Event. My name is donna and i have the honor of serving as the dean of the school of business as you may realize 2020 marks 100 years of purpose driven education. Since our inception, we believe that the power of partnerships to explore and lead change. I very much would like to thank the center for Global Security analysis and wonderful partners in American Finance and the society of new york sponsoring todays conversation. The centennial series was designed to shine light on emerging and important trends. One of the things we realized as reflectinisreflecting on our hiy provides insight into the current challenges that disrupted and changed industries and Business Models. Todays session focuses on the challenges that the leaders at j. P. Morgan chase and company faced and survived. As seen in the latest book j. P. Morgans fall and revival, how the wave of consolidation changed americas premier bank. I am proud to say j. P. Morgan is the largest of the graduates and i know many on the webinar today. A few ground rules in a few parts, first david, president and ceo of the museum of American Finance will introduce nicholas and then nick and consuela will discuss the fall and revival and following the discussion, david and i will facilitate audience questions and ask that you type your questions in the q a section near the bottom of the screen. You may be entered into a raffle to win an ebook. The winners will be notified by the end of the week and before i turn it over to david to introduce, i want to take a moment to remind everyone the school of American Finance rely on your philanthropy for support, and i ask that you consider making a gift to both of our organizations. With that said im going to turn it over to david. Thank you. It is great to be back with our friends. Living the history of the market since the 1970s when he started out at the treasury and San Francisco federal reserve. After that it was a high profile career at j. P. Morgans private bank. From 2003 until recently he was the cio of western and southern and affiliate of Fort Washington advisors where he served as the chief economist. His background as economics and he received his masters and his phd in economics from stanford. He is written extensively on International Financial markets and had a front row seat to the many decades of changes that have happened in the banks and markets and we will hear about that as hes interviewed by the anger and executive producer of wealth track which is now in its 17th year, congratulations on that. A program that seemed nationwide and pioneers in business television. Recognized with many accolades including the first ever Lifetime Achievement award for women in print and electronic financial journalism. That was from the womens economic roundtable and also received the Public Awareness award and many magazines accolade is the best tv host. But forget all that because my favorite accolade is that she is a valued and trusted member of the board of trustees of the museum of American Finance. It is my pleasure to turn it over. Thank you, david, and that is my favorite honor as well. Ii am thrilled to be here with the museum of American Finance. History does matter a lot. That is why we are here. Nick has written a terrific book. J. P. Morgans fall and revival. I love the fact that its a fall and revival, nick as well and it follows up and picks up where the classic house of morgan left off and so it is a muchneeded history and im delighted to have you here so thank you for joining us. Thank you, so much, and i appreciate what the museum of American Finance and the center are doing sponsoring. Let me add a little bit to what david said in your introduction. Youve had a top economic and strategy positions at the major wall street firms as noted but also you did two stints at j. P. Morgan before the merger. 1978 to 93 during the developed country debt crisis and also another between 95 and 2003 which is when the merger happened in 2000, so youve actually lived this history and i want to ask you what compelled you to write this book. Why is the fall and revival of j. P. Morgan a story that needs to be told . Thank you so much. We had to think of it as a journey and the first page of the journey is when i decided after 25 years of wall street to do Something Different but they were completely different Corporate Cultures and what struck me over that 25 year stretch as they entered the securities world and other Investment Banks entered the commercial banking world was they started to blend. That was 95, the culture changed a lot in the business. I share share this with my forms and she also is an author and said i like the idea but this book has to be about more, so i said thank you and i put it down for 15 years, so we are now in the summer of 2018. I masked with a reunion of colleagues to celebrate. You would have thought that we had just had a conversation discussing the good old days as everybody delighted this Jpmorgan Chase is back and standing tall but still you could tell if we didnt lose our independence i spoke with colleagues and i also started doing the research because i was away for 11 years. It went from being a combined bank. Let me stop you there because you talk about being with the alum and how fond everyone was of the culture. Lets go back to what they represented. They were critical to the financial solvency. They bailed out the u. S. Government. They bailed out the stock exchange. Its almost like they bailed out the world in various panics one in 1895 and one in 1907 so what was the role when you got there the first time in 1978. What did it represent in finance when you got there and 78 . Excellent point and i would just begin by saying if anything goes wrong the fed places to calls the first is to j. P. Morgan and second is to citibank. That had an impact on me. At that time when i went out for the interview in 1977, who was in trouble, new york city. Who was leading the charge on getting funding, Pat Patterson the ceo of morgan, certainly in that capacity. As you say what fascinated me was im going to work for a bank but i was fascinated by the history of j. P. Morgan and the role morgan played in coming to the assistance. And the culture again when i think of j. P. Morgan, im thinking number one, it was you were a kid from the west coast as you said, the son of the greek emigrants. It was a very different environment, it was rock solid financially, a true fiduciary. They put the interest of the clients first, the premier bank or Bluechip Companies and also trusted advisors to wealthy families. Thats what i think of it as. But theres another dimension to it that you were just describing. I would say he describes it as a special place if you like the bankers to the government, to the elite it wasnt a retail bank so that was the history and what i found on the first day, you were given a history of j. P. Morgan and the first thing you learned was firstclas first cls in a firstclass way and again, that was important to me because im a researcher and i want to make sure im in an institution with high standards of integrity. And i might add if you look at the website today, there was a tremendous amount when it said theres a lot about the history of j. P. Morgan going back as well and they have a different motto but its close. So talk about again, the developing country crisis and you were there in the midst of it. The bank was changing and there was an iconic leader who wanted to go international. First of all i would say two things even before i arrived on the scene the bank always had a Global Presence and offices in paris and london going back to the time of the founding, but in the 70s when we had the first shock all of a sudden you had many developing countries especially in latin america that were running deficits on their International Trade finance and you had the multinational banks, morgan, city, chase, chemicals saying wait a minute the demand is down in the u. S. , but its very strong outside and the banks began to pour money in. He had a problem in the loan office and that was a steppingstone because he wanted the leader to be global so the story is the colleague who came from the roots like me, horatio alger, became a successor, they were instrumental in turning morgan into the International Exchange and the like. Everything is fine and then in the early 80s we had a second shock when it aired on, excuse me, we had the invasion and all of a sudden now the banks continue to lend. They thought we made it through the first crisis. So long story short, morgan was going along with everybody else. I still recall they said can you do a little upbeat story and all of a sudden i read the paper and the direct quote to me is ive never seen him so scared and all of my life. He knows the bank has more loans out. We are in jeopardy. So about right there is what happens after. So, along with everyone else, that caught a lot of people by surprise what happened in the developing countries. But did they do something they wouldnt have done in the older days, did they take risks they normally wouldnt have done . Was it a mistake or just thats where the business was and you kind of take your chances and hope it works out well . That is a great question and the answer is yes. You have more of a spread then you did with corporations or anywhere else so you have to do it for competitive reasons. This would come back to haunt him who was a revered leader. How do you get to the situation where you allow your capital to match. He had the strongest and is sprung into action and said we are in a crisis. Weve got to keep the system together. They came up was of the strategy called managed lending. If everybody gets scared the banks all pull out there lending. The Banking System goes belly up. So we have to keep everybody and the syndicates so basically he was calling the shots and then even worked with deutsche banks ceo to make sure they would keep it going so they stepped in to save the system and morgan emerged in better shape than the competitors because it wasnt as aggressive in the balance sheet, but i would argue it changed the decisionmaking as he had to contemplate how am i going to now i have to change the Business Model because the countries cannot repay us and the multinational corporations are tapping into the commercial market and our Business Model has to be changed. So that is the catalyst you write about in the book. Explain how the Business Model was changed which led to a completely different morgan when you got back in 1995. s first of all, again so we are clear i mentioned morgan was a wholesale bank. It basically means it doesnt have a lot of branches, it doesnt make the consumer loans so how does morgan fund its self, it borrows in the capital market, but to the extent it was making loans it was to the elite corporations and now theres a situation saying we can raise money cheaper. The business changed a lot. What does he decide to do and not to do basically he says we have to reinvent ourselves to make us valuable and get into the underwriting business and Investment Banking business. Why dont we merge with all of the partners. Guess what, we have the glasssteagall that says you cant do that. Basically what he does is says okay basically they started building out the security platform. You say you need more customers. Do you want to go retail, no, not going to happen. This firm and its entire history in the postwar history they had one merger with a guaranteed trust companies in 1959. It didnt go after guaranteed trust. It said when you take us over that is their experience, so you are not going to do retail. The bottom line is what what is unique that i talked about is we are going to get into securities and Investment Banking and we are going to do it from scratch. Let me ask you to go back to the retail piece. At one point there was an opportunity to buy citibank and in your book you say that it was a mistake that they did not in fact, which would have given them a Retail Business as well, so do you think them not getting into the Retail Business was a mistake earlier on . I think they should have been open to it but i argue actually that not taking a major state that they were given the opportunity and have some managerial oversight in 1990, 1991. The reason i wanted to investigate this when i talked to my friends and say what could we have done differently. We had a chance to gain a major active principal. I realized why do they do it and there were two reasons. One, morgan simply felt we dont have any experience in this but we are not comfortable doing it. But the second point that it goes flat is the Corporate Culture. They were polar opposite cultures and the Business Strategy was completely different so my conclusion they worried they might not be able to control what was happening in the citibank but i do argue that they had other opportunities to go into Retail Banking and those were the missed opportunities. They could have expanded their presence. A. So, do you think that again in the early days they basically sacrificed Business Opportunities to preserve the culture . In the back drop on all of this there was a tremendous amount of change and turmoil, there were mergers happening left and right and as you said they wanted to build businesses from scratch. Was that the reason and was that the mistake . Thats the question i struggle with. They would say that they were worried about the loss of this culture they revered the rank and file revered so the question is was it an excuse for and in action. Action. I have a friend of mine i was telling him this and he said to me the problem was the culture. Those of us that grew up in the regime in the way of doing business, he grew up in a completely different era and is basically saying morgan is behind the times. So, i am kind of in the middle because i love the culture and i wish that it could still be there but it cant. So when you went back in 1995, how had the culture changed . Heres the way i think about it and think of it from preston. What were the challenges they faced. Okay if we are going to do it from scratch we are not going to acquire outside expertise. I have to take the bankers that are good at accepting credit risk and we will teach them to understand Capital Markets and securities transactions. That is a tall order so when i was at morgan, nobody wanted to leave morgan. All they are doing is getting more money. We have something more special. So, basically saying not all of them make the cut. They are basically saying to some of the bankers sorry but we are moving in a different direction. You are being escorted out the door. Number two is what you see in all Investment Banks there are bankers and traders. Even if i dont want a culture clash, third and last thing that matters is compensation. In the old system one said the challenge we are going to face is if we have two people working together and you give them a differential of 10,000 that isnt going to create a problem and that was again the issue from people saying i dont care about money to the guy sitting next to me made more than i did so those were the three types of challenges i saw. So when you were there, was the handwriting on the wall that a merger had to happen and of course chase took over acquired and i read the New York Times article about it dated septembe. Was the handwriting on the wall . Absolutely not. The clear indication is how did we end up back here. I was at the stage where if i had known then he would have had second thoughts but the only thing i would say though is there were little tremors its like an earthquake. I remember january of 1995 and then all of a sudden over the loudspeaker, the head of equities announces today we have to announce layoffs. We discussed could this change the Corporate Culture but we really do not have a choice. And again to put it in context it is in the best shape. If you go 1990 to 1994 i would say the competition they had been heard by commercial Real Estate Lending in the early 90s. All of a sudden they are getting through that and now you are stuck in the most serious competition. I would say morgan gets off to a slow start understanding the implications of the policy change so the competition starts to move ahead so that is what we are observing. But i wouldnt have said anything until may be beginning 1999 that starts with the firms possibility lagging competition whats happening was there a catalyst for the merger or was it just kind of a drip, drip of lagging performance and recognition in order to continue that it needed another Strong Partner and to diversify . We will have this plan to get us into Wealth Management in the first time in history to attract customers that are interested. And then to open the doors so when this happened and to never ever take a vote. So do you think this strategy will work . And then to be shocked with the answer afterwards to say oh my god. And we were never discussing it openly. And then nine months later and those relationships with deutsche bank. So its really interesting again is the New York Times article in september of 2000 is chase trying to turn itself into a Global Financial para one powerhouse . Did it . The answer is yes from chases perspective what made morgan interesting for the in a very be a capability it Investment Banking. But i am saying that was predominantly retail. So the supermarket to do onestop shopping but i guess right . I have never seen it work in practice so could they put off . A Management Team and in those Money Center Banks in new york in 1980 you have chemical. You are too young to remember and they were good at acquisitions. And j. P. Morgan chase that was considered the institutional retail so that was the ideal so how did it start off . It did not start off well. In the merging of the Corporate Culture. But those people are supremely arrogant. I just want to get this done. With both sides they are both impressions. But the bottom line is the never confronted the situation. And then to turn it around. But i will give William Harrison some credit as well because he saw the opportunity there and when jamie came in and 2003 things are already progressing. And with American Finance honored him a couple years ago of a financial leader which she was blair jamie came in with the acquisition of bank number one . So just the revival of how he orchestrated that and how you describe his success . What did he do right . And the thing he has going for him working with the organizations. And that was completely different. He said that. So the opportunity to interview but i didnt because of covid but here is my take. So what makes them different . To just make sure the bank continues to play the policymaker so now with jamie diamond was a strategic thinker. He understands the math and the big picture. But is also very analytic and into the weeds. And to never have a leader to be strategic and detail orientated. But basically the message was there is risk out there. You have to understand the risk with a strong capability and some of that was the acquisition but my argument is with the financial crisis and when that hit a god into the problems and then all of a sudden you have corporations and individuals and i really think that i word argue j. P. Morgan chase was a winner. Im working here from david and donna will have some questions for us as well from the audience whatever they want to chime in, david you have some questions . I have a lot of like to talk about. We will take a couple but feel free to chime in and thank you. Coming from tom herman if you could have interviewed j. P. Morgan what would you have asked him that you cannot learn from your Archival Research and what word you have told him . Its a great question. I feel that the people that were in the room, i would have just said okay here is my hypothesis and my response but morgan did a lot of things right and what i served by the inherent conservativism and really it emerged in better shape. But where you know you have to make changes where you too conservative and showed you perhaps with hindsight, considered not making the big acquisition but the targeting . I would like to hear their answer rather than the hypothesis. Tom is a former colleague of mine at the wall street journal. Thank you for that excellent question. Corporate culture matters a lot to me. Maybe i am oldfashioned. But i was looking again at where j. P. Morgan chase is saying and versus where j. P. Morgan junior said and had said that firstclass business and that in a firstclass way. So what they say a j. P. Morgan chase now is similar to be the most respected Financial Services firm in the world and more than 100 countries but it is a new twist never expect to be best in class every year and in every business but something we will compare with the best in class and the goal is still there but not quite as perfect. Is that another reason for success in this imperfect world where you and a bobo world with tremendous competition and turbulence the shadow Banking System is used so you tell me is that a better model for today cracks. Today, the way i think about it, so with the industry the Banking Industry in the us there were 14500 commercial banks. At the time of morgans merger where are we today . Now with six Financial Institutions of goldman they can from 6 percent of the assets. I believe that is a challenge. I feel that is one of the advantages and the second issue is is too big to manage. Thats a great question and answer metric is to look at i look at violation compliance violation will a lot of that will come to but even on this with j. P. Morgan with many of the attributes that you want and those Balance Sheets was strong risk even the great j. P. Morgan was caught up with violations a week or so ago of nearly 1 billion related to trading in gold and futures et cetera. And i understand that. When i joined j. P. Morgan think of it. And basically what j. P. Morgan junior says a banker is as good as his honor nobody wants to deal with it. You have a question . And they are referencing how something went wrong in the market they would first talk to the j. P. Morgan ceo and that was still happening in 2000 april based on your understanding of history and is now offering funds directly to corporate etfs and even then should we think of j. P. Morgan and its peers as systemically important institutions quick. Great question. To me, here is too good points and that is the camp to become too concentrated and there is too much risk so he believes that it is wise with the responsibilities. So that we are competing globally. And from that perspective you really do have to do with the strong job of regulating that bank. So me and i hate to admit it but the twoheaded economist with the policy response. And one to the parts of the question does the fee it non the fed need to call j. P. Morgan chase anymore . Of course. I would argue today j. P. Morgan is the most Influential Bank in the world. But the one thing that i was actually i kind of have a chip on my shoulder to be honest is the late 19 nineties who was getting called . It wasnt americans. And then basically i would say you tell me what is the future after jamie diamond . What will it be like after . A lot of people give me answers that is a rifle but i have no reason to question it. And a couple of questions on the topic of glasssteagall 2008 and back the question with the separation between commercial banking and Investment Banking. I word say on that a theoretical case with the Investment Bank so what has become a moot point so let me say the body with paul voelker and then he would lobby voelker come on we can make an exception. We are not a retail bank but a wholesale bank. So from what you should have envisioned if you are a retail bank you should not be the Investment Bank because in the 1930s the retail bank stop the securities the investment arms underwrote. If you like the reason for separation. And then dealing with corporations and that is what it would have look like so the bottom line. I will jump in with the question from Charlie Dreyfus reflecting j. P. Morgan was the leader of growth stock investing in the seventies and had a significant share bad it got hurt did they ever recover from that . You are absolutely correct the mistake made was too concentrated and then when the second shock hit they got hurt. Are they actually did was very sensible and said okay we made a mistake if you like j. P. Morgan Investment Management you change for the modern theory and diversification into play to their strengths because of that success of the tpp we had people process and perform so long story is but still with that pension space that is institutional but to have the defined contributions. So when you say today. I will close it for a phenomenal hour. Im sorry we couldnt get to all of your questions. I will react next thursday when they weakening him talks about berkshire hathaway. Thank you. Is supposed to be out mid but you can preorder. I cannot wait to get my hands on a hard copy. Im looking forward to it. Thank you. Thank you hello everyone thank you for tuning in. My name is Audrey Stewart and on behalf of Harvard Bookstore welcome to todays forum and how the sharing economy got hijacked and how to win it back