JPMorgan has clutch of CEO understudies, people guessing on winner

[November 19, 2016]  By David Henry

NEW YORK (Reuters) - JPMorgan Chase & Co is once again facing questions about who will succeed its larger-than-life chief executive after Jamie Dimon was courted by the incoming U.S. president for the role of Treasury secretary.

Dimon, 60, has been running the largest U.S. bank for more than a decade and has faced questions about his longevity in the role before: when potential successors left, when he allowed an embarrassing $6.2 billion derivatives trading loss and, most recently, when he was diagnosed with throat cancer in 2014.

Although associates have said Dimon is not interested in the Treasury job, the recent invitation from a member of President-elect Donald Trump's transition team to apply for the job was a reminder to interested parties, including some investors, that his time at the helm is finite.

"He is not going to be CEO forever," said Walter Todd, chief investment officer at Greenwood Capital Management, which owns JPMorgan shares.

Although a sudden departure would not necessarily lead the investor to sell the stock, it would be "troubling," Todd said. "I would have to gain some comfort with who was taking over that role."

Dimon will not be easy to replace. He has won a higher valuation for JPMorgan stock than rival banks by shepherding it through the financial crisis without any quarterly losses, while earning relatively high returns on equity and explaining the workings of the bank to analysts as though he were a demanding business school professor.

He has been quick to point out that the JPMorgan board has a succession plan in place, whether he departs abruptly due to unforeseen circumstances – known colloquially as a "hit by a truck" scenario – or whether he takes part in a more gradual transition. The board does not publicize those plans. Doing so could prompt executives who are not the favorite to leave.

There are six key members of Dimon's management team who are often mentioned in discussions about succession. They range in age from 46 to 58, with the older executives seen as "hit by a truck" contenders, and younger ones thought to be potential CEOs-in-training.

Each has some qualities Dimon has identified as necessary for the next CEO – like moving through senior roles in different parts of the company, having experience with the investment bank, or having the temperament to be the public face of JPMorgan – but none clearly has them all.

JPMORGAN'S GOT TALENT

Gordon Smith, a 58-year-old Briton with computer science training, is chief executive of the consumer bank. He runs nearly half of JPMorgan, including Chase branches, credit cards, mortgages and auto loans.

Dimon hired him from American Express Co in 2007. Although Smith has many of the skills needed to be CEO, he is close enough to Dimon's age that insiders see him as an unlikely long-term candidate.

Daniel Pinto, 53, who oversees corporate and investment banking, is also on the succession shortlist.

Dimon has entrusted Pinto with running the most volatile part of JPMorgan and dealing with the biggest corporate clients. A native of Argentina, Pinto spends much of his time working from JPMorgan's London office.

JP Morgan CEO Jamie Dimon speaks at an event at JP Morgan's corporate centre in Bournemouth, southern Britain, June 3, 2016. REUTERS/Dylan Martinez/File Photo

Doug Petno, who runs commercial banking, is another possible contender. With $212 billion in assets, his segment of the company is bigger than all but a handful of competitors. The 51-year-old came up through the ranks as lender and investment banker to the oil and gas industry.

Mary Erdoes, 49, who runs asset management, is also said to be in the running. Erdoes keeps a relatively low public profile as she travels the world to cater to the richest clients.

Chief Financial Officer Marianne Lake, who is 47, is also floated as a possibility. Lake already has a high profile, because she handles public presentations of the bank's financial results each quarter and has shown she can be as dextrous with numbers as Dimon.

But while Lake is known internally for grasping the details behind summaries she receives from business heads, she has not run any of JPMorgan's units day to day.

Chief Operating Officer Matt Zames is the youngest contender, at 46. In his role, he has the advantage of learning all segments of the bank from the inside out.

Dimon turned to Zames in early 2012 to clean up the portfolio of the bad "London Whale" derivatives trader that was costly not only in dollars but in reputation. Zames came from fixed-income trading, and has worked through financial crises going back to 1998.

'I DON'T WANT TO RETIRE'

Dimon has said JPMorgan has a "deep bench" of talent, with several people who could take over. But he has been careful not to clearly show favorites.

When all goes right with succession plans, companies tend to announce a few months ahead of time that their leaders will be relinquishing the CEO title to a successor but remain on the board as chairman for a smooth transition. During the interim, other executives in the horse race tend to peel off, letting up-and-comers take over their own roles.

JPMorgan has resolved nearly all of its major legal investigations. Dimon received a clean bill of health after undergoing cancer treatment. And, apparently, he has no plans to join Trump's cabinet. So unless an unexpected event forces his hand, Dimon may not feel compelled to tell investors who is next.

"My retirement date, every time you ask me that, I'm going to say five years," Dimon said in response to a question last year. "I don't want to retire."

(Reporting by David Henry in New York; Editing by Lauren Tara LaCapra and Bill Rigby)

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