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Jes Staley’s Route to No. 2

JP Morgan's management shuffle sends shock waves through market.

Jamie Dimon’s surprise shuffling of J.P. Morgan Chase & Co.’s management team, which put Jes Staley, CEO of JP Morgan Asset Management, in charge of investment banking, sent shock waves through the market when it was announced last month. It was a clear move to set up a succession plan if Dimon, the CEO, were to get hit by the proverbial bus.

Though CFO Michael Cavanagh and Charles Scharf, head of retail banking, had been widely seen as possible successors, along with a handful of others, the Street wasn’t satisfied. Dimon has become the public face of JPMorgan through the credit crisis and its aftermath and there was just too much risk to shareholders without a clear plan. (To be fair, Staley may never take over the bank, given that he’s only a year younger than Jamie.) Even the outspoken Dimon has tried to shun the press a bit, trying to raise the profile of his executives. A cover article in Fortune in 2008 featured Dimon and all his direct reports, displaying the bench strength he really had at the bank.

But who is Jes Staley? When I started reporting my May 2009 cover story, “J.P. Morgan Profits from Staley’s Winning Formula,” for Institutional Investor in September 2008, just as the markets were collapsing, Staley had managed to fly a bit under the radar. After a successful career in I-banking at JPMorgan, he had turned around the asset management arm, which had been a “rounding error” to the bank’s earnings earlier in this decade, was beloved by his staff and had engineered a major deal when he convinced Dimon to buy hedge fund Highbridge Capital Management.

But from the time I started interviewing him, meeting his direct reports and talking to clients, his star was rising. Only a handful of people within the bank and in the industry said he was a possible successor in the fall. By March, the buzz, though still relatively quiet, was louder. He was clearly top of Jamie’s mind. People say Jamie loves Staley’s willingness to go against the grain. Staley championed a closed-architecture system — selling its own investments — within the Private Bank even as competitors were going in the opposite direction. He’s also a passionate supporter of gay and lesbian issues at JPMorgan as the executive sponsor of the JPMorgan Chase pride organization. This year’s gay pride event was held at an upscale gay bar with over 100 people from the firm. Because of him JPMorgan was an early supporter of controversial GLSEN, the Gay, Lesbian and Straight Education Network, an advocacy organization for gay teens.

Staley’s turnaround helped Dimon justify the bank staying in asset management. JPMorgan is an anomaly in the banking world these days: Bank of America just sold Columbia Funds. Morgan Stanley is selling Van Kampen, Barclays is getting rid of BGI. Citi sold asset management years ago, as did Merrill Lynch.

But Staley needs to return to investment banking to solidify his experience. Though asset and wealth management are now a meaningful part of JPM’s earnings, I-banking is I-banking. Wealth management seemed to be its own rising star when the big bank CEOs all testified to Congress late last year about how they were going to get back on their feet after the credit crisis. John Mack, Dimon, Vikram Pandit and Ken Lewis all claimed that this source of steady fee revenue would be key to the revival of their fortunes. And it’s helped, but the real profit engine of Wall Street is still investment banking.