Macaskill on markets: JPMorgan’s Spinal Tap problem

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By:
Jon Macaskill
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The smooth chief executive transition at Goldman Sachs will increase scrutiny on the potential succession to Jamie Dimon at JPMorgan.

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The handover of power at Goldman Sachs came slightly earlier than billed, with David Solomon due to replace veteran chief executive Lloyd Blankfein on October 1, rather than the year-end shift that had been widely expected.

This small element of surprise only served to accentuate the smoothness of the transition at the top at Goldman, which proceeded at a carefully choreographed pace.

First there was the real decision taken internally at the bank, as Solomon defeated his rival Harvey Schwartz for the right to succeed Blankfein.

Along with details of this news came placement of articles extolling Solomon’s virtues and emphasising what a well-rounded, thoroughly modern manager he is – a team player with a human side.

Before the succession battle was decided, Goldman’s media operation had been fairly even-handed in supporting features that presented Schwartz in an attractive light and contrasted his scrappy background and nature to the more privileged and urbane Solomon.

After all, the decision was no foregone conclusion, given the support for Schwartz in the securities division at Goldman that once provided the bulk of its earnings and had propelled Blankfein to the top seat in 2006.

Goldman even put a positive spin on the changes among divisional managers after Solomon was confirmed as heir-apparent, when veteran global securities co-heads Isabelle Ealet and Pablo Salame decided to “retire”.

Details of the plan for a chief executive handover on October 1 were released just as Goldman delivered a second-quarter rebound in revenue for the fixed income group that had been the problem child of 2017; so it was smiles all round as Blankfein’s farewell tour got underway.

Blankfein had been the only rival to Dimon for the title of highest-profile leader on Wall Street, but the succession process at Goldman drew relatively little fresh attention to the many questions about who will take over at JPMorgan.

This is partly because JPMorgan has been choreographing its own coverage of the succession options in a way that so far has managed to avoid alienating key managers or shareholders, while still satisfying the demands of its domineering incumbent chief executive and chairman.

Speculation about the timing of Blankfein’s departure mounted throughout the second half of 2017, with relatively weak financial performance adding to debate about when a change would take place.

Blankfein and Dimon have a great deal in common as native New Yorkers who took the helm of big Wall Street banks before the 2008 financial crisis and then defended their firms and the industry in the face of subsequent public criticism.

The drumbeat of talk about Blankfein’s departure may accordingly have prompted JPMorgan to go public with its interim succession plans at the start of this year.

The resulting announcement served a clear tactical purpose in answering short-term questions that would concern stakeholders in JPMorgan, ranging from staff to investors and regulators. It dodged the strategic question of who will actually succeed Dimon, however.

So this short-term fix may end up causing long-term disruption due to jockeying for power at the bank.

The contenders' fate

JPMorgan’s chief executive for corporate and investment banking, Daniel Pinto, and retail banking head, Gordon Smith, were appointed co-presidents, meaning that one of the two men would succeed Dimon in the event of an unscheduled departure.

But JPMorgan’s communications team made it abundantly clear in providing background to the announcement that neither Pinto nor Smith is viewed as a long-term successor due to their age.

If Dimon stays on for another five years, which is the current supposed plan, then both Pinto and Smith will be in their 60s – although Pinto will only just have edged into his seventh decade.

This is apparently too old to take over at the top of a big bank, although it is clearly not too old to actually be at the top of a large bank, given that Dimon is currently 62 and will be 67 if he does serve another five years.

That has placed a focus on younger potential successors. Chief financial officer Marianne Lake has received the most attention, which provides her with both risks and opportunities.

The risks of being widely viewed as the heir-apparent to a mercurial leader like Dimon are obvious. This role has in the past been similar to being the drummer for Spinal Tap, with “likely successors” disappearing so frequently that it is tempting to speculate that their rivals were plotting with the media department to place articles about a candidate’s strengths in order to enrage Dimon and lead to his ultimate departure.

From Bill Winters to Jes Staley and on to Matt Zames, public speculation about a banker taking the pole position to succeed Dimon has been followed by a rift with the great helmsman himself and then the departure of the candidate to “pursue other opportunities”.

Forward-thinking

Lake has an obvious appeal as a potential successor who would be the first woman to run a Wall Street bank – although not the first in the world to run a big investment bank, after Shemara Wikramanayake’s recent appointment as the next chief executive of Macquarie.

Running JPMorgan is a more important role, however, and the appointment of Lake as successor would burnish Dimon’s reputation as a forward-thinking leader and rebut criticism of his lack of progress in promoting gender equality at the top ranks of the bank.

There are 10 men on the bank's board, compared with two women, though JPMorgan points out that 45% of Dimon's own operating committee are women, including asset and wealth management head Mary Erdoes, as well as Lake.

But Lake has the glaring problem of never having run a revenue-generating division at JPMorgan. This has become something of a Catch 22 situation for women in banking, who have faced greater barriers in taking control of key business divisions such as securities trading than in being promoted to senior management positions in areas such as financial control.

A stint running JPMorgan’s investment bank is an obvious solution to round out Lake’s skill set. But although Pinto has a reputation for being a more unassuming character than would be expected for the head of the leading investment bank in the world, he might baulk at “retiring” just to help Lake on her way to the top.

And if she did take over the corporate and investment bank, Lake would be universally viewed as the likely successor to Dimon and would be accordingly confronted by the Spinal Tap paradox.

Every public interaction with Dimon would be scrutinized for signs that he was becoming dissatisfied with yet another potential successor, and fears would grow that Lake could suddenly find herself departing to pursue a long-cherished but never before mentioned plan to join a hedge fund, move into private equity or explore an exciting new fintech opportunity.

JPMorgan has handled the short-term questions about Dimon’s succession capably, but there could clearly be further twists before he does finally leave the Park Avenue building.