In his 40 years in banking, William B. Harrison Jr. has seen major regulatory changes, among them the Sarbanes-Oxley Act and the Gramm-Leach-Bliley Act.
Neither of them, the JPMorgan Chase & Co. chairman says, has had as profound an impact on the industry as its massive consolidation.
In an interview Thursday, when he announced he plans to retire at yearend, Mr. Harrison was keen to point out that his company was at the forefront of that trend.
"The biggest change, clearly - and it's a change that will continue to happen - is the consolidation that really began in earnest in the 1990s with the U.S. banks," he said. "And that was driven by the fact that size, and scale, and leadership position in your businesses would create more value."
On Thursday, JPMorgan said that its president and chief executive, James Dimon, 50, would assume the chairmanship. That came as little surprise to analysts and investors, though some would have rather seen the CEO and chairman positions kept separate.
Mr. Harrison, who is 63, became JPMorgan Chase's chairman in November 2001, one year after being appointed CEO. He had been chairman and chief executive of Chase Manhattan Corp. when it acquired J.P. Morgan & Co. Inc. for $34.4 billion.
Investors remember that deal less fondly than JPMorgan Chase's latest and largest one, Bank One Corp. of Chicago. The $58.7 billion acquisition, completed in 2004, brought aboard Mr. Dimon, who was Bank One's chairman and CEO. Mr. Dimon became JPMorgan Chase's CEO in January.
In a press release Thursday, Mr. Dimon said: "Bill Harrison has been a tremendous partner and mentor to me. Bill's strategic vision and his ability to manage complex change have been instrumental in positioning our firm as a leader in global finance."
Bank One was the last in a long string of acquisitions in which Mr. Harrison participated. Chemical Banking Corp., which Mr. Harrison joined in 1967 and where he rose to vice-chairman in 1990, merged with Manufacturers Hanover Corp. in 1991.
"We were one of the first," to consolidate, "and out of that came a vision" and "the strategic notion that size and leadership matter," Mr. Harrison said. In 1996, the Chemical sold itself to Chase.
He said Gramm-Leach-Bliley and Sarbanes-Oxley, among other regulatory changes, haven't "fundamentally changed the business model."
But consolidation has, he said.
"You have business models today that provide a wide array of products to the clients, and that's part of the outcome of that consolidation," he said. And companies like his that consolidated their home markets first "had an advantage," he said.
Diversification has not always helped the company. After the deal that created JPMorgan Chase, earnings were "erratic," said Mark W. Batty, a buy-side analyst for PNC Advisors. Investors "had difficulties with Mr. Harrison as CEO" at the time, Mr. Batty said.
But when Mr. Harrison was asked to compare today's banking environment - which many are calling the most difficult in recent memory because of the inverted yield curve - with other cycles during his tenure, he said JPMorgan Chase's diversification is helping earnings.
"We don't live and die by the yield curve," he said. "In a challenging yield-curve environment our earnings were up 30% in the third quarter. Consolidation means that a lot of business aren't as sensitive to the yield curve." On Oct. 18 the company reported a quarterly profit of $3.3 billion, saying it was aided in large part by investment banking revenue.
Mr. Batty was among those who said he would have liked to see JPMorgan keep the chairman and CEO roles separate. "From a corporate governance standpoint, that would be the better way to do it," he said. But he said Mr. Dimon "certainly deserves the title."
Richard A. Dee, a JPMorgan Chase individual shareholder, said Mr. Dimon's ascent to chairman "was expected by everyone." But he continued to stress the importance of separating the chairman and CEO positions. "The concentration of power is the problem," not just for JPMorgan Chase, but corporate America overall, Mr. Dee said.
Mr. Dee has lobbied JPMorgan Chase and other companies to separate the two positions for good, to no avail. Out of the top five U.S. banking companies, all four of JPMorgan's peers have the same executive serving in both roles currently. This year for the second consecutive year Mr. Dee proposed at JPMorgan's annual meeting that "the chairman of the board serve in that capacity only."
The proposal received 39% approval during the annual meeting in May, but management advised shareholders to vote against it.
On Thursday, Mr. Harrison said the board discussed the idea briefly, but "we have felt … that ultimately a chairman and CEO together is a better model for us."
"It was not a long discussion," he said.
Mr. Harrison said he would also give up his board seat, though he plans to remain at JPMorgan Chase's service to help it attract customers. He also wants to spend more time with his two teenage daughters, he said.
