In the power of partnerships to lead change. I would like to thank the center for Global Security analysis and our wonderful partners in the museum of American Finance and the cfa society of new york who are sponsoring todays conversation. The centennial series was designed to shine light on emerging and important trends. One of the things we realized is reflecting on our history provides new insight into the current challenges that have disrupted and changed industries and Business Models. Todays session focuses on the challenges leaders at Jpmorgan Chase and Companies Face and survive as seen in the latest book jpmorgans fall and revival how the wave if consolidarion changed americas premier bank. I am very proud to say jpmorgan is the largest employer of business graduates and i know many of them are on the webinar today. The session will take place in a few parts. David cowan, president and ceo of the museum of American Finance will introduce Nicholas Sergeant and Consuelo Mack and they will discuss jpmorgans following revival. Following the discussion we will facilitate audience questions and ask that you type your questions in the q and a section near the bottom of the screen. Our speakers will do their best to answer all of your questions. As a participant in todays webinar you will be entered into a raffle to win a free ecopy of the book, the winners will be notified by the end of the week and before i turn it over to david introduce nick and Consuelo Mack, we rely on your philanthropy for our support and i ask that you consider making a gift to both of our organizations. With that said i will turn it over to david. Great to be back with our friends. Nicholas sargen has been living the market since he was at the u. S. Treasury and efforts to scope the federal reserve. What followed was a high profile 25 year career at morgan guaranty, Salomon Brothers and jpmorgan private bank. From 2003 until recently he was cio of western and southern and affiliated port of washington advises where he served as chief economist. His background as economics was he received his masters and his phd in economics from stanford. He has written next and civilly on International Financial markets and had a front row seat to the many decades of changes that have happened in the banks and markets. We will hear about that as he is interviewed by Consuelo Mack, executive producer of wealth track which is in its seventeenth year. Congratulations on that. It is a program that is seen nationwide and a pioneer in business television. Shes been 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, also for Public Awareness award and money magazines accolade as best money tv host but forget all that because my favorite accolade is that shes of valued and trusted member of the board of trustees of the museum of American Finance. My pleasure to turn it over to Consuelo Mack. Thats my favorite honor as well. Im thrilled to be here with the museum of American Finance. History does matter a lot. Thats why we are here and Nicholas Sargen has written a terrific book, jpmorgans fall and revival how the wave if consolidarion changed americas premier bank. I love that it is the fall and revival and it follows up, picks up where the classic house of morgan left off so it is a muchneeded history and i am delighted to have you here so thanks for having us. Thanks so much. I appreciate what you are doing and sponsoring, 100 years, thats amazing as well is the cfa society. Over the years. Let me add a little bit to what david said in your introduction because you had top physicians at major wall street firms. You did two stints at jpmorgan, with the debt crisis. Another from 1995 to 2003 which is when the merger happened so you have lived in this history. What compelled you to write this book. Why is the fall and revival of jpmorgan a story that needs to be told . Guest thanks. The way i think of it was a journey and the first stage of the journey was when i decided after 25 years on wall street to do Something Different but i had two months in between jobs before i was to do that and what struck me at the time. I love morgan otherwise i wouldnt have been there and Salomon Brothers but they were completely different Corporate Cultures and what struck me over that 25 year strict will as morgan entered the securities world and other Investment Banks into the commercial banking world Corporate Culture started to blend. At morgan, when i went down to the headquarters i said on my at Salomon Brothers . Would change it that much. That was 1995. It changed a lot in the business. The original idea was may be right about how financial legislation and culture mesh. With my former boss susan bell, also the author and that i like the idea but wont get too complex. It has got to be about jpmorgan and i put it down for 15 years. We are now in the summer of 2018. I am at london with a reunion of former morgan colleagues to celebrate lisa sillys 70 year birthday. You would have thought that we had just had a conversation that previous day or so. I havent seen some of these people for decades, discussing the good old days at morgan and everybody delighted that under jamie dimon Jpmorgan Chase was back in standing tall but you could tell if only we didnt lose our independence. What that did is i realized i worked at the firm and really didnt understand what happened. I spoke with colleagues but i also started doing research and got documents on the plans that jpmorgan. I was away for 11 years. It went from being a bank to a combined bank and Investment Bank. Let me stop you there. You are talking about being with the alums and how fond everyone who worked at the all morgan was of the culture and lets go back to what jpmorgan are presented. When you think of j. P. Morgan himself, the financier and the bank at that time, they were critical to the financial solvency of this country. They bailed out the us government, bailed out the stock exchange, bailed out new york city. Almost like they bailed out the world in various panics, one in 1895 and one in 1907. That was before there was a fed. What was jpmorgans role when you got there, the first time in 1978. What did it represent in finance when you got there in 78 . Guest excellent question. I would begin by saying i am from the west coast. I didnt even know what wall street was but when i was at the San Francisco fed. A banking second told me if anything goes wrong in the Financial System for said place is to call, the first is to jpmorgans ceo and the second is the head of citibank and so that really had an impact on me. By coincidence, head hunter contact me about a job there and at that time. Who was in trouble, new york city . Who was leading the charge on getting funding for new york city, patterson, the chairman and ceo of morgan. As you say, what fascinated me was going to work for a bank but i was fascinated by the history of jpmorgan in the world jpmorgan played in coming to the assistance of Financial Institutions and the government. Host when i think of jpmorgan, number one, it was old guard. If you were a kid from the west coast, it was a different environment, blueblood, rocksolid financially, they put the interests of the client first, for a mere banker of Blue Chip Companies and trusted advisors to wealthy families. That is what i think about it as but there is another dimension to it but you were just describing. Guest in chernoffs book he describes it as a special place. If you like the bankers, to the governments, to the elites, wasnt a retail bank, didnt have branches except a few in new york city. That was the history and what i found on the first day you went to report you were given a history of jpmorgan, and the first thing you learned was our motto, doing firstclass business in a firstclass way and again, that was important to me. Because i want to make sure i am at an institution with the highest standards. Host if you look at Jpmorgan Chases website today theres a tremendous amount when it says click, theres a lot about the history of jpmorgan going back as well and they have a different motto but it is close so talk about again the developing crisis, debt crisis, you were there in the midst of it. The bank was changing, theres an iconic leader named luke preston who wanted to go international. You were an international economist, one of the reasons im sure you went there to begin with but what needed to change or what was changing at jpmorgan when you got there . I would say two things even before i arrived on the scene, the bank was always a Global Presence with offices in paris and london going back to the time of the communists, in the 70s, all of a sudden you have many developing countries especially in latin america that were running deficits on their International Trades and you have the banks, multinational banks, Money Center Banks, morgan city, cheese, the chemicals, saying wait a minute, demand for loans is down in the us but it is very strong outside, and Luke Cranston who you mentioned at a prominent role in the London Office because Morgan Jpmorgan wanted its leaders the global. The long story is preston and his colleague Dennis Weatherstone who came from humble roots like we do, horatio alger, rose to become present successor. They were instrumental in turning jpmorgan into International Lending foreignexchange and the like. Every thing is fine and then in the early 80s we get the Second Oil Shock when iran excuse me. We have the invasion. All of a sudden now the banks continue. We made it through the first crisis but long story to cut to the chase is jpmorgan along with everybody else, one day i worked for my boss, we were supposed to write a story on mexico. Our blend is to mexico, a little upbeat story. Go on vacation to cape cod. All of a sudden i read the newspaper, out of the foreignexchange reserves, argentina. I came back over labor day. We were supposed to be laid up a few weeks, came back with what is going on, direct quote to me is i have never seen dennis so scared. What do you mean . He knows the bank has more loans out that is matching our capital. For the first time we are in jeopardy. What happens after that. Host did jpmorgan along with everyone else, that what obviously happened with developing companies, was that a mistake, 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 that was just where the business was and you take your chances and hope it works out well . Guest that is a great question and the answer is yes. What i mean by that, we are in this situation where all your competitors are putting money in handlers, making money. You have much more spread than you did lending to corporations or anywhere else. So you have to do it for competitive reasons. This would come back to haunt a revered leader, how do you get to the situation where you allow your capital to match your loans . It wasnt that you made the loans but you took too much risk. That was the mistake. If you can say how did jpmorgan come out of this jpmorgan had the strongest Balance Sheet of any of the majors and preston sprung into action and said we are in a crisis. Weve got to keep the system to gather. Morgan came up with managed lending, if everybody gets scared, the Banking System goes belly up. We need to keep everybody in the syndicate, morgan was calling the shock along with city and morgan even worked with Deutsche Banks ceo to make sure the european institutions would keep it going so bottom line, preston stepped into the breach once again to save the system. Morgan emerged in better shape than competitors because it wasnt as aggressive as the better Balance Sheet but i would argue it changed decisionmaking, became more tentative to contemplate how am i going to i have to change the Business Model because the multinational corporations are tapping into commercial paper market and bond markets, he knew that. That is the catalyst you write about in the book. Explain how the Business Model was changed that led to a different morgan when you got back into morgan in 1995. So we are clear. I mentioned morgan was a wholesale explained to people who are not into wholesale banking. Doesnt make consumer loans, thats called Retail Banking. How does morgan fund itself . It borrowed the Capital Markets. Morgan was adept at that. Morgan to the extent it was making loans, to the elite corporations and they are in a situation saying we love you but we can raise money cheaper in the Capital Market then we can here. The business changed a lot. No. What does he decide to do and not do . Basically he says we have to reinvent ourselves to make us more valuable to our corporate clients, we have to get into the underwriting business and Investment Banking. Why dont we just merge with Morgan Stanley . Rehab glasssteagall. Cant do that. Wasnt revealed until 93. Yes. So basically what he does is where can we underwrite securities legally . Basically morgan started building its Security Platform in london and that is how was gaining the expertise. Thats point one. Second 2. You say you need more customers, do you want to go retail . Know, not going to happen. This firm in its entire history never was in the retail market. They had one merged with guaranteed Trust Company in 1959 and guess what, didnt go after guaranteed trust. The board of guaranteed trust said morgan, would you take us over. That was their experience. The bottom line, what was unique that i talk about is morgan says we are going to get into securities and Investment Banking, we will do it from scratch, nobody else tried it that way so morgan did it this way. Just to go back to the retail peace. At one point there was an opportunity to buy citibank and you in your book say it was a mistake that they did not in fact, which would have given them a Retail Business as well. Do you think im not getting into the Retail Business was a mistake earlier on . They should have been open to it but i argue actually that not taking a major stake, they were given the opportunity about 10 to have the managerial oversight of city in 19901991. The reason i wanted to investigate this, when i talked to my morgan friends and say what could we have done differently or we. It, we had a chance to gain it a major stake in our principal competitor. When i looked into it, what i realized was first of all again, why did they do it and there were two reasons, one, morgan simply felt, its management, luke preston, we dont have any experience in this and now they are going to get involved so that was one point. The second point, the reason, go back to Corporate Culture. I was telling you sullivan and morgan were nice and safe. Morgan and city were two polar opposite cultures and their whole Business Strategy was completely different. My conclusion, they worried they would have a culture clash that they might not be able to control what is happening in citibank. I tried to argue it was nice a mistake but i do argue that morgan had other opportunities that wouldnt have required her to go into Retail Banking and i believe those were the missed opportunities and in particular, could have expanded their presence in private banking, global custody. This could have beefed up morgan or the extension. Do you think morgan in the early days, this would be under luke preston and Dennis Weatherstone that they sacrificed Business Opportunities in order to preserve the culture . The backdrop in all of this was a tremendous amount of change in turmoil in the banking industry, mergers happening, mega mergers happening left and right and they wanted to build businesses from scratch. Was that the reason and was that a mistake . Was going independence, where those days over . Yes. To talk to both preston and weatherstone they arent with us but my take is that they wouldnt say they were worried about the loss of this culture that they revered that the rank and file revered. The question, was it an excuse or an action . I have a friend of mine from the private bank, i was telling him, he said to me the problem was the culture. What does he say . Those of us who grew up in that regime, he grew up in a completely different era and he is basically saying morgan is behind the times so i am kind of in the middle. A wealthy culture, i wish it could still be there but it cant. Host what changed when you went back in 1995 how had the culture changed . Guest think of it from preston and weatherspoon, if we are going to do from scratch, we are not going to acquire outside expertise but the first thing ive got to do is take bankers who are good at assessing credit and give them we are going to teach them about Capital Markets and securities, that is a tall order. Think of it, when i was at morgan, we were talking about nobody wanted to leave morgan in charge, why not . Getting more money, we had something special. That was the old morgan, basically saying now that you have train anchors, not all of them make the cut so the first time in history morgan has to not painfully but basically saying to some of the bankers, sorry, we are going another direction. Being escorted out the door. Another two i face is this is what you see and all Investment Banks, bankers and traders, we want to get more active in the securities realm, they dont mix so i thought even if i dont want a culture clash, what do i do . The third and the last thing that really matters, in the old system, the head of jpmorgan security said the challenge we are going to face you have two people working together and give them a differential 10, 000 that will not create a problem, what if you give them 100, 000 . That was again the issue, you went from people saying i dont care about money to the guy sitting next to me just made x times more than i make. Those with the three types of challenges. Host the 19952003 when you are at morgan, with the handwriting on the wall that a merger had to happen and chase took over, acquired jpmorgan, i actually read the New York Times article dated september 14th, 2000, was the handwriting on the wall . By 1995 absolutely not. The clearest indication, how did i wind up getting back to jpmorgan . All of the credentials, i was in london, and elevator door opened, the person i used to support was headed into the pacific. What do you do . Low and behold hes telling me we are looking for strategies and i was at this stage of okay. If i had known then it was about to be acquired would have had second thoughts but no way. The only thing i would say was there were little tremors like an earthquake and you get tremors. I remember january of 1995 it really feels good and all of a sudden call loudspeaker, the head of equities, wonderful man named ohara announces that today we have to announce layoffs because of redundancies, we have discussed a change in the course of culture, the honest answer is politics but we really do not have a choice. What i am saying is that was the first symbol involved and if you go to me, put it in context, lets to the present era 19801990, morgan is at the top, the best shape of the money. If you go to the weatherstone years 19901994 i would say the competition, they have been hurt by commercial Real Estate Lending in the early 90s and the transaction. All of a sudden they are getting through that so now you have the most serious competition, jobs, the tech blue, it takes place and what i would say his morgan gets off to a slow start understanding the implications so the competition starts to move ahead so that is what we are observing but are you going to be acquired i wouldnt have said anything until maybe 1999 when we start to sense the firms profitability is lighting the competition behindthescenes, discussions are taking place with morgan, goldman sachs, individuals in the college said chase had approached morgan and morgan in 1998 said you guys are retail, we are not interested in retail. It is happening behind the scenes. Was there a catalyst for the merger or was it just again this kind of this drip drip drip of lagging performance and recognition that in order to continue, it needed a Strong Partner and to diversify . I think it was the latter. Identity, chairman and ceo Stanley Morgan was under pressure from the board, because they are observing the reliance and wants to be clear morgan made up there was the managing director in 2000 and the message we have come a long way. We got to the 20 yard line down we are close. He means in terms of becoming a firm in equity. This money was to be at the top. Those were the guys making money hand over fist but you are the top five, you are doing okay. Bogies are underwriting securities. That is correct. They announce, this is where the rankandfile realize, we are going to have this new plan that is going to get us into Wealth Management as never before. The first time in history we attract customers before we werent interested. We start to go retail. The clock will open the doors. Everybody who has been waiting to get into jpmorgan. So when this happens i still remember the management actually took a vote, made the mistake, never never take a vote where it is anonymous so managing directors said do you think the strategies going to work . Resoundingly said no. Management was shocked with the answer. Afterwords those of us in the room all set on my god, we were thinking it but never discussing it openly so basically from the time of that meeting the die was cast, 9 months later the rumors where it was going to be Deutsche Bank, we had Close Relationships with Deutsche Bank or chase so from my personal perspective, chase. Going back to the New York Times article in september of 2000 the headline was chased driving to turn itself into a Global Financial powerhouse which acquisition of morgan could sharply accelerate that process. Did it . The answer is yes. Older than that, from chases perspective what made morgan interesting, they had a very good capability in securities and Investment Banking. I dont want to say chase wasnt into that much chases network was predominantly retail so its the idea of the food market, the supermarket where you to 1stop shopping. That is a nice concept. Ive never seen it work in practice. Sandy while later set the stage. So could they pull it off you my story is who is the ultimate let me say this, the real Management Team came from chemical bank. Go back i didnt realize this myself. You go back, the money in the bank in new york in 1980, pretty much by 1990 there is Something Else that chemical acquires many the manufacturing sector, too young to remember. And chase, chemical was good at acquisitions. They didnt have a hangup, chase is the betterknown name. That is how chase created Jpmorgan Chase, jpmorgan was considered the institutional side, chase is the retail side. So that was the idea. The only thing you say how did it start off . It didnt start off well. As far as merging of the culture. If you are from Morgan Morgan doesnt want to be acquired by anyone. The last was chase was more bureaucratic, morgan is more elite. Chase, those morgan people are supremely arrogant. I used to see this, just want to get my job back. Host both sides, both impressions. Guest cant we all get along . The bottom line, that is why for chase they had thought acquisitions were easy. They were confronted with a situation. Wasnt until jamie diamond comes in that you turn around and the trouble emerges. I will give william harrison, the ceo of the time some credit as well because he saw the opportunity there. When jamie came in in 2003 things were already progressing and bill harrison was American Finance honored him a couple years ago as to the Senate Financial leader which he was but jamie came in with the acquisition of bank one by chase and so explain just how he really, the revival of morgan, how he orchestrated that, how did you describe his success . What did he do right . Guest the thing he had going, he didnt have hangups in the culture. Host it was completely different. Guest i think he suppresses this and got to get the job done. Based on this, the opportunity to interview but what i did do is read all of the morgan annual report from the time he took over and here is my take. I talk to friends at morgan, what makes him different, what was the role, the role was make sure the bank continues to be a well oiled machine and there is a crisis, that was a real issue so now you say with jamie diamond, number one, strategic thinker, a big picture. He is also very analytic into the weeds. He will have management in formation but morgan never has a leader combining for strategic and detailed orientation but i honestly think in the end i read the annual report when he took over and the message was there is risk and the firm that is going to do that understands the risks. We have a Balance Sheet, with strong capabilities. Some of that was due to the acquisitions but my argument, when the financial crisis hit, citibank got into deep problems. Morgan built for Balance Sheet. You have individuals, the safest place to be and from that perspective Jpmorgan Chase was a winner. Looking at the watch here, david cowan and donna are going to have questions for us as well from our audience so whenever they want to chime in i have lots to talk to nick about. Take a couple but feel free to chime in and donna will assist as well. First question is from tom herman who says if you could have interviewed jpmorgan what would you have asked him that you couldnt learn from Archival Research and i will add what would you have told him from your research . Guest it is a great question. I feel again the people that were in the room, luke preston and dennis winterson, sandy warner is a. I would have just said okay, here is my hypothesis, jpmorgan did a lot of things right and morgan was served by inherent conservatism and emerged from the debt crisis in better shape but some stage when you know you have to make changes were you too conservative and should you have perhaps considered making not the big acquisition but the targeted acquisition . I would like to hear their answer to it. Host tom herman is a former colleague of mine, thanks for the excellent question. Corporate culture, i know it does to you but looking at what Jpmorgan Chase is saying versus what jpmorgan junior said. That was according to your book where the motto came back so j. P. Morgan junior said first class business in a firstclass way and what they are saying at Jpmorgan Chase is similar, we aim to be the most respected financial firm, this is what they say, never expect to be best in class every year in every business but something we will really compare with best in class heres, the goal is still there but not quite as perfect. That is another reason for success in this imperfect world, where in a global world, turbulence from regulated industries, and the way i think about it. And there were commercial banks. At the time of morgans merger, down to three Money Center Banks from the ten, where are we to go, 6 Financial Institutions, throwing goldman and jpMorgan Stanley. The 6 largest institutions, 60 of the assets. Question number one, are they too big to fail, of the majors, jpmorgan can say we are rock solid. That is one of the advantages, a rival Balance Sheet. What is the metric, i look at violations and the like. Two decades, how many millions of dollars, to the Global Financial crisis but on this method, back to jpmorgan, they have many of the attributes, capable people but even the great jpmorgan was caught up with violations a week or so ago nearly 1 billion related to trading in gold in the future, you cant be on top of it. I understand that. When i joined jpmorgan, think of that. This goes back to the code of morgan. Basically what jpmorgan said, banker is as good, if you dont have that nobody wants to deal with it. Host do you have a question . Referencing if something went wrong in the market, jpmorgans ceo, in 2008, the magic money tree, and money market funds and launching digital currency, with jpmorgan and its peers as systemically important institutions. Very good question. To me, when i got into this issue in the camp was too concentrated and too much risk. He believes in divesting their responsibilities. Whether it is too big to fail or too big to manage. The counter message in the brookings study is hang on, we are competing globally. We want to be competitive. That was the argument. From that perspective it is not necessarily that, but really do have to do a strong job regulating the banks. In the end i hate to admit it but an economist on that issue, what is the right poll policy response . Host one of the parts of the question donna asked as well, does mother need to call Jpmorgan Chase. Reporter jpmorgan is the most influential bank. One thing i would say, the period when i had a chip on my shoulder, morgan was falling behind. Who is getting the call . It wasnt morgan. It was goldman sachs. The strain of goldman sachs. He was taught to accept it. The last thing is what is the future of jpmorgan, the future after jamie diamond, he has a harmless job but what will the firm be like after that. A lot of people answer it is a strong Management Team and have no reason to challenge that but all of these that is the big unknown. A couple questions, the same topic about glasssteagall, 20082009, brought back the question, should there be a separation between commercial banking and Investment Banking . I would say on that, though theoretical case is now irrelevant, very no Investment Bank left. It has become a moot point. Let me go back to lee prestons vision, his buddy was paul volcker. Make an exception for us. We are a wholesale bank. In prestons world the divisions and commercial bank versus Investment Bank, but a retail bank, shouldnt be an Investment Bank. Retail banks stopped securities their investment arms underway down there thrust down there customers throats, the reason for separation. Dealing with corporations, that is what the division would look like. That is history too. I will jump in with a question from Charlie Dreyfus, reflecting on the fact that jpmorgan was the leader with growth stock investing. Had a significant chair of the pension management, when the nifty 50 grew up. Do you know Charlie Dreyfus . The fabulous track record . Guest really good questions. Heres my take. You are absolutely correct. Too concentrated in the nifty 50 and when it hit, it got hurt. It was very sensible. They went and brought in a new Management Team. If you like jpmorgans investment management, the modern portfolio and it plays henri strange and the management business, the bottom into the second system. They still commanded, defined the benefit, but they completely missed out but lag to defining contributions, but today they built that up and that was one of the things that caused them to lose that. A phenomenal hour, thank you for the participants, sorry we couldnt get to all your questions. Special thanks to all of you, we will be back when Larry Cunningham will be in conversation with the book on berkshire hathaway. The book is supposed to be out midmonth. We can preorder on amazon. Cant wait to get my hands on a hard copy. Thank you. Booktv on cspan2, top nonfiction books and authors every weekend. Today at 1 00 pm eastern watch booktv this weekend on cspan2. Up next on booktv, Susan Berfield recalls the fight between Theodore Roosevelt and financier j. P. Morgan, Government Intervention at the turn of the twentieth century. I wanted to ask you to paint a picture of morgan. You are telling a story about roosevelt. And in a demeaning