After helping to keep JP Morgan safe during a financial crisis of unprecedented proportions, Bill Winters has been sacked from his job as co-head of investment banking. The bank says the shock move was all about being ready in case CEO Jamie Dimon fell in front of a bus. But there's much more to it than that. Matthew Davies reports.
The ousting last week of Bill Winters from his position as co-head of investment banking at JP Morgan – to be replaced by Jes Staley, until now head of the asset management division – came as a shock to just about everyone. But no one was more surprised than Winters himself.
Those close to him say that he had no inkling that Jamie Dimon, the bank's chief executive, planned to remove him – and the other investment banking co-head, Steve Black – from their positions. Black, who is 57 and had been expected to step down sooner rather than later, becomes executive chairman of investment banking and will retire in 2010.
Officially, Winters was putting on a brave face. "I'm particularly proud of what we built at the investment bank, especially the team I am leaving behind," Winters told IFR. "They are the best out there by some measure."
Demonstrating that he remains a "good soldier" even in the most trying circumstances, Winters was talking from the IMF/World Bank meetings in Istanbul, where he was still representing JP Morgan.
He declined to say more but those close to him make it clear that he is blisteringly angry at the way he has been treated – and feels betrayed. In particular, he was infuriated by the way Dimon removed him.
Those close to Winters insist that, if Dimon had determined that someone else should be running the investment bank and had communicated that properly, Winters would have been happy to stand down gracefully. But they say he was, in effect, fired out of hand – and by phone.
"Bill was shot in the back of the head," said one person close to Winters.
That is not, of course, the way JP Morgan officials describe events. They say that when Winters was told that Dimon had decided to put Staley in as head of IB, he refused to go quietly and, rather than agree to a face-saving negotiated exit over a more protracted period, in effect forced Dimon to fire him.
Nonetheless, that sense of betrayal hardly seems unreasonable. Winters, who spent 26 years at JP Morgan, can plausibly claim to be the person most responsible for steering the bank away from the areas of the market that led others to disaster, notably involvement in sub-prime CDOs and the reliance on counterparties of questionable merit, such as monoline insurers and AIG.
As both a huge mortgage provider and a specialist in derivatives, JP Morgan would have been a natural candidate to be heavily exposed to the riskier area of the market and the bank came under massive pressure when it chose to ignore the apparently bountiful profits available from such products in the run up to 2007.
Indeed, Winters and Black opted to let some of their most talented CDO pros walk out, rather than pile into the areas that eventually damned other firms.
In his earlier days, Winters led the team at JP Morgan that created much of the modern derivatives industry and clearly that background informed those decisions. While other investment banking heads with less knowledge of derivatives didn't have the confidence to rein in subordinates or understand the risks they were taking, Winters became convinced the deals the industry was piling into simply didn't add up.
"[Winters is] the smartest guy I have ever worked with," said one former JP Morgan banker in the US. "It's a huge loss given the magnitude of risk that a firm like JP Morgan takes on."
Succession issues
JP Morgan officials explained the decision to replace Winters as being simply about succession planning. Dimon was said to have been under pressure from the bank's board to put in place a credible successor and that person would need to have experience of running the investment bank, but also other areas of the wider JP Morgan Chase business.
Winters, so the argument went, is a career investment banker and had shown no inclination to add other roles to his CV to ensure he had the rounded career that would equip him to run the bank.
JP Morgan insiders add that Dimon is no fan of the co-head structure and with Black stepping back from day to day work, he thought the time was right for a sole-head of investment banking. He didn't, though, think that Winters was the best man to fulfil that role, irrespective of wider succession issues.
Perhaps suggesting that events moved faster than any of those involved had intended, those speaking for JP Morgan put forward contradictory suggestions over the course of last week about why Dimon thought Winters had to go.
At one point, the argument was that Winters wasn't ambitious enough: that he didn't really want the top job at JP Morgan Chase. Later, it was suggested that he was too ambitious: that he wouldn't settle just for running the investment bank on his own but was determined to become CEO, whether at JP Morgan Chase or elsewhere.
As for succession to the top job at JP Morgan Chase, insiders say that Dimon, who is 53, has three scenarios in mind. If he falls under a bus in the near future, Staley would be the man to take over and needed the appropriate experience.
Similarly, if Dimon leaves in the next two or three years – perhaps to become US Treasury Secretary – Staley will be one candidate, as will Heidi Miller, the 56-year old CEO of the firm's treasury and securities services unit.
If, though, Dimon stays in his role – as he intends – until he is 60, then a new generation will fight it out for the top job – those now in their 40s.
"Does Jamie think Jes will become CEO of the whole bank? No. Even Jes doesn't really think that," said one person with knowledge of Dimon's thinking.
Even those loyal to Winters accept that the bank is right to be thinking about succession issues, but they paint those considerations in a darker light, suggesting that the real reason for Winters' removal is Dimon's determination to do away with rivals who would provide a credible alternative as CEO.
"Jes is a super guy but not remotely a threat to Jamie. Apart from anything else, he's only a year younger," said one person involved in the events.
Asked whether Dimon's reputation for favouring people who stand up to him was a fair one, the person said: "It couldn't be further from the truth."
It is also clear that Winters and Dimon had a difficult relationship and one that deteriorated markedly about 18 months ago.
Some of those tensions may have been because both are conscious that their place in the history of the firm will be judged at least partly about who was most responsible for the decisions that meant JP Morgan sailed through the credit crisis relatively unscathed.
Dimon is portrayed in the media as a banking super-hero but Winters has made it clear that he – and Black – were really behind many of the shrewdest risk-decisions.
Falling out
There were also rumours that there had been clashes, in particular that Winters and Black had fallen out. An acrimonious dispute did take place in the summer over a particular deal but those who know both men suggested that it had been patched up and denied categorically that it had anything to do with Winters' removal.
One of the dangers for the bank now is that a split will develop between embittered Winters loyalists in the London office, where Winters has been based for many years, and headquarters in New York.
"Jamie's biggest mistake was taking a large market share in US mortgages in early 2007 – but getting rid of Bill will be his second-biggest mistake. It will come back to haunt him," said one London-based banker, who said that many in the London office were "livid" with the events of last week.
Staley is obviously aware of the potential disaffection in Europe as he spent his second day in the job in London, meeting with Winters' lieutenants and Winters himself.
Though the bank's operating committee is run on global business lines, Winters was the only person on it based outside the US and the appointment of a senior person to head the European investment banking operation is clearly a matter of some urgency.
Certainly, staff in London were worried last week that they had lost a champion able to represent their interests and the interests of the international operations. Insiders say that the bank has not yet identified the right candidate for that role or what his or her title would be.
The investment bank in Asia is headed by a chief executive, Gaby Abdelnour, and a similar structure is possible now for Europe.
Now what?
As for Winters' future, it seems certain that he will be back soon. Already last week he was being named as a possible appointment for any open senior banking job – and a few that aren't even open. "He's not the retiring type," said one person who knows him well.
On the assumption that he wants to stay in Europe, he was linked with the top job at RBS – which he was sounded out for last year but did not pursue – plus those at UBS and Lloyds Banking Group. There was also talk of him being asked to take over at Bank of America.
Most entertainingly, there were suggestions of much gnashing of teeth at Morgan Stanley, which would supposedly have jumped at the chance to hire Winters had it not just anointed James Gorman in the chief exec role.
Winters might well relish the chance to take on Dimon as a rival bank CEO but he may also prefer a quieter life using his derivatives expertise in a hedge fund.
