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"There Was No Inside Job"
Photo Credit :
Say hello to James 'Jes' Staley', the CEO who runs J P Morgan's investment bank with revenues of $26 billion in 2011. He was earlier the CEO of J P Morgan Asset Management from 2001 to 2009, and grew the division's assets under management to $1.25 trillion from $605 billion. Staley also led J P Morgan's expansion into alternative investments like its strategic partnership with Highbridge Capital Management in 2004. He now oversees and coordinates the firm's international efforts across all lines of business; and is a member of its Operating Committee and Executive Committee. Staley has been spoken of as one who will walk into Dimon's corner room at J P Morgan one day. When you ask him about it, he shrugs it off. "Jamie and I are roughly of the same age. And thankfully, he has no plans to leave anytime soon".
It's also not often you come across someone who's worked at one of Wall Street's biggest names (and still standing) for thirty-three years in the shadow of a rare legacy. His grandfather, Edward Staley, was CEO of W T Grant Stores when it went bankrupt in 1976 — it was the largest loan loss for J P Morgan at that point in time. He even famously said "It was about what the bank did wrong in terms of its loan, but the real bad guy, the one who ran the firm into the ground? That would be my grandfather". As a J P Morgan trainee, the bankruptcy of W T Grant Stores was his case study. "It is ironic they (J P Morgan) even gave me a job offer". That was back in 1979 as graduate from Bowdoin College with a degree in Economics. Staley freewheeled with BW's Raghu Mohan on "Jamie" and the boring business of banking. Excerpts:
What plays a more critical part in the success of a banker -- the platform or the relationships? The financial markets are commoditised; if somebody walks out, relationships also walk out of the bank with the person...
J.P. Morgan has been through different cycles in the three decades I have worked with the firm. At its core, it has a long history of integrity and influence in the markets. It is an enormous honour to work for this firm. From the day I joined in 1979, I have been proud to have my name on a J.P. Morgan business card.
What do you attribute your success to? Has it got to do with the fact that you have never held another job outside of J.P. Morgan? That you know it inside out...
I have been very committed to J.P. Morgan. I have worked here for 33 years. When I first started looking at a career in banking, what attracted me most was that the success of a banker was tied to his or her ability to give expert advice and sound judgement. I like relying on my judgement and forming trusted, long-term relationships.
Your grandfather Edward Staley ran down W T Grant Stores, and J.P. Morgan had given it a loan. How does it feel now that you are seen as a successor for the top job at the bank?
He was CEO of W T Grant and it declared bankruptcy in the early 70s. At that time, it was the largest loan loss in the history of J.P. Morgan. It is ironic that the bank even gave me a job offer given that the family represented a fairly sizeable loss to the firm at that time. So I figure I have been trying to earn it back ever since! (laughs)
You have said that "Dimon is one of the greatest people in finance of my generation". What makes Mr. Dimon, Mr. Dimon?
He navigated a very large and complex financial institution through the biggest financial crisis in our lifetime. I think he has a prodigious mind. His grasp of the industry is unmatched, but he has tremendous humility and is willing to admit what he doesn't know. He also likes to be challenged on what he thinks he knows. The modern financial markets are very complex and a willingness to learn and question what you think you know is tremendously important.
It is a great privilege to work for Jamie. He has a tremendous grasp of each business, but then has the confidence and partnership to trust in the people who work for him. He is great fun to work with too; he has a great sense of humour. Whenever I have a problem he is one of the first people that I turn to because he doesn't play the game "gotchya".
Am I talking to the next global boss of J. P. Morgan?
Jamie and I are roughly the same age and thankfully, he has no plans to leave anytime soon. Plus, I very much enjoy my current job running the investment bank (i-bank).
Mr Dimon has been on record that his successor will be someone who has had hands-on experience of running the i-bank and you have done a pretty good job of it...
There are a lot of very talented people at J.P. Morgan and the bank has done a good job of rotating our senior executives so that many of us understand and appreciate the various divisions of the company. I am sure there will be more movements inside the bank over the coming years and when the time comes to nominate a successor to Jamie, there will be lot of experienced people across businesses.
Investment banking, securities underwriting and M&A financial
$26 billion (2011)
$6.8 billion (2011)
Can you recall specific moment that sums up Mr Dimon...
I remember at the height of the crisis when the risk committee of the bank met three times a day. At seven in the morning, at noon, at six o' clock at night. We would go around the boardroom table and every trading desk manager would talk about what was going on in their market at that point in time. I remember early on we got to one desk and the trader said "right now, we are fifteen over where we were yesterday". It was a very complex market and I remember Jamie stopped him and said "you mean fifteen basis points or fifteen per cent?" which is a dramatic difference. Jamie obviously didn't know which statistic the trader was referring to -- and I bet a lot of other people in the room didn't either -- but he was the first guy to ask the silly question.
It's rare to find a CEO who doesn't pretend to be the smartest person in the room. He's never been afraid to ask the silly or obvious question. He wants to learn. Although Jamie is the most knowledgeable banker I have ever worked with, he is very comfortable asking the 32-year old trader on a trading desk what he's talking about.
You supported the Democratic Senatorial Campaign Committee, but now say "I wouldn't give money to that group now". Why do you feel the ire is misdirected?
I share and understand a lot of the animosity about certain individuals and how they acted during the crisis. A lot of bankers made some very bad decisions and some didn't act appropriately. But, I think it is unfortunate and wrong when you generalise an entire community. When people indict all bankers that's the type of indiscriminate prejudice that I believe is unfair. There are lot of talented bankers with a tremendous sense of integrity who do the right thing for their clients every day.
No race, religion, ethnicity or any group of people wants to be accused in a general way for the actions of some. J.P. Morgan was asked by the US Government to buy Bear Stearns for the sake of the country's financial system. We were also asked by the government to participate in TARP (Troubled Asset Relief Program) even though we didn't need the money. Many of the actions we took were because we wanted to be part of the solution and help to stabilise the financial markets. It became frustrating and disappointing to listen to people broadly indicts all banks and bankers.
But if you look at the magnitude of the crisis, to put it crudely, nobody was hung from a lamp-post...
There are thousands of bankers who have paid an enormous financial price for what happened. Ask the shareholders of Lehman Brothers, Bear Stearns, Citibank, Merrill Lynch and Morgan Stanley, the senior management of these companies if they had any hardship. And let me now turn the question back on you. Is what you want to see a banker hanging from a lamp post?
In hindsight, what do you think drove the madness?
At the core of the crisis in 2008, there was a remarkable belief held by bankers, risk managers, investors, regulators, even academics that a security rated triple-A was as good as cash and that it required zero capital to be held on the balance sheet. In hindsight, it's easy to ask 'how could everyone have got it so wrong?'It wasn't that bankers were hiding something. It wasn't that investors knowing what was going on, but just closing their eyes. It wasn't regulators being paid money.
And it happened again two years later. On January 1, 1999, you, I and rest of the people who cover the financial markets said a country that is part of the Euro zone that issues a sovereign note in this new currency called the Euro Dollar backed by this new institution called the European Central Bank held the credit risk of the Euro zone. For ten years, regulators, journalists, bankers, investors allowed Greece to borrow money as if it were Germany. The scary reality is that we collectively as a society can make some significant misjudgements.
You know there was a movie `The Inside Job'. The title is so misleading. An inside job is when you have a closed group of people who know what is going on inside and exploit it. That makes for a very powerful documentary in Hollywood. But it is terribly far from the facts.
How long will it bankers to retrieve their position as custodians of wealth?
I think it will take years to rebuild the trust.
It has been a long winter for i-banks out here. The feeling out here is much of India's mess is of own making. What is your view?
I spent the first ten years of my career in Brazil. There is a common theme between Brazil, India and the US — which are that they embrace diversity in a marvellous way. I think India has embraced a level of entrepreneurship and innovation which is fantastic, driving enormous growth. It rests on a system of laws and respect for those laws. You come here and you get a sense of optimism which is palpable.
Today, when you go the World Economic Forum in Davos, every panel seems to include a conversation about India, China, Brazil, South Africa, and Indonesia. Ten years ago, these economies weren't even part of the discussion. The world is becoming so much more of an interesting place because countries like India are arriving to take their place in the growing global economy.
At J.P. Morgan, we are making major investments in India. It is the second largest market for us outside of the US. We have more employees here than in the UK. We like to advise companies like Tata which has become a multinational company in its own right. Under Kalpana's (Morparia who heads J P Morgan in India) leadership -- one of the great managers at J.P. Morgan — we have a sound footing here. But as a citizen of the world, the humanity that is shown in India is a great beacon.
There are a lot of young people who will read this interview, what will you tell them if they want to have a career in banking?
The most important thing is to work morally so that we regain the trust which is essential to financial markets. J.P. Morgan is doing extremely well around the world right now. The i-bank has a wonderful global client franchise. The single biggest risk is reputation risk. We work hard every day to maintain the level of trust and service that our clients have come to expect from J.P. Morgan.
When banks work well, it is sort of like oxygen. You see, finance is the oxygen for commerce and helps companies grow and build. When it is free flowing, you don't really notice it, you really don't put much value on it. But if all of a sudden you don't have oxygen, it becomes the most valuable commodity there is. The oxygen was cut off in 2008. All of sudden, the global economy realised the calamity of not having that oxygen.
You think the moral fulcrum got lost?
I deeply believe in universal truths and that there are rights and wrongs. If we are to function as a society, you and I have to treat each other with a level of civility, fairness, compassion and empathy. What I find so magnificent about this country is hundreds of millions of people share a limited geographic space. It can function only if there is a deep seated empathy of Indians towards Indians. It is something for the rest of the world to admire.
Just how was your first day in office at J.P. Morgan?
I was scared out of my mind. I remember going in for training, mostly with MBAs, many of them smarter than me. We were told that the next few months were going to be very stressful. I almost walked out in fright. That said, it has always been a tremendous honour to be a part of J.P. Morgan -- and I can honestly say that in all my 33 years, the bank is at its best moment.
And the kid who now walks in through the J P Morgan door has nothing to fear...
No. I don't manage by fear. There's no reason for the doctor!
(This story was published in Businessworld Issue Dated 14-05-2012)