As well as supporting an Olympic job opportunity program, with forty-seven Australian athletes employed across the business, Westpac also directly sponsored the country’s outstanding gold medal prospects: Ian Thorpe, the teenage swimming prodigy setting world records for fun; Susie O’Neill, dubbed ‘Madame Butterfly’ for her brilliance at the stroke; not to mention the ‘Oarsome Foursome’, the men’s rowing quartet already anointed Olympic champions in Barcelona and Atlanta.17
Having lavished around $50 million on sponsorship, Westpac needed to put in almost the same amount again to leverage the rights. Given the projection and prestige attached to any corporate involvement in the Games, these were not sums that caused Morgan to lose much sleep. ‘It was the best $100 million on marketing the bank had ever spent,’ he argues. ‘It was a phenomenal experience for our staff, many of whom volunteered to be a part of it. Employee commitment went through the roof.’18
Westpac’s customers were equally enamoured, from the minute Cathy Freeman ran up four flights of stairs, crossed a shallow pond and lit a ring of fire that ignited the Olympic cauldron. Ten days later, Morgan interrupted a speech to the bank’s leading institutional clients so that they could all watch Freeman, resplendent in her green, gold and silver body suit, claim the most emotional victory over 400 metres, the first Olympic gold medal by an Aboriginal sprinter.
The raptures that greeted her victory, in front of 112,000 at Stadium Australia in Homebush, encapsulated the spirit of a Games that did more than any to convert the Olympic ideals of peace, fraternity and noble contest into dazzling twenty-first-century form. On the eve of the closing ceremony, Juan Antonio Samaranch, president of the International Olympic Committee, told Morgan in a private meeting that he would be heralding Sydney 2000 as the ‘best Games ever’.19 In his closing address as the curtain fell, Samaranch was true to his word, while commentators clamoured to agree. ‘I invite you,’ wrote American author Bill Bryson in The Sydney Morning Herald, with forgivable flourish, ‘to suggest a more successful event anywhere in the peacetime history of mankind.’20
Tellingly, this wave of Olympic euphoria, electrifying as it was, still could not dilute the sense of discipline that typified Morgan’s managerial style. Mid-Games, there were advanced talks for Westpac to merge with the Development Bank of Singapore (DBS), so as to deepen its Asian footprint. Several DBS executives were flown to Sydney to attend Olympic events, with Jack Tai, the bank’s American CFO, spotted in earnest conversation with Handley, his Westpac counterpart, during a basketball match. The mooted merger had been painted in the Singaporean press as a ‘win-win’, with relatively low risk: Westpac, having curbed the expansionist excesses of the eighties, had minimal exposure elsewhere in Asia, while DBS was treating Australia effectively as virgin territory.21
But Ann Sherry, by this time CEO of the Bank of Melbourne, a Westpac subsidiary, reflects how she spotted warnings that the arrangement would never work. ‘The Olympics were a distraction, because no one was really looking at what was going on,’ she says. ‘We booked a data room in the Westpac building to try to thrash things out. The Singaporeans were very formal, above-board, but some of our guys showed no cultural sensitivity, throwing their weight around. It didn’t help, either, that a couple of our directors had a deep distrust of state-owned Asian enterprise. We played the thing out to its logical extreme, but ultimately, the two banks were just a bad fit.’22
Morgan had his own reasons, quite apart from the cultural tensions, for considering the move ill advised. Leon Davis, elected to the board just a year earlier, had been a vociferous opponent of any relationship with DBS, adamant that it did not represent good value for Westpac and threatening to resign. As a former metallurgist who had cut his teeth in the mining industry, rising through the ranks at Rio Tinto, Davis was a straight dealer accustomed to giving his views in the bluntest language. ‘I always felt that a deputy chairman’s role was not worth a bucket of warm spit,’ he says, quoting John Nance Garner’s famous line on being US vice-president to Lyndon Johnson. ‘I didn’t like the deal and I wasn’t going to participate. I told the board that they would be doing it without my support, that I would find something else to do. That made them think pretty seriously.’23
After much deliberation, Morgan backed out of the DBS negotiations, not over a cost dispute or even over concerns that Westpac would be a subordinate partner, but because he feared the potential loss of both Davis and John Uhrig, the chairman whose counsel he deeply valued, would be too great a sacrifice. He was disappointed, though, with Davis for how he had handled the affair. ‘Leon came into my office shortly afterwards,’ he recalls. ‘“Look, this just isn’t working,” he said. “I’m trying to build bridges with you, but you’re not meeting me halfway.” And I wasn’t.’24
In later years, Morgan saw sense in the advice of Colin Powell, the four-star general turned US secretary of state, to ‘get mad – and then get over it’.25 There was a recognition that most petty grievances, if left to fester, would prove corrosive for the individuals and the company alike. Courtesy of an intervention by the wives of the two feuding executives, the pair was reconciled over dinner and plentiful wine at Davis’s apartment in France, in what they would come to call their ‘Paris Accord’. Morgan held Davis’s wealth of boardroom experience in high regard, even coining the phrase ‘the Davis Doctrine’, to capture his various succinct points.
Davis, appointed to follow Uhrig as chairman in December 2000, smiles at the reminder. ‘One of my sayings was that there could be nothing worse in an organisation than a hard-working fool. You would rather have a lazy fool than a diligent one who really screws things up. I had no such worries with David – he was both conscientious and highly intelligent. That’s a major asset.’26
Despite the occasional flashpoint, their personalities married up neatly in propelling Westpac through the next phase of change. Where Morgan had the skills to adapt his behaviour to suit the circumstance, Davis, a tough operator, had the requisite ruthlessness to weed out ineffectual board members. ‘When I joined, there were still a lot of old right-wingers who didn’t read their board papers, slept through meetings,’ Davis says. ‘Uhrig actually apologised for what he left me with, explaining that he didn’t want any more aggravation. So, we cleaned a few people out.’27
The relationship between any CEO and chairman could, Morgan had come to grasp, be pivotal: a priceless commodity if nurtured correctly, but a serious corporate liability if neglected. Uhrig had been the most dependable ally to Morgan and Bob Joss alike, credited since the latter’s departure with shepherding Westpac through the stormiest of seas – ‘Without him, I don’t know whether the bank would have survived,’ argues Noel Purcell.28 The same dynamic did not always hold firm elsewhere; at ANZ, for instance, the strain between John McFarlane, the Scottish chief executive who had joined from Standard Chartered in 1997, and his chairman, Charles Goode, was well known to their peers. ‘John was a guitar-playing man, a bit of a hippie on the quiet,’ Davis says. ‘But Charles also wanted to be a figure in the community, which put the pair of them in conflict. They didn’t get on. The same problem has been mirrored in Australia more widely: where does the governor-general fit vis-à-vis the prime minister, as chief executive of the country? It was a danger that David and I were very conscious of avoiding.’29
Morgan, for his part, developed a clear set of qualities to look out for in a chairman: namely, somebody who did not strive to be a de facto CEO, who was not covetous of the CEO’s profile or remuneration, and who, ideally, had already performed the same role, thus gaining a precious understanding of the singular pressures that it brought. It was fortuitous, then, that the role of Uhrig’s successor had fallen to Davis and not to his opponent in the vote, John Morschel.30 Davis, mindful of the awkwardness between them, does not demur. ‘They would have clashed,’ he says. ‘Morschel was seeking his place in the sun.’31
For all the exhilaration of CEO life, for all the accoutrements and lofty public profile, there are plenty of elements that can be suffocating for the unwary. One that Morgan struggled at first to conquer was the remorseless examination of his every move. Both at Treasury and in his greener Westpac days, he had fallen foul of journalists with unguarded asides, but he learned quickly as leader of a global top-20 bank that he could never let his defences down.
‘The scrutiny by the media, by politicians, by regulators, by investors, by the board, by your team, by your employees, by your customers is unrelenting,’ he explains. ‘It makes for a loneliness in the job – not that you can ever acknowledge this. You are being paid up to $10 million a year and you complain about your lot? So, you strap on this armour. You might just have made the most finely balanced, 51/49 decision, but you have to present it as if it was a complete no-brainer.’32
Morgan made a point of hiring David Lording, who had worked with Kelly in the early nineties on heading off several media scrapes, as his communications chief, identifying potential banana skins in interviews and polishing the bank’s official response to the toughest question until it gleamed. The approach was not always watertight: when pressed on why the DBS deal had fallen over, Morgan had to give a polite ‘no comment’ out of corporate confidentiality, sidestepping the jarring cultural differences that had led to its undoing.
The task of maintaining a smooth façade for the outside world was exhausting, not least because Morgan had few confidants with whom he could raise it openly. He believed, much as Kelly was far better versed than most in the extreme pressures of managing a huge portfolio, that her advice was unlikely to be strictly impartial. ‘Spouses are never dispassionate,’ he says. ‘They care for you so much, they end up going completely overboard.’33
As such, it would often fall to Trudy Vonhoff, as head of his office, to tie up every possible loose end to ensure that the stresses did not spill over excessively into his home life. ‘Friday nights were the worst for me,’ she says. ‘I’m not sure I ever escaped before 10 pm. David liked to have everything in his head sorted for the weekend.’34 At this stage of a week, even somebody of Morgan’s abundant energy tended to be running on fumes. Annette Davis, Leon’s wife, once lamented to Kelly: ‘All we get at the end of it are the wrung-out rags.’35 Or, as Kelly herself put it, she felt rather like a boxer’s corner-man, patching up the fighter to put him back in the ring come Monday morning.
It was against this background that Morgan found it difficult, at first, to listen to complaints from employees about overwork. ‘He couldn’t talk to anybody about work–life balance,’ Vonhoff reflects, ‘because he didn’t have one.’36
***
Balanced or not, work and life were about to collide in the most traumatic fashion. A little before the Easter weekend of 2001, Kelly opened a letter from her local hospital: a routine mammogram had shown up an area of concern. Surprised but not shaken, she returned to her specialist to be informed she needed a biopsy. While she tried to present a stoic face at the theatre that evening, her sister’s look of dread at learning of her treatment told a different story.
At her appointment the next day, oncologist Dr Paul Crea took her aside and uttered the words that confirmed her deepest fear: ‘You have cancer. We’ve got it quite early, and we’re planning to operate as soon as we can.’37 In one ghastly instant, all the diary items to which she had attached such significance – the presentations and the parties – became the most trifling fripperies. Her mind in a whirl, she leapt in the car and drove straight to her husband’s office, pulling him out of a meeting and ordering him to the downstairs lobby to talk.
If her sister’s reaction had conveyed a silent terror, then Morgan’s was far more overtly pained. ‘Some meetings are seared on your memory,’ he says. ‘This was one of those. I remember sitting on the couch and bursting into tears. She was rather braver than I was about it.’38
And yet even upon the couple’s most shattering moment, an odd shaft of light intruded. Their son, Ben, asked to sit down because his mother had something serious to announce, responded to the cancer diagnosis as only a sixteen-year-old could. ‘I thought,’ he said, visibly relaxing, ‘you were going to tell me that you and Dad were splitting up.’39
Kelly underwent surgery in the first week of May, discovering with delight that she did not require a mastectomy. The ensuing worry was unbearable, to the point where she demanded David call Dr Crea himself to see if the pathology tests were clear. The news was encouraging: the tumour itself was low-grade, and her cancer had not spread to the lymph nodes. Overjoyed, Morgan left work early to join her, bearing a bottle of the finest champagne.
Somehow, under the most glowering cloud, their lives had to preserve a semblance of order. At his half-yearly results speech the following morning, few in the audience had any inkling, as Morgan dissected every slice of the bank’s $924 million net profit, of the weight of personal anxiety that had just been lifted.40
Of the exotic perks particular to leaders of the largest banks, perhaps the most glittering was an invitation to the annual Microsoft CEO Summit in Seattle, conceived in 1997 by Bill Gates to give the highest-level global executives a platform to share their experiences. Morgan received his first such golden ticket in 2001, within weeks of Kelly’s ordeal. To all but a chosen few – the guest-list was limited to ninety-nine, on a once-only basis – the occasion was cloaked in secrecy, with the identities of invitees suggested only by the registration numbers of private jets landing at Boeing Field. It promised an invaluable talking shop: Warren Buffett, the investor extraordinaire who typically rivalled Gates for the title of world’s richest man, was a regular, along with Jack Welch, nicknamed ‘Neutron Jack’ for firing over 100,000 employees at General Electric but a CEO who had swelled the company’s value forty times over during his twenty years in charge. Welch’s severance package in 2001, worth $537 million, remains the most lucrative in corporate history.41
One relative newcomer to this gilded gathering was Jamie Dimon, the vibrant, fast-talking, ferociously bright chief executive of Bank One in Chicago. Whenever Morgan had asked competitors about who were considered the finest banking executives in the world, Dimon’s name had often cropped up. Furnished with the quicksilver instincts befitting a Baker Scholar from Harvard Business School, Dimon was not afraid of ruffling feathers. He had hit the headlines for an acrimonious parting from Sandy Weill, who had hired him at American Express but then fired him at Citigroup in 1998, prompting a vow that he would never work for anyone else again. ‘He’s very smart, very sophisticated, but he doesn’t play the game,’ Bill Daley, Dimon’s long-time associate and later White House chief of staff to Barack Obama, told Vanity Fair.42
Morgan, intrigued and impressed by Dimon’s reputation, made a beeline for him on the boat ride across Lake Washington to Gates’ house. ‘We struck up an instant rapport,’ he says, as the two found much symmetry in their thinking, from the need for discipline on mergers and acquisitions to the importance of subordinates feeling safe to challenge the CEO. By the time they repaired to the boat’s bar, a friendship was sealed. ‘There was another person who tried to join in, but we were having too much fun and froze him out,’ Morgan recalls. ‘This was Rajat Gupta, then CEO of McKinsey. Gupta was later jailed for two years for insider trading.’43
Dimon has since claimed his place as a titan of Wall Street, a figure of such giant renown in banking that Annie Leibowitz has taken his magazine portraits, while Francis Ford Coppola has expressed interest in weaving his character into film. As chairman and CEO of J.P. Morgan Chase (JPMC), America’s biggest bank, since 2006, he sits atop an institution holding US$3 trillion in assets and $1.7 trillion in deposits.44 Although a Democrat by political persuasion, he was approached by Donald Trump in 2016 to serve as Treasury secretary, a role he politely declined before it fell to Steven Mnuchin, formerly of Goldman Sachs. While his stature as the outstanding CEO of his time is now axiomatic within the banking sector, the range of his ability was far from common knowledge in 2001, when he and Morgan were introduced.
In a rare interview, in his office on New York’s Park Avenue, Dimon reflects on a relationship that has strengthened ever since. ‘At the end of the boat ride, David told me, “Hey, we’ve got to stick together” – and we have,’ he says.45
One intriguing parallel that they discovered in their pasts was an estrangement from a former mentor: where Dimon fell out spectacularly with Weill, who had backed him straight out of Harvard, Morgan had endured his own quarrels at Treasury with John Stone, a man he had once revered. Paul Keating, for all the vital qualities that he ascribed to Morgan in their years working together, remembers how his friend and colleague ‘had a bit of a vulnerability as a hero-worshipper’.46 It would seem a fair charge, based on Morgan’s initial dealings with Stone, who at the time was a towering authority within the Australian bureaucracy and whose favour, out of professional necessity, Morgan had keenly sought. But rapid political change, coupled with Stone’s intransigent attitudes, would end up driving a wedge between them. Dimon discovered, through his battles with Weill, how even the closest bonds could come apart. ‘Now I urge people not to look for mentors,’ he explains. ‘There is a bit of a misconception with mentors, in that just because you are getting advice from someone, it doesn’t mean that it is the right advice. You need advice from lots of people. I’ve learned how to handle certain things from many people – not just from one person.’47
The stardust so liberally sprinkled over Gates’ gatherings could, Morgan realised, wear off quickly. Proximity to the icons of business bred an understanding that many were mere mortals, flawed and fallible, exceptional in their fields but often ordinary in others. Preconceptions of their power and charisma did not always hold true. Sir Richard Branson, for example, who as founder of the Virgin Group had perfected a certain hail-fellow-well-met charm with his droll quips and open-necked shirts, was, in Morgan’s judgment, ‘very nervous’ within the confines of the Microsoft Summit.48
Among all the luminaries who assembled each May in Seattle, one to whom Morgan was naturally drawn was Buffett, by common consent the shrewdest investor of modern times, worth over $110 billion in 2018, despite giving almost half his fortune to charity. Such sums conceal an extreme frugality in his day-to-day routine: Buffett, who lives in the same house in Omaha, Nebraska, that he bought in 1958 for $30,000, was depicted in a 2017 documentary counting his nickels and dimes each morning, depending on what type of hamburger he fancied at the nearby drive-through McDonald’s.49 A self-confessed creature of habit, he was equally stubborn in his views on how banks operated. ‘Banking,’ as he once put it, ‘is very good business if you don’t do anything dumb.’ After a presentation that Morgan delivered at the 2004 CEO Summit, Buffett appeared to see somebody who would resist any moments of rashness, telling him: ‘David, you won’t screw it up.’50
An avoidance of risk had been hardwired in Morgan’s psyche since childhood. It had informed any number of life choices, from his abandonment of acting in favour of a university place to his decision, as Westpac CEO, to walk away from a $2.2 billion price tag for BT. With Dimon, he shared both a basic conservatism that formed the foundation of banking and an acute appreciation of the flipside of risk.
Banks, far more highly geared than other companies, function on an approximate ratio of 10 per cent equity to 90 per cent debt, which can leave an extraordinarily fine line between risk and recklessness. James Gorman, who, like Morgan, had been brought up in the suburb of Glen Iris before his rise to become head of Morgan Stanley, the world’s second-largest investment banking house, explored this theme in a speech at Melbourne University in 2015. ‘Managers have a much greater capacity in banks to create downside than upside,’ he argued.51 Where risk-taking might be a highly desirable impulse in those launching high-tech start-ups, bank CEOs tend to be better advised erring on the side of caution.
‘People have funny misconceptions about taking risks,’ Dimon explains. ‘Sometimes, just by the very nature of your job, you are taking risks. As a bank, if I make you a loan, that’s proprietary risk. I have made a decision: I am going to do this. But I think that in the better companies, you spend much more time working out whether you can survive the worst-case scenario, rather than just the day-to-day risk management decisions.’52
While Morgan had applied this principle diligently in rejecting a tie-up with BT, the opportunity was to resurface, three years later, in circumstances that he least expected. As the winter of 2002 closed in, he took a surprise phone call from Barry Griswell, CEO of Principal, the Iowa-based financial services group into whose hands BT had fallen after being offloaded by Deutsche. Griswell would not confirm to Morgan’s office what he was calling about but insisted on being put through. ‘I know this is highly unusual,’ he began, ‘but would you come down to my hotel for a one-on-one discussion? I don’t want you to tell a soul that we’re meeting.’53
His curiosity piqued, Morgan headed straight for the Intercontinental on Macquarie Street, where Griswell spilled forth about the very problems he had prophesied for Westpac in 1999. There was an instant rapport between the two. BT, Griswell claimed, was too remote and high-handed for Principal to cope with any longer. He was serious about selling and prepared to thrash out a realistic price. In the most unlikely twist, a deal that had been dismissed as unfeasible was back in play, with executives from both sides arranging to meet in Chicago on 5 June. The location was chosen for anonymity: Westpac had no other business being in the Midwest, while Principal flew in their senior team from Des Moines by company jet.
With the essential elements of a deal all settled, subject to sale and purchase agreements, Morgan left it to David Clarke, his head of wealth, to resolve the fine print. Soon enough, some familiar roadblocks sprung up, as Clarke despaired that BT were too inflexible as negotiators, advising colleagues that Westpac would be better off going it alone. By this stage, though, Morgan was of a mind not to let the deal vanish into the ether.
More often than not, critical junctures in a CEO’s career flow from an immense collaborative effort, but this was one case where his personal intervention resurrected a seemingly lost cause. He saw, for a start, how much sense a deal made: Westpac had a huge number of baby-boomers among its customers, many with wealth management needs, to whom a far superior service could be tailored. Given that Westpac had just bought Sagitta Rothschild for $323 million, as well as taking a 51 per cent stake in Hastings for $36 million, the acquisition of BT promised to cement the bank among Australia’s premier wealth players. ‘I knew Principal was very highly motivated to sell,’ Morgan says. ‘So, there was a great deal to be done by us. I wanted this to happen – very badly.’54
As he played his full hand, the soundings from the US were hardly encouraging. ‘David, it’s dead,’ Griswell said. It was an answer Morgan refused to accept, imploring his opposite number to give the talks one last push. After all else had failed, any hope of salvaging the deal hinged solely upon the rapport between the two CEOs. Now that he had gone so far, the BT prize was one on which Morgan was staking his entire reputation.
A last-ditch summit was set for 11 August 2002, at the Ritz-Carlton on Laguna Beach, just south of Los Angeles. It was a blazing hot Sunday, with swimming trunks more the order of the day than business suits. In his head, Morgan, accompanied in California by legal counsel Ilana Atlas, had a clear idea of how much he would consider paying Principal for BT: US$1.25 billion ideally, $1.5 billion at a push. Griswell and Morgan went alone to a back room of the hotel. It took some time-honoured thespian skill, then, for Morgan to keep a straight face when Griswell, sensing that this was their last chance, uttered the words ‘$900 million’. This represented an astonishing coup, well under half the figure previously asked of Westpac.
Griswell, wary to the last, added that his legal representative had cautioned against shaking hands on this knock-down price, which would increase to $950 million if all aspects of integration went smoothly. ‘So, can we hug instead?’ Morgan replied, to break the ice. With that embrace, the deal was effectively complete, thus validating some inspired brinkmanship.
When the announcement was made a couple of months later, The Sydney Morning Herald declared: ‘Good things come to those who wait.’55 Atlas, who had seen at first hand Morgan’s consuming desire to haul an agreement over the line, says: ‘This one went down to the wire. David drove the transaction – it was up to him. It wouldn’t have happened if he hadn’t decided it would happen.’56 Phil Chronican, by then Morgan’s chief financial officer, reached the same conclusion. ‘It was about David’s tenacity in not letting go,’ he says. ‘The whole thing would have fallen apart if it had been left to the other business leaders on either side.’57
This piece of trans-Pacific shuttle diplomacy had lasted only a matter of hours, but it promised to buttress Westpac’s position on the wealth front for years to come. Analysts at Salomon Smith Barney noted how the acquisition would tether the bank to BT’s vast distribution network, while enabling relationships with a further 450,000 high-net-worth clients.58 Even his rivals had to concede that Morgan had pulled off quite the triumph. ‘It wasn’t much money,’ says John McFarlane, who at ANZ had overseen a far less fruitful wealth partnership with Dutch bank ING. ‘On the scale of acquisitions, it certainly wasn’t huge.’59
Later, Morgan would also negotiate the acquisition of RAMS, a successful mortgage broker, at a knockdown $140 million in 2007. On the surface, the deal seemed such a steal that some at Westpac expressed concern that the bank might face legal action for not paying enough. These successes were of a kind that prompted Andrew Cornell, of The Australian Financial Review, to portray Morgan as the Steven Bradbury of banking. In 2002, the year of Morgan’s swoop for BT, Bradbury had become an overnight cult hero at the Winter Olympics in Salt Lake City, winning a short-track speed-skating gold medal for Australia over 1000 metres. His win, the first by any southern-hemisphere athlete in a Winter Games, was less a testament to his aggressive racing than to the fact that every one of his opponents crashed in a final-corner pile-up. Bradbury, it seemed, subscribed to the wisdom of hanging back while all about him fell by the wayside.
Morgan, according to Cornell, espoused much the same strategy as a banker, having ‘understood his industry’s track record of losing its feet and hitting the barriers’.60 His eventual vindication over BT, a saga in two acts, proved as much. Morgan showed through the orchestration of this deal that he knew both the right time to walk away and the right time to pounce. As long as all that Westpac did was rooted in such discipline, he reasoned, then it would have every chance – come what may – of being the last bank standing.