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Can a nice guy finish first?

The chairman and CEO of J.P. Morgan Chase & Co. learned all about teamwork in college. A star forward on his high school basketball team, the lanky, 6-foot-4 William Harrison Jr. was recruited to play at the University of North Carolina by legendary coach Dean Smith. Once there, he found himself surrounded by superior athletes, like future NBA Hall of Famer Billy Cunningham, and wound up warming the bench. Undaunted, Harrison embraced his status as a role player, cheering on his teammates from the sideline.

The chairman and CEO of J.P. Morgan Chase & Co. learned all about teamwork in college. A star forward on his high school basketball team, the lanky, 6-foot-4 William Harrison Jr. was recruited to play at the University of North Carolina by legendary coach Dean Smith. Once there, he found himself surrounded by superior athletes, like future NBA Hall of Famer Billy Cunningham, and wound up warming the bench. Undaunted, Harrison embraced his status as a role player, cheering on his teammates from the sideline.

"He wasn't real fast, but you could see possibilities," recalls Smith, a rookie head coach when he recruited Harrison. "As it turned out, he didn't play very much. But he practiced very hard and pushed his teammates to be better. He had the kind of attitude I wanted all the players to have."

Harrison's teammates were no more wowed by his talent than his coach was, but they were just as impressed by his attitude and bonhomie. Putting the team first, Harrison quit the squad at the end of his sophomore year, sacrificing his scholarship so Smith could recruit more talented players. (In all, he appeared in two games, took two shots, scored two points and committed two personal fouls in his brief career.)

Harrison has proved to be a more adept banker than ballplayer, but he took with him valuable lessons from his stint on the hardwood. Graduating from UNC with an economics degree in 1966, he joined Chemical Banking Corp.'s training program in New York and over the next three decades, quietly ascended the ranks. Emphasis on "quietly." Few CEOs are as soft-spoken, as mild-mannered or have risen as inconspicuously as Harrison, who made his mark behind the scenes by steering Chemical into the loan syndication business and later by skillfully overseeing the acquisitions of Manufacturers Hanover Corp. and Chase Manhattan Corp. before succeeding his mentor, Walter Shipley, as Chase supremo in 1999.

Now, nearly 40 years after cheerleading from the bench, Harrison is the head coach. And J.P. Morgan, which Chase acquired in a highly trumpeted $35 billion deal one year ago, has the makings of one awesome team, with $800 billion in assets, $43 billion in equity capital and 90,000 employees around the world.

It's a testament to his laid-back approach that Harrison remains overshadowed by some of the stars of the new team he has assembled; several are better known than their boss. Retail chief David Coulter is the former CEO of BankAmerica Corp.; investment banking co-head Geoffrey Boisi, a renowned merger banker, was one of former Treasury secretary Robert Rubin's key deputies at Goldman, Sachs & Co. Then there are the three Chemical executives who coveted but failed to get Harrison's job two years ago: Marc Shapiro, who ran Texas Commerce Bank before Chemical acquired it in 1986; investment banking co-head Donald Layton; and loan kingpin James Lee Jr., one of Wall Street's most charismatic rainmakers. Surprisingly, in an industry in which few CEOs like to share the spotlight with their former rivals, Harrison asked all three to stay. Perhaps even more surprisingly, they all agreed.

"Billy is a CEO who absolutely has his ego in check," says fellow North Carolina native John Mack, CEO of Credit Suisse First Boston and a golfing buddy of Harrison's. "He's a very competitive guy, but he's also gentle. He cares about people."

"Bill truly does think of himself as playing on a team where he doesn't necessarily have to be the only guy that excels," says Coulter, who knows firsthand about executive-suite infighting, having been pushed aside by Hugh McColl Jr. after NationsBank Corp. bought BankAmerica. "He thinks a lot about team dynamics, and you don't find that often enough in a leader."

Harrison will need all the teamwork he can get - his bank faces some daunting challenges. Already weakening before the the terrorist attacks of September 11, the economy has spiraled deeper into recession. That makes being one of the world's biggest private creditors a whole lot riskier than it used to be. Case in point: The sudden bankruptcy of highflier Enron Corp., which owes the bank nearly $2 billion, will shave Morgan's fourth-quarter earnings by $300 million, analysts estimate.

Moreover, years of acquisitions and mergers have made today's Morgan a patchwork of many firms with different cultures and overlapping businesses. These "heritage" firms, as insiders call them, must be integrated into a cohesive whole. The bank's most-senior team members can be a fractious lot. And Harrison still has gaping holes in the retail and equities sides of Morgan's business, as well as an unfolding nightmare in a once-stellar private equity operation.

Above all, Harrison must articulate a clear vision in the face of criticism that Morgan's strategy can seem to flit from one hot concept to the next. Just two years ago Chase loudly embraced the Internet. Then it let on that it would focus on becoming a dominant wholesale bank, possibly selling off its retail branches. More recently, with capital markets in disarray, it has longed to be a megabank like the sprawling, massively profitable Citigroup - to the point that it allows that it is now eyeing consumer banking acquisitions.

These inconsistencies have confounded some investors. At a price-earnings ratio of 11 times estimated 2002 earnings, Morgan shares trail well behind Citigroup's, which sell at a multiple of 15. All the powerhouse investment banks, like Goldman Sachs, Morgan Stanley and even the struggling Merrill Lynch & Co., sell at higher multiples.

"J.P. Morgan just seems to be getting hit by one plague after another. First, the capital markets go bad, then they take a huge hit from venture capital, now Enron is getting uglier for them by the day," says A.G. Edwards & Sons bank stock analyst Diana Yates. "Investors are sitting on the sidelines as a result."

All this represents a monumental challenge for a man who few ever thought would become CEO in the first place. Though Harrison was a superb delegator, some colleagues saw indecision and woolliness in his self-effacing style.

Yet once in power, Harrison put such misconceptions to rest, moving quickly to buy technology stock boutique Hambrecht & Quist Group and Robert Fleming Holdings, a money management and investment banking firm focused on Asia and Europe. He bought Beacon Group, Boisi's merchant bank, which counted Coulter among its partners - and shook up top management in the process by installing Boisi as co-head of investment banking, shunting aside his own protégé, Lee. Then, of course, he wasted little time snaring J.P. Morgan.

All in all, it was a series of swift, decisive moves that put in place the framework to build the megabank that Morgan aspires to be. Postmerger, Morgan wields undisputed market leadership in lending and continues to own a dominant derivatives platform, particularly in the lucrative area of credit derivatives. Its asset management arm is massive if undeveloped. Moreover, its bulked-up balance sheet has underwritten its credit-led push into investment banking, where it has shown impressive improvement in sectors such as merger advisory and investment-grade bond underwriting, competing head-to-head with pure investment banks like Goldman, Morgan Stanley and Merrill Lynch.

Indeed, Morgan's top executives strike a triumphant tone these days when they discuss the competitive landscape, boasting that a new paradigm favors deep-pocketed megabanks over traditional investment houses that won't - or can't - provide credit to their clients in addition to underwriting and advisory services. Morgan has scored some high-profile wins to back up the bluster. It co-led WorldCom's $11.4 billion bond offering in May, the largest ever by a U.S. issuer and one in which only the company's bank lenders were invited to participate as underwriters. It led a series of deals for Lucent Technologies after putting together a massive and desperately needed loan package for the struggling company in February. "If you look at the deals we've led - not just been a part of, but led - you see the power of this combination," says Boisi. "We have shown all year that we can compete with the Big Three across the board."

For all that, what Harrison has assembled remains a study in potential, not delivery. Shareholders probably won't recover for years - if ever - from the dilution of these mergers. Earnings are in a funk, down 41 percent in the first nine months of 2001 versus the pro forma total for the same period in 2000, largely because of nearly $1 billion in losses in the J.P. Morgan Partners private equity portfolio. Analysts expect further hits from private equity as well as increased charge-offs from bad loans.

"J.P. Morgan has the ingredients in place for success," says Bear, Stearns & Co. brokerage analyst Amy Butte. "But there's a lot of execution risk. Management doesn't have until 2004 to prove whether this works or not. They're going to have to show results in the coming year."

To Harrison's credit, he does not let pride get in the way of correcting bad decisions. The question is whether his extreme adaptability, his reliance on delegation and consensus, will prove a strength or a liability now that his firm faces adversity.

There is no doubting his intentions. "What I want most is to be part of a winning organization," says Harrison. "I don't have to be the savior. I don't have to be 'the guy.'"

BANKING RUNS DEEP IN BILL HARRISON'S BLOOD. He was born in 1943 into a prominent family in Rocky Mount, North Carolina, where maternal grandfather Frank Spruill founded Peoples Bank and Trust in 1931. Harrison's father, who also played basketball at UNC, worked for Peoples, now part of Centura Bank, before venturing into real estate development. He and Bill's mother, Kate Harrison, were active in Democratic Party politics. Billy Sr. was mayor of Rocky Mount from 1962 to 1964.

The Harrisons set high standards for their four children but didn't impose many rules. No curfews, no long lists of chores. "My dad and my mom both were very trusting," Harrison says with the mild drawl that has survived 35 years in New York. "They expected only the best behavior from us and trusted us to deliver. They taught us to have the confidence in ourselves to trust others."

An average student by his own admission, Harrison transferred after his junior year from Rocky Mount High School to the prestigious Virginia Episcopal School, where he hit the books and won the school's Big Brother award for mentoring younger students. "Billy was just the biggest star ever to come to VES," says Erskine Bowles, who was chief of staff to president Clinton and now is a candidate for U.S. Senate from North Carolina. Bowles met Harrison at VES and roomed with him at UNC and later in New York. "Nobody was too small or unimportant for Billy to spend time with."

Harrison enjoyed a similar respect among his peers at UNC. "Every day in practice he competed like it was a game situation," says former teammate Cunningham. "He just took great pride in being a part of the team, and everyone had a great deal of respect for him. He was definitely more studious than the rest of the guys on the team, but if there was a good party, Billy was there."

Back home in Rocky Mount, Harrison remained a local hero. "I remember when I was a teenager, playing basketball in his backyard," says Wachovia Corp. CEO Kenneth Thompson, who grew up in the same West Haven neighborhood, seven years Harrison's junior. "He'd come home from Carolina and shoot baskets with us young kids, and we'd think it was the greatest thing in the world."

Young Billy worked summers for his grandfather at Peoples Bank; Spruill encouraged his grandson to head up to New York after college, train with a big bank and return to run the family business. "I always had in the back of my mind that I would return to North Carolina," Harrison says. "That lasted for, oh, 15 years." But he had fallen in love with New York.

He made powerful friends early. In 1969 he was plucked from Chemical's credit training program by Walter Shipley, then head of wholesale banking for the southern U.S., to work as a corporate loan officer. Harrison learned quickly and was a nice fit both with Chemical's culture and with Shipley's own inclusive style. With similar easygoing personalities, the two towering former college basketball players (Shipley played his ball at Williams College) got on well. Says Shipley: "My approach probably did influence Bill somewhat. But it was also a natural fit with his personality."

In the mid-1970s he was put in charge of Chemical's modest corporate loan office in San Francisco. In 1978 the bank's senior management decided to assign Harrison to oversee retail and middle-market operations for Rockland and Westchester Counties in New York - a standard move to expose a rising executive to the bank's different lines of business. But Shipley got Harrison assigned to London as general manager of the firm's corporate operations there.

It was a huge and unexpected promotion for a commercial banker in his mid-30s, and a risky decision by Chemical. Harrison, who had 15 employees in San Francisco, suddenly found himself commanding 1,200. Many of them didn't like each other and resented reporting to a wet-behind-the-ears boss. To break through the conflict, Harrison sequestered a small group of his subordinates in a hotel outside London for a three-day retreat with a corporate psychologist. "For the first session we spent 12 hours in a room together, and the rule was you could only talk about what you didn't like about people," recalls Harrison. "We got everything out in the open, established trust in each other and were able to move forward from there as a team."

Harrison's style is long on compliments and consensus, short on command and control. He gives executives books like Daniel Goleman's Emotional Intelligence as part of performance reviews and hires development coaches to mediate conflicts. And he can deliver bad news with a rare tact. Shortly after removing Lee as co-head of investment banking, he told him that he needed to smooth his rough edges. The mercurial Lee, who had his choice of top jobs on Wall Street but chose to stay at Morgan, professes to appreciating Harrison's advice: "Bill said to me, 'Look, you've got to have more patience with that other person in the meeting who doesn't get to the answer as quickly as you do.'"

Of course, Lee has good reason to listen to his boss: In 1985, four years after Harrison returned from London to head Chemical's U.S. corporate bank, he tapped Lee, just back from the Far East, to lead Chemical into the syndicated lending business. Against steep odds - Chemical began as a bit player - Lee, with Harrison's support, built a dominant force in the market.

That success helped catapult Harrison as well. By 1987, four years after Shipley became CEO, Harrison was running global lending and corporate finance; three years later he was named vice chairman of the board.

It was at that time that Shipley and key advisers like Harrison decided that the bank needed to get bigger - in a hurry. In 1991 Chemical merged with Manufacturers Hanover, the first of three deals that in one decade would transform the company from an also-ran to a top-tier global bank. Both Chemical and Manufacturers were reeling from emerging-markets loan losses and needed greater size to survive. The combination also supported Shipley's nascent vision for building a dominant wholesale bank: Achieve scale in lending first, then use that power to move in on higher-margin investment banking business.

Shipley's approach to merger integration grew out of his experience as an employee of the former New York Trust Co., which had been acquired in 1959 by Chemical. In the acquisition Chemical had run roughshod over New York Trust and its employees. "There were a lot of bad feelings associated with that deal," recalls Shipley. "Everyone really felt as if they had been taken over, with no regard for their feelings or ideas, rather than asked to help build a new organization. And it hindered us for years."

In the bargaining that accompanied the Manufacturers deal, Harrison secured the top job of overseeing the combined wholesale businesses of the two banks, and a Manufacturers executive won retail. Characteristically, Harrison managed to befriend the Manny Hanny crew.

One of the executives Harrison beat out was Mark Solow, who had co-headed investment banking at Manny Hanny with Layton, who serves as co-head at Morgan today. "Bill was regarded, rightly, as very bright and very talented and a great team player. I enjoyed working for him tremendously," says Solow, who reported to Harrison for three years after Chemical acquired the bank but left after butting heads with Lee.

The Chemical-Manufacturers merger revitalized both institutions and created a new power in syndicated and leveraged lending. Harrison tried to keep the peace in the midst of upheaval and earned a reputation as an appeaser. Says one former executive, "There was a perception that he wanted everyone to like him and the decisions he made, and that that sometimes hindered him from taking action."

Next on Chemical's radar was Chase, which had nearly merged with BankAmerica in 1995. The 1996 merger with Chase gave Chemical the capital and scale to expand its market leadership in areas like fixed-income trading and syndicated lending. The new firm's market share in syndicated loans climbed to 31 percent in 1999, up from 20 percent at the time of the deal with Chase. As the executive overseeing this lucrative expansion, Harrison was riding high. Despite the nagging perception that he was perhaps too much of a consensus builder and not enough of a decision maker, by the time Chemical had merged with and taken Chase's name, Harrison appeared the odds-on favorite to succeed Shipley.

Harrison himself never overtly campaigned for the job. "Billy has never been the kind of guy who sought the next job up," says Bowles. "I don't think Billy really cared if he got the top job."

As Shipley neared retirement age, the succession issue became more complicated. Late in 1997 Shipley reorganized the bank, elevating a number of other contenders for CEO to vice chairman alongside Harrison; they included Lee, Layton and Shapiro, who was recalled from Texas, where he was running local bank operations, to take over as CFO. Some even thought that Shipley had tapped Shapiro as his successor. The new Chase was ungainly and needed spending discipline.

An additional complication arose when Shipley announced in a famous memo that he was designating bank president Thomas Labrecque, the former CEO of the premerged Chase who was widely considered to be on his way out, as his equal. This move, coming at the same time as the reorganization, muddied Harrison's path to the top. But a year later, in July 1999, the board named him CEO.

Harrison began using his fabled team-building skills immediately. He reached out to Shapiro, a talented manager who is widely respected by investors but considered too brusque by some colleagues. Shapiro agreed to stay.

"From the time Marc joined the firm in 1987, we quickly became both business and personal friends," says Harrison. "We talked about it at that time. I would have been comfortable working for him, and he told me he'd be comfortable working for me."

Shapiro concurs: "Bill is extremely apolitical, as I think I am. Neither of us felt that it was our only ambition in life to become CEO of the bank."

ONCE ON TOP AT CHASE, HARRISON MOVED aggressively to achieve the vision he and Shipley had crafted for decades at Chemical. He quickly addressed one of the bank's weaknesses, its lack of technology banking, by acquiring Hambrecht & Quist for $1.2 billion in September 1999. By the fall of 2000, he had spent $44 billion, in cash and stock, to cement three more deals, culminating with the J.P. Morgan acquisition, firmly establishing the modest bank he had joined 35 years ago as one of the few likely survivors in the world of global financial services.

The combined J.P. Morgan Chase positively dominates the corporate loan market, with a 37 percent share, according to Loan Pricing Corp., and has a commanding presence in the derivatives markets, particularly in complex structured products. It provides corporate clients with a full range of wholesale offerings, including custody, trust and cash management services, that more-focused investment banks lack. It's debatable whether getting all of these services from one provider matters to corporations, but they clearly long for the capital and lending capabilities Morgan can bring to the table. Without similar resources, Morgan executives believe, the traditional investment banking powers will lose their dominance. "Bigger is not better," says Lee. "Bigger is absolutely mandatory."

Morgan has used its balance sheet to improve its standing in merger advice and hopes to do the same in stock offerings, long dominated by firms like Goldman Sachs and Morgan Stanley. The merged firm gained market share while retaining its No. 2 ranking in underwriting investment-grade bonds. And thanks to such megadeals as Comcast's $44.5 billion merger with AT&T Broadband, Morgan vaulted to fifth in 2001 in the merger-advisory league tables; in 2000 the old J.P. Morgan finished tenth and Chase 12th.

But Harrison's deal making suffers some decided drawbacks. The moves, particularly the J.P. Morgan acquisition, were strategic bets, not immediately shareholder-friendly, and all were done at the top of the bull market. Moreover, Harrison didn't get all that he wanted or needed from the acquisitions, and much work remains to be done in integrating the pieces. Morgan wants to be a megabank like Citi, but it hasn't invested as aggressively in its consumer business - one reason it's underperforming its crosstown rival in the wholesale banking slowdown. And although the mergers created an enormous money management arm, with some $630 billion under management, the operation is a poor performer. "They are not doing as good a job as they could," sums up Merrill Lynch bank analyst Judah Kraushaar. "Typically, you like to see 35 to 40 percent margins in that area, and they're at about 15. They've got to demonstrate that they can grow assets."

Add it up, and it's clear that the new firm has not yet come close to achieving what was hoped for. In the third quarter of 2001, for example, Morgan earned $449 million, compared with $468 million for Goldman Sachs, $735 million for Morgan Stanley and $422 million for Merrill Lynch - all much smaller firms. It does even worse compared with the whopping $3.26 billion returned by Citigroup, its main competitor as a one-stop shop for corporate financial services: Citi has weathered the bear market and recession far better because of its aggressive expansion in consumer finance as well as wholesale.

The reasons for J.P. Morgan Chase's weaknesses are complex. Start with bad timing: The merged firm's inaugural year has been one of the worst in memory for investment banking. The wholesale banking vision Harrison developed in more prosperous times now confronts an entirely different reality. M&A activity is off 50 percent from 2000, according to New York research firm Dealogic, while issuance of new shares is down 20 percent.

Harrison and other senior Morgan executives argue that the tough economic times are a blessing in disguise. Their firm is better capitalized than most of its rivals and is using its new muscle to develop relationships with companies like Lucent Technologies and Motorola that need credit to weather the storm. Morgan plans to be well positioned when markets and the economy finally recover.

But the flip side is the credit risk posed by the recession that has followed on the heels of the technology and telecommunications bubbles. Indeed, in a recent report on the banking sector, Lehman Brothers bank analyst Henry (Chip) Dickson says that of the major U.S. banks, Morgan is the most susceptible to losses related to declining credit quality (though he still rates it a strong buy).

Losses stemming from defaults and bankruptcies are inevitable and rarely cause big banks to go bust. Morgan will likely wind up writing off a few hundred million dollars because of its involvement with Enron. That's a black eye, not least because the bank had to publicly restate the magnitude of its exposure to the energy trading giant. But it's hardly a fatal blow. "The corporate loan market is not going to just go away because of this," says risk management head Shapiro. "But will it change people's perception of risk? Sure."

Harrison, a wholesale banker his entire career, put Coulter in charge of all consumer businesses and in August tucked money management into his big, bulging portfolio as well. Coulter knows he has a job to do with these problem children. He allows that "a lot of time has been spent over the years here in building up the corporate bank, on what it takes to win in the wholesale market, which is pretty clear. But not that much time had been spent on retail, and that's a harder solution."

But even the wholesale operation has some gaps in the wake of the mergers. It's strong in structured products like equity derivatives but lacks anything that compares with the equities platforms of premier investment banks like Goldman Sachs and Morgan Stanley.

Before the merger Chase had only a tiny presence in issuing and trading stocks. It had gained this by acquiring Hambrecht & Quist and Flemings, which did a small bit of securities business in Europe and Asia. The bank pursued mergers with Merrill Lynch and Morgan Stanley that would have covered all business lines, but in the end neither could be convinced to do a deal.

By 2000 the premerger J.P. Morgan had clawed its way to a seventh-place finish in the stock underwriting rankings. And marriage hasn't helped much, so far. Together Morgan and Chase actually fell to eighth in 2001 - taking a thinner slice of a smaller pie.

Institutional brokerage, the other revenue pillar for Wall Street equities operations - and often a key to winning more underwriting mandates - isn't faring much better. Despite combining the trading desks of J.P. Morgan Securities and H&Q, the new firm through the first nine months of last year hadn't budged from its 2000 position in volume rankings compiled by Boston-based AutEx/BlockData: 12th in New York Stock Exchange stocks and 17th for Nasdaq issues.

Harrison didn't seem to think much of Morgan's equity platform, either. In mid-2000 he recruited Steven Black, a bond market veteran who had briefly run equities at Salomon Smith Barney, to head Chase's small equities businesses. After the J.P. Morgan acquisition, Harrison passed over a number of that firm's executives to retain Black as head of the now much bigger business. Several veteran research, sales and trading personnel from the old J.P. Morgan, including that firm's global stock research head and two senior equity trading officials, have either been fired or have left the firm since the merger. Sources say that all clashed with Black.

"We had four or five different organizations to put together, we all knew the goal was to build a bulge-bracket firm, and the only way to do that is to be realistic about what you have and what needs to be done," says Black, who points to recent hires as evidence that Morgan is bolstering its equity business significantly. Among them: longtime Donaldson, Lufkin & Jenrette supersalesman James Ancey, who joined in August as head of sales from Credit Suisse First Boston, and Mino Caposella, who had been co-head of equities at Goldman Sachs, to oversee the equity sales and trading operation.

"You can't just look at the IPO league tables and say, 'Where is our business?' They are a lagging indicator," says investment banking co-head Boisi. "Our backlog right now is full of lead-manager and book runner mandates."

Among the biggest problems Harrison faces is the continued difficulty of integrating not only the old J.P. Morgan and its proud, white-shoe culture but also the remnants of the three other firms Chase acquired before the merger. Like Shipley before him, Harrison has tried to make the integration quick and consultative. But the process has been bloody. The bank laid off 8,500 people last year, nearly tripling its original target for merger-related cuts because of the downturn in business. Just two executives from the old J.P. Morgan - technology chief Thomas Ketchum and Walter Gubert, chairman of the global investment bank - remain on the combined firm's executive committee, down from four when the merger closed. Longtime J.P. Morgan chairman Douglas (Sandy) Warner III announced his retirement in September.

"The hard part is trying to create a culture and a value system that's homogeneous," says one former J.P. Morgan executive who left earlier this year. "People there still identify themselves with their heritage organizations. And they're watching thousands of colleagues they spent years in the trenches with get shot."

Sources say that many former J.P. Morgan executives, as well as members of the rank and file, have had a hard time blending into what they see as the old Chemical Bank. A common gripe, that most top jobs went to Chase people, is one that Harrison doesn't have much time for. "When Sandy and I sat down to talk about the organizational structure of the new firm, it became clear that because we were two and a half times bigger, because we had been through a lot of mergers, we had more people who were seasoned," he says. "So a year later it's not surprising that a lot of those people who reported to Sandy are no longer here."

Tactically savvy, Harrison has avoided naming a No. 2, giving all of his top team members a direct line to him - as well as the hope that they will be tapped as his successor. At some point the team may turn rebellious, and some outsiders are gently pressuring Harrison to begin thinking about succession plans.

And tensions are simmering behind the team's game face. The uneasy relationship between Boisi and Layton has been the subject of much talk. People familiar with the matter say the two barely communicated during the early months of the merger, forcing former J.P. Morgan investment banking chief Clayton Rose to act as a go-between. (Rose, who left the firm in February, declines to comment.) Both Harrison and the pair's subordinates made it known that the situation needed to improve.

"You can't merge these huge businesses and take people who have never really worked together and cram them into a wonderful, easygoing relationship," says Black. "The trick is being willing to acknowledge in what areas the relationship needs improvement and going right at them, which I think they're doing a great job of. It's not a taboo subject."

Boisi and Layton say they have been working to improve their coordination. "We are both on the road so much that communication can be difficult," says Layton. "But we manage, through voice mail, e-mail, delegating. We're working on it."

Adds Boisi: "Don and I have very different personalities, but we agree on 95 percent of the issues. My anticipation is that we'll be working together for a long period of time."

Meanwhile, there are indications that Lee is making a comeback while Boisi and Layton struggle with their co-head relationship. People inside the bank point to the weekly meetings Boisi and Lee each hold to discuss strategy and tactics and ongoing and pending transactions. "At Geoff's meeting the attendance is so-so. But at Jimmy's meeting you've got all kinds of people showing up from throughout the firm," says one person who has attended both. "They love him. Jimmy has the loyalty not only of the people who have worked for him for years but also of the J.P. Morgan bankers who just joined the firm. Geoff has the loyalty of the old Goldman people who followed him to Beacon. They'd fall on a hand grenade for him. But the old Morgan guys don't like him because he doesn't have the people skills that Jimmy does."

Managing such cultural and personal tensions while defining a clear identity for the firm will preoccupy Harrison as he drives Morgan to its appointed goal: to be all things to all customers.

He has spent heavily to acquire the tools to implement the strategy. Now he must get his firm to execute. That's never easy. Citigroup, though almost universally lionized now, was a mess for almost two years following the megamerger between Travelers Group and Citicorp.

For Harrison, the secret to competing more effectively is to forge a common culture. Shaping the attitudes of his people, getting them to work together and feel good about it - what he and his disciples collectively refer to as the "soft stuff" - is his No. 1 priority. "The soft stuff is the hard stuff," he and other Morgan executives recite like a mantra. The CEO notes: "We've spent a lot of time doing deals to get the platform in place. The key to taking the firm to the next level is taking care of the people factor."

Part of this process is simply airing out differences, as Harrison learned to do in London two decades ago. Says Black, "If you create a culture where people can yell and scream and stick their fingers in each other's eyes and all come out in the same place, it works much better than when you allow rumors and issues to fester."

Harrison continues to use off-site retreats and training as a way to encourage bonding and team-building among the ranks of his managers and employees. "Two is better than one when two can act as one," Duke University coach Michael Krzyzewski told Morgan managers at the October retreat in Greenwich, Connecticut, using a line he recites at the start of each season for his players. Recently, Harrison enlisted the help of General Electric Co.'s legendary ex-CEO, Jack Welch, who is working closely with Lee and other executive committee members to set up a training institute for Morgan executives in the former DLJ building across the street from Morgan's Park Avenue headquarters. It will be patterned after GE's famous Crotonville, New York, complex.

"He's a good leader. He's decisive and firm," says Welch of Harrison. "He has the seeds of a great culture in place, and I just hope I can help him get there."

People within the firm say the September 11 terrorist attacks were an unexpected accelerator of the cultural integration process. With some 3,000 employees located in lower Manhattan at that time (two of whom perished), Harrison raised his profile inside Morgan. He organized a series of town meetings and has continuously updated employees with e-mails and voice mails. He received an overwhelmingly favorable response from employees.

"I think Bill realized that people appreciate seeing his face and hearing his voice, not only after September 11 but all the time," says private equity chief Jeffrey Walker. "The feeling of togetherness that engendered is very real."

Bill Harrison never sought the top job, but it came his way. So far a combination of levelheaded drive, a commitment to teamwork and a fair amount of luck have served him - and his bank - well. The role player who was content to cheer from the bench is now the head coach. And he must not only draw up brilliant plays but motivate his team to execute them.

"Bill was a good player," says Dean Smith. "But we weren't sure about him, and I told him that from the start, when we were recruiting him."

Nearly four decades later Harrison must erase any such doubts from the market.

Many things ventured, much lost

During the dot-com boom, few banks embraced the easy riches of venture capital investing as tightly as J.P. Morgan Chase & Co.

The company had a private equity investing group since 1984, but the unit maintained a low profile, specializing primarily in middle-market leveraged buyouts. That changed during the late 1990s Internet finance explosion, when Chase Capital Partners, as it was known, became one of the most aggressive providers of venture capital to dot-com and telecommunications start-ups like Stamps.com, StarMedia Network and TheStreet.com.

With the IPO slot machine ringing up jackpots daily, Chase touted the unit as an engine for earnings growth. Now, of course, many of those highfliers are either defunct or in serious financial trouble, and Chase has merged with J.P. Morgan & Co. Few banks are suffering more from the collapse.

Indeed, from the beginning of 1998 through the middle of 2000, venture capital accounted for $2.79 billion, or 19 percent, of Chase's total earnings. But since then the venture capital unit has been an $867 million drain on earnings, at a time when the rest of the bank is struggling because of tepid underwriting and merger activity.

"We took our hits like everybody else did this summer," concedes Jeffrey Walker, managing partner of J.P. Morgan Partners. "It reemphasized that we need to stick to our targets for diversifying our exposure to different sectors. We don't want to have more than 30 percent of the portfolio in any one sector. In the '99 and 2000 period, we got away from that, and it hurt us." He attributes some of the problems to portfolios the bank acquired in deals. "The J.P. Morgan portfolio was 46 percent tech and telecom, and Hambrecht & Quist was all tech investments. So when we combined those with the old Chase portfolio, all of a sudden by averages you're higher than you want to be," he says.

There will likely be additional write-offs, though not on the order of the $1 billion recorded in last year's second quarter. "Our view is that there is no longer a systemic risk in the portfolio that would warrant the kind of massive adjustment we had in the second quarter," says Walker.

Moreover, J.P. Morgan Partners wants to move to a business model that more closely resembles traditional, independent private equity shops, which raise most of the capital they invest from third parties and earn income from charging management fees rather than by putting large chunks of their own money at risk.

But that may be easier said than done. One year ago the unit began raising a new fund, targeted for $13 billion, with $8 billion set to come from the bank and - for the first time - $5 billion from outside investors. Then the climate changed. The bank now has agreed to commit $6.2 billion over five years. And outside investors have kicked in only $825 million, according to a recent regulatory filing. Sources say that the target size for the fund has been reduced to $9 billion and that the bank is relying more heavily on investments from its own private banking clients and less upon the pension funds and endowments that private equity firms typically pursue. (Securities regulations prohibit the bank from commenting on current fundraising activities.)

"With private equity, J.P. Morgan is stuck between a rock and a hard place," says Merrill Lynch & Co. bank analyst Judah Kraushaar. "It's a big business, and they can't just make it disappear. They're going to have to keep riding this down until the cycle turns and they can start to benefit from a turnaround." - J.S.