After their misadventures in credit markets and derivatives trading, the nation's biggest financial institutions seemed destined to return to a more staid existence dominated by commercial banking and, by extension, commercial bankers.
So much for that theory.
JPMorgan Chase & Co. on Tuesday catapulted a veteran investment banker into the slot of heir apparent to Chief Executive Officer James Dimon. The promotion of Jes Staley, whose two decades at the company have included eight years managing its Brazilian brokerage division and top posts in private banking and asset management, argues for a future in which investment banking remains a marquee business for diversified firms.
It also suggests that the biggest companies — some of which tussled with regulators recently over the amount of commercial banking experience in their top ranks — will put a premium on talent that has been tested by the type of market challenges and liquidity issues at the core of the financial crisis.
"There are people from commercial banking that have a great capacity to understand credit risk, but that's just a small subset of the array of risks that these global institutions face," said David Stowell, a finance professor at Northwestern University's Kellogg School of Management and a former head of Midwest investment banking at JPMorgan Chase. "I wouldn't rule out the idea of somebody with a commercial banking background getting to the top of these firms, but in general I think investment bankers would have more of the experience" the role requires.
Staley, who started his career at the former J.P. Morgan in 1979 and has been running asset management since 2001, was named CEO of the firm's investment bank. A source familiar with JPMorgan Chase's succession planning said Staley would be considered the front-runner to succeed Dimon. But the company has several other candidates, including Chief Financial Officer Michael Cavanagh, retail financial services head Charles Scharf, and private bank chief Mary Erdoes, who was named Staley's successor to run asset management.
Dimon has no immediate plan to step down, but he indicated that he saw a window in which he could address the issue of leadership planning without alarming clients or investors.
"With the credit crisis largely behind us and the economy recovering, the timing was right to begin the succession process," Dimon, 53, wrote in an internal memo announcing the management changes. He credited his team, including outgoing investment bank co-CEOs Steve Black and Bill Winters, for seeing that JPMorgan Chase "emerged from this crisis even stronger than before."
Winters is leaving JPMorgan Chase, and Black is becoming executive chairman of the investment bank arm and will assist in the transition to Staley.
Executive recruiters contrasted Dimon's approach with that of Bank of America Corp. CEO Kenneth D. Lewis, who in announcing succession plans in early August spoke about the need to "re-engineer businesses" and a desire to make changes to "maintain and even enhance" the firm's post-recession earnings power. His tone, some observers said, reflected a less orderly process born out of intense government scrutiny and questions still lingering over the board after shareholders stripped Lewis of his chairman's title.
Brian Moynihan, viewed as the front-runner to succeed Lewis, has served in a number of jobs at the company, including head of wealth management and investment banking, as well as general counsel. He had never led retail banking operations before August, when he was named head of consumer banking.
Management succession also has been a difficult issue for Citigroup Inc., which has been criticized for years for maintaining too shallow a bench of CEO candidates. This concern came to the fore when Vikram Pandit was promoted to succeed Chuck Prince in the top job as the financial crisis began to unfold — a move that prompted skeptics to question the wisdom of installing a hedge fund operator atop a banking company struggling with so much credit risk.
The debate over Citi's succession readiness was reignited in the spring as regulators reportedly took the company to task for having too little commercial banking experience in the executive suite. Citi responded with the hiring of Fleet Boston Financial Corp. veteran Eugene McQuade, who now runs Citi's commercial bank. But it kept Pandit in the top job.
Succession at the diversified companies historically has been characterized as a horse race, with traders perhaps pulling ahead of bankers in one year and brokerage heads gaining on bean counters the next. But coming out of the crisis, said Rob Sloan, the head of the U.S. financial services practice at Egon Zehnder International Inc., an executive search firm, banks should be thinking differently.
"It's not about whether you're a former bond trader or a wealth management guy, or a peanut farmer or a chicken catcher," Sloan said. "It's about leadership and identifying the components of leadership" for complex firms.
