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Authors: Duff Mcdonald
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one-upsmanship became more hard-edged—especially from Dimon’s end—but in their early years together, the twomen fed off each other’s alpha-male energy. The dynamic paid dividends, as both worked harder as a result.
Dimon’s confidence could be contagious. When John Fowler complained one day that he was making a mere $190,000 a year and was fielding a job offer for $600,000, Dimon persuaded him not to jump ship. “Wow, that’s awfully attractive,” he told Fowler. “But stick around, stay with this. You’ll be making a million dollars a year in five years.” Fowler took the advice, and got his payday. Everyone who had chosen to take a bet on Sandy Weill would be handsomely rewarded.
4. BUILDING THE PERFECT DEAL MACHINE
Once the “platform” had been established in Baltimore, Weill wanted to prove that the Commercial Credit deal was more than a lucky break by making a splashy acquisition or two. It turned out to be much more than that. He and Dimon were about to embark on a decade of almost constant deal making. This suited Dimon just fine. “Jamie approached everything with total fury,” recalls Weill’s assistant Alison Falls McElvery. “Nothing was an idea that merely lingered. It was always ninety miles an hour. When I first met him, I used to call him ‘the lawn mower.’ He’d cut it all off before realizing that he might have made it a little short. Then he’d say, ‘It’ll grow back. Let’s move on.’”
The template was a simple one: run the business conservatively, building fortress balance sheets that gave the wherewithal to make acquisitions during downturns, when assets were cheap. A fortress balance sheet was just what it sounded like: it consisted of ample “high-quality” capital paired with a strong liquidity position that would protect the firm from the assault of an economic downturn while also providing the ability to launch an attack on weakened competitors. To be an acquirer during boom times was to be foolish, to commit the cardinal sin of overpaying. But to pick off distressed assets in a lousy economic climate—that was the stuff of the empire builder. It was also Weill’s playbook when he built Shearson from the ground up over two-plus decades beginning in 1960.
Weill hadn’t invented this idea. It has been practiced and refinedover the course of centuries. As the Jewish-American financier Bernard Baruch once said, “Buy straw hats in winter.”
Another precept of Weill’s was to add little bells and whistles to his firm’s offerings, to make them more competitive. Since most financial products are commodities, the trick was to appeal to customers with something as simple as a more comprehensive account statement. If there was no way to offer a unique product, then having the lowest-cost delivery system was the only way to compete.
And a third and final one: don’t go chasing the flavor of the month unless you actually know its ingredients. Just because other people are making money in something, don’t be tempted to follow suit unless you understand the complexities involved and how they profit from it.
The stock market crash of October 1987 cut the price of Commercial Credit stock in half. Weill was initially shocked, along with most everybody else, but he quickly regained his nerve and exhorted his team not only to buy even more Commercial Credit stock on the cheap, but also to scour the financial landscape for an acquisition target. The crash of 1987 had not ushered in a serious recession; it had merely dealt the markets a psychological blow, so this was the perfect time to pick up a distressed asset.
It had also caused Weill to rethink his old modus operandi of consolidation within a single industry. When he took over Commercial Credit, he wrote in
The Real Deal
, he’d assumed that he’d merely buy more consumer finance companies in a drive toward consolidation. But the crash had decimated the valuations of whole swaths of financial services
Dimon’s confidence could be contagious. When John Fowler complained one day that he was making a mere $190,000 a year and was fielding a job offer for $600,000, Dimon persuaded him not to jump ship. “Wow, that’s awfully attractive,” he told Fowler. “But stick around, stay with this. You’ll be making a million dollars a year in five years.” Fowler took the advice, and got his payday. Everyone who had chosen to take a bet on Sandy Weill would be handsomely rewarded.
4. BUILDING THE PERFECT DEAL MACHINE
Once the “platform” had been established in Baltimore, Weill wanted to prove that the Commercial Credit deal was more than a lucky break by making a splashy acquisition or two. It turned out to be much more than that. He and Dimon were about to embark on a decade of almost constant deal making. This suited Dimon just fine. “Jamie approached everything with total fury,” recalls Weill’s assistant Alison Falls McElvery. “Nothing was an idea that merely lingered. It was always ninety miles an hour. When I first met him, I used to call him ‘the lawn mower.’ He’d cut it all off before realizing that he might have made it a little short. Then he’d say, ‘It’ll grow back. Let’s move on.’”
The template was a simple one: run the business conservatively, building fortress balance sheets that gave the wherewithal to make acquisitions during downturns, when assets were cheap. A fortress balance sheet was just what it sounded like: it consisted of ample “high-quality” capital paired with a strong liquidity position that would protect the firm from the assault of an economic downturn while also providing the ability to launch an attack on weakened competitors. To be an acquirer during boom times was to be foolish, to commit the cardinal sin of overpaying. But to pick off distressed assets in a lousy economic climate—that was the stuff of the empire builder. It was also Weill’s playbook when he built Shearson from the ground up over two-plus decades beginning in 1960.
Weill hadn’t invented this idea. It has been practiced and refinedover the course of centuries. As the Jewish-American financier Bernard Baruch once said, “Buy straw hats in winter.”
Another precept of Weill’s was to add little bells and whistles to his firm’s offerings, to make them more competitive. Since most financial products are commodities, the trick was to appeal to customers with something as simple as a more comprehensive account statement. If there was no way to offer a unique product, then having the lowest-cost delivery system was the only way to compete.
And a third and final one: don’t go chasing the flavor of the month unless you actually know its ingredients. Just because other people are making money in something, don’t be tempted to follow suit unless you understand the complexities involved and how they profit from it.
The stock market crash of October 1987 cut the price of Commercial Credit stock in half. Weill was initially shocked, along with most everybody else, but he quickly regained his nerve and exhorted his team not only to buy even more Commercial Credit stock on the cheap, but also to scour the financial landscape for an acquisition target. The crash of 1987 had not ushered in a serious recession; it had merely dealt the markets a psychological blow, so this was the perfect time to pick up a distressed asset.
It had also caused Weill to rethink his old modus operandi of consolidation within a single industry. When he took over Commercial Credit, he wrote in
The Real Deal
, he’d assumed that he’d merely buy more consumer finance companies in a drive toward consolidation. But the crash had decimated the valuations of whole swaths of financial services
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