Cynthia Johnson
Lew Preston , chairman and CEO of JPMorgan in the 1980s .
Dennis Weatherstone succeeded Preston as chairman and CEO of JPMorgan in 1990 .
Preston ’ s goal was to turn Morgan into a “ universal bank ” that could offer both wholesale banking and investment banking services . However , he had to navigate around regulatory barriers until Glass- Steagall restrictions were relaxed . Meanwhile , Morgan Guaranty Limited ( MGL ) in London was used as the launch pad for the bank ’ s forays into securities and investment banking .
The decision to build rather than to buy capabilities in these areas was a formidable undertaking . First , it meant that bankers who were adept at assessing credit risk would now have to become trained to become equally astute at understanding how capital markets functioned . This was a tall order for seasoned bankers . Second , it was questionable how well bankers and traders would interact and whether Morgan ’ s ethos of team spirit could be maintained . Third , compensation for investment bankers was considerably higher than for commercial bankers , and outside hires commanded a premium to existing employees , causing some friction between the two groups .
Nonetheless , Preston was determined to move forward while preserving Morgan ’ s culture . He was equally adamant that Morgan should not enter retail banking . Therefore , when Gerald Corrigan of the New York Federal Reserve presented an opportunity to acquire a 10 % stake in Citibank in 1990 , both Preston and Weatherstone rejected it .
The pair also passed on several opportunities to expand Morgan ’ s expertise in asset and wealth management and global custody , which would have enabled the firm to capitalize on the boom in wealth creation during the 1990s . Instead , Morgan became increasingly dependent on volatile trading revenues , which left it vulnerable .
The enigma is how Preston could be so decisive in handling crises and yet be very indecisive — almost Hamlet-like — when making strategic decisions . According to one high-ranking Morgan executive , the LDC debt crisis changed his leadership style and demeanor . Previously , Preston was tough and self-assured . During his rise to the top he swept competitors aside while pursuing a dual strategy of international expansion and an end to restrictions imposed by the Glass-Steagall Act . After the LDC debt crisis , however , he turned cautious and less decisive about the path Morgan should pursue .
Simply stated , the thesis is that Preston never recovered his panache after Latin America . Worried that somehow he might dishonor the mantle he had inherited from the 20th century ’ s most storied franchise , he deliberated long and delayed
taking strategic decisions until opportunities to acquire businesses had elapsed .
One challenge in assessing this hypothesis is that Preston and most of his colleagues are no longer alive to confirm or reject it . Also , as a Marine and member of the “ Finest Generation ,” Preston was “ painfully reticent ” speaking about his accomplishments .
Looking back on his tenure as Morgan ’ s leader , Preston is widely recognized for successfully navigating the bank during the tumultuous 1980s and for laying the foundation for its transformation into investment banking and the world of securities . During his tenure , Morgan far surpassed all of its rivals in profitability and share price performance , and it was the only US bank to retain a coveted AAA rating . In Sebastian Mallaby ’ s words , “ Morgan was the country ’ s pre-eminent bank , and Lew Preston was the country ’ s pre-eminent commercial banker .”
Still , while this was the legacy that Preston passed on to his successors , only time would tell whether his strategy of expanding into the world of securities de novo would leave Morgan well positioned for the future .
When Sandy Warner became CEO in 1995 , the tables had turned , and Morgan went from being the hunter to the hunted . Rival banks that had been burdened by bad loans to developing countries and commercial real estate capitalized on rising
www . MoAF . org | Fall 2020 | FINANCIAL HISTORY 29