Since our inception we believed in the power of partnerships. Id very much like to thank the center for Global Security analysis and our wonderful partners the museum of American Finance and the cfa society of new york who are sponsoring todays conversations. The centennial series was designed to shine a light on important trends. One of the things weve 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 we face and survive as seen in the latest book j. P. Morgans fall and revival how the wave of consolidation changed americas premier bank. Im proud to say j. P. Morgan is the largest employer of the schools graduates and i know many of them are on today. A few ground rules. First, president and ceo of the museum of American Finance will introduce Nicholas Sergeant following the discussion we will facilitate audience questions and ask you type your questions in the q and a session of the screen. The speakers will do the best to answer all questions. As participants in todays webinar you will be entered into a raffle to win a free book, a copy of the book. The winners will be notified by the end of the week. Before i turn over to david to introduce, i wanted to get moment to remind everyone both the school and museum of 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. Of the southern and its affiliate of the advisors where he served as the chief economist. His background is economics. He received both his masters and phd in economics from stanford. Hes written extensively on international and Financial Markets and had a front row seat to the decades of changes that have happened in the banks and markets and we will hear about that by the anchor and executive producer now in its 17th year. Congratulations on that. It is a program that is seen nationwide and a pioneer. Recognized with many accolades including the first ever Lifetime Achievement award for the women in print and financial journalism that was for the economic roundtable and also received the Public Awareness award and money magazine accolade as the best money tv host but forget all that because my favorite accolade is a trusted member of the board of trustees of the museum of American Finance. It is my pleasure to turn it over to consuela. A. That is my favorite honor as well. Im thrilled to be here. History does matter a lot. Thats why we are here. Nick has written a terrific book. J. P. Morgans fall and revival and i love the fact it is a full and revival. It follows up a muchneeded history and im delighted to have you here so thank you for having us. Thank you so much. I appreciate the center for viewing and sponsoring as well as the cfa society. Let me add a little bit to what david said in your introduction because you have had top positions with major wall street firms but also before the merger, 1978 to 1983 during the developed country crisis and also another between 1995 and 2003 which is when the merger happened in 2000. So youve actually lived this history. And i want to ask what compelled you to write this book. Why is the fall and revival of j. P. Morgan a story that needs to be told . The way that i think of it was a journey when i decided after 25 years to do something different. They were completely different Corporate Cultures and what struck me over that 25 year stretch is they entered the securities world. My second tour of duty. And that period the culture had changed a lot. And the business. They may be right about how they mashed. This book has to be about more so i said thank you. We are now in the summer of 2018 and with the reunion of former colleagues. You would have thought we just had a conversation. I had seen some of these people for decades discussing the good old days at morgan back and standing tall but still you can tell what that did is i realized i worked at the firm and said i didnt understand what happened so i spoke with colleagues but also started doing research on the plan for j. P. Morgan because i was away for 11 years when it went from being a bank to a combined investment bank. Let me stop you there because you are talking about being with the alum and how fond everyone that worked at the old morgan was in the culture. Lets go back to what he represented. When you think of j. P. Morgan himself the financier and the bank at that time, they were critical to the financial solvency of the country. They bailed out the u. S. Government and stock exchange. So that was before. But what was j. P. Morgans role when you got there the first time in 1978, what did it represent when you got there in 78 . Im from the west coast. When i was at the San Francisco fed they told me if anything goes wrong in the financial system, the first is to j. P. Morgan, ceo. The second is to the head of citibank so that had an impact on me. At that time when i went out for the interview, who was in trouble, new york city. Who was leading the charge. Im going to work for a bank but i was fascinated by the history of j. P. Morgan and the role they played coming to the assistance of the Financial Institutions. And also the culture. When i think of j. P. Morgan, i think number one, it was all guard. You were a kid from the west coast as you said. It was a very different environment. It was rock solid financially, a true fiduciary. They put the interest of the clients first. Premier banker and also trusted advisors to wealthy families. Thats what i think about it as. But theres another dimension to it that you are just describing. He describes it as a special place. It wasnt a retail bank except for a few in new york city. So, that was the history. What i found on the first day, you were given a video of the history of j. P. Morgan and the first thing you learn is doing firstclass business in a firstclass way. Again, that was important to me. I want to make sure im in an institution that had high standards of integrity. I might add if you look at the website today, there was a tremendous amount when it said there is 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 the developing marked crisis. You were there in the midst of it. The bank was changing and there was an iconic leader named lou who wanted to go international and of course you are a international economist, one of the reasons you went im sure to begin with anyway. Whats needed to change when you got there . First of all i would say two things. Even before i arrived on the scene. Going back to the time of the founding, 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 the International Trade and the demand for loans is down in the u. S. , but its very strong outside and the banks begin to pour money in. He had a problem in the london office. Morgan wanted its leaders so the long story is the president and his colleague who came from roots like me with your ratio alger became a successor and they were instrumental in turning morgan into the International Lending foreignexchange epilogue. Everything is fine and then in the early 80s we had the second shock and all this coming out but they thought we made it through the first crisis, so long story to cut through the chase, morgan was moving along with everybody else. I still recall the most Famous International economist. They said can you do a little upbeat story. All of a sudden i read the newspaper. I came back and id never seen dennis so scared in my whole life. He knows the bank has more loans out for the first time. So i will stop there. So did they do something they wouldnt have done in the older days . Was it a mistake or was that just where the business was and you kind of take your chances and hope it works out well . Thats a great question and the answer is yes. You are in a situation all of your competitors are putting money in. You earned much more than you did when lending to corporations or anywhere else. So you have to do it for competitive reasons. That wasnt the problem. The problem i think this would come back to haunt the president who was a revered leader. How do you get to the situations where you allow your capital to match, so it wasnt that you made the loans. That was the mistake. Now if you can say how did morgan come out of it, morgan did have the strongest Balance Sheet of any of the majors. The president sprung into action and said we are in a crisis. Weve got to keep the system together. They came up with the strategy called managed lending. This means if everybody gets scared the Banking System goes belly up. So we have to keep everybody and worked with Deutsche Bank to make sure the institutions would keep it going so the bottom line is. It is with better shape our Business Model has to be changed. That was the catalyst that you write about in the book. It then led to a completely different morgan when you got back in 1995. Just so we are clear i mentioned morgan was a wholesale bank. How does morgan fund itself, basically it was adept at that. We can raise money cheaper what does he decide to do basically he says we have to reinvent ourselves those in 1959 didnt go after the guaranteed trust so you are not going to do retail. We are going to get into security and Investment Banking let me ask to go back to the retail piece there was an opportunity to buy citibank that it wawas a mistake that they dit in fact which would have given them a Retail Business as well. Do you think they are not getting into the Retail Business was a mistake earlier on . I argued they had some managerial oversight. We had a chance to gain a major mistake. When i looked into it what i realized is first of all, why do they do it and i think that there were two reasons. We dont have any experience in this. But the second point go back to Corporate Culture. The whole Business Strategy was completely different they worried they might not be able to control what was happening so in the book i try to argue that it wasnt a mistake but i do argue that they had other opportunities that required them to go into retail banking. The one in particular this could have beefed up the expansion in the securities. In the early days this basically sacrificed Business Opportunities to preserve the culture. The backdrop on all of this was there was a tremendous amount of change and turmoil. There were mergers happening and as you said they wanted to build businesses from scratch. That is the question i struggle with. My take is they revered the rank and file so the question is was it an excuse. A friend of mine said to me the problem was the culture. He grew up in a completely different era. Im kind of in the middle because i love the culture. How had the culture changed . Heres the way that i think about it we are not going to acquire outside expertise. First we take the bankers and we are going to teach them to understand Capital Markets and security transactions. That is a tall order. When i was at morgan, nobody wanted to leave morgan. We have something. So basically saying the first time in its history sorry but we are moving in a different direction. You are being escorted out of the door. The third and the last thing that really matters is compensation. If you have people working together and give them a differential that was again the issue. Was the handwriting on the wall that a merger had to happen and acquired. I read the article about it. Was the handwriting on the wall . Absolutely not. The greatest indication is how i wound up getting back to work. If i had known then he would have had second thoughts but the only thing i would say there were little tremors. Then all of a sudden over the loudspeaker, they announce layoffs. We discuss ca discussed can thie Corporate Culture but we do not have control so what im saying is to put it in context 1990 to 1994 the competition they had been hit by commercial real estate lending. All of a sudden they are getting through that. Morgan gets off to a slow start understanding the implications of the policy change so the competition starts to move ahe ahead. We start to sense that it is lagging in competition and is behind the scenes. So was there a catalyst for the merger or was it just this performance recognition to continue that it needed another Strong Partner to diversify . I think it was the latter and again the message was we had come a long way. They are making money head over fist. What they announced is we have a new plan that is going to get us into management to attract customers. So, when this happened i still remember do you think the strategy is going to work and management was shocked with the answer afterwards. Other people were thinking it but we were never discussing it so it was either going to be Deutsche Bank or chase. Whats interesting going back to the New York Times article is chase trying to turn itself into a global house to accelerate that process. The answer is yes. What made morgan interesting is by then there was a very good capability in securities and Investment Banking. The network was predominantly retail where you can do one stop shopping. They even later said it was a mistake so could they pull it off. Basically my story is the real Management Team in new york in 1980. They didnt have a hang up. So thats how they acquire it the institutional retail. When you say how did it start off, it didnt start off well. The merging of the Corporate Cultures. Then its more elite and they are supremely arrogant. A little bit of truth to both sides. But the bottom line they thought the acquisitions were easy. They never confronted the situations. But im going to give William Harrison some credit as well because he saw the opportunity there and when jamie came in in 2003, things were already progressing. They honored him a couple of years ago but jamie came in with the acquisition of bank number one and explain the revival of how he orchestrated that and what did he do right . What he had going for him he didnt have that hang up over culture. And it was completely different. I would love the opportunity to interview him but i didnt because of covid but here is my take. I said what makes him different and they said go back to the first question what was the role, make sure the bank continues to be a well oiled machine to play the role of the policymaker. Hes a strategic thinker and understands but hes also very analytic. They never had a leader to combine both but in the end when they took over and basically the message was there is risk out there. We have a strong capability and some of that was due to the acquisition. Remember citibank got into deep problems and all of a sudden you had corporations and individua individuals. Im looking at the watch and i know that they are going to have some questions as well from the audience, so whenever they want to chime in. I have a lot more to talk about. Feel free to chime in. If you could have interviewed j. P. Morgan what would you have asked you couldnt learn from your Archival Research . Its a great question. The people that were in the room i would have just said okay here is my hypothesis morgan did a lot of things right and was served by the inherent conservatism and thats why it emerged from the developing countries, but in some states you have to make changes, were you to conservative and should you have considered making a targeted acquisition. A former colleague of mine at the wall street journal, thank you for that excellent question. Im looking at Corporate Culture that matters a lot to me. Maybe i am oldfashioned, but i was looking at what j. P. Morgan chase is saying and according to where it came from, first class business and that in a firstclass way so what they are saying at j. P. Morgan chase now is similar in that we aim to be the most respected in the world serving corporations and individuals, but this is what they say. It is a new twist. Never expect to be best in class every year in every business. We will compare with our best in class and regularly compare, so the goal is there but its not quite as perfect. Another reason for success where you are in a global world and theres tremendous competition and turbulence from the industries and the shadow banking so you tell me is that a better kind of motto for today . The way i think about it there were 14,500 commercial banks. Where are we at the time of this merger, where are we today now we have six Financial Institutions and theyve got banking licenses. The sixthlargest institutions can hold 60 and that has raised two questions. Number one, are they too big to fail. I would argue that is still a challenge. I feel we were rock solid and thats one of the advantages today. The second issue is that its too big to manage. Thats the metric i try to look at is the compliance violations. Its astounding a lot of that comes through the global crisis. So going back to j. P. Morgan with many of the attributes has been caught up with violations a week or so ago. The difference i would say is there was nothing more compliant and this goes back to the code of morgan. A banker is as good as his trust. If you dont have that, no one wants to deal with it. Who has time for that. [laughter] do you have a question . Referencing you mentioned if something went wrong in the market and that was still happening in 2008 but based on your understanding of history now that they found the magic money tree and money market funds and a digital currency, should we still think of j. P. Morgan and its peers as systemically important institutions . To me, you are raising to good points. The bank had become too concentrated and so he believes that its wise. Whether its too big to fail or manage so the counter message is we are competing globally. From that perspective, you really do have to do a strong job of regulating the banks. On that issue im kind of torn at what is the right Public Policy response. One of the parts of the question donna just asked as well, does the fed need to call j. P. Morgan chase anymore . The answer to that is of course. J. P. Morgan is the most influential bank. The period i kind of have a chip on my shoulder is where again who is getting the first call. I think it was goldman sachs. I would say tell me whats the future but what will the firm be like. I have no reason to challenge that. I will leave it at that but that is the big unknown. We have a couple of questio questions. Should there be a separation between big banking and Investment Banking . You could make the theoretical case but theres really no investment banks left. He would talk to him all the time and lobby him to make an exception for us. We are a wholesale bank so in his world with the divisio the e you a retail bank. In the 1930s that was the argument if you liked the reason for separation. Thats what the division would have looked like so the bottom line. A question from Charlie Dreyfus reflecting on the fact j. P. Morgan was the leader in the Corporate Pension funds in the 70s and had a significant share. Did they ever recover from that . You really do have good questions. Here is my take on it. You are absolutely correct when the Second Oil Shock hit they got her to s hurt so what they s sensible. They said we made a mistake. If you like j. P. Morgan Investment Management it played to their strengths. They have the people process and performance. So they still commanded the pension space but they completely lagged the contribution so you say today they built that up and that was one of the things that caused them to lose some standing in the party. Its been a phenomenal hour. Thank you to the participants. Sorry we couldnt get to all of the questions. We will be back this thursday at the same time. Thanks again, everyone. The book is supposed to be out this month but you can preorder on amazon. I cant wait to get my hand on a hard copy