Peter Cherasia, JPMorgan's CIO, describes how the failure of Bear Stearns in early 2008 almost caused him to quit the industry. By Anthony Malakian
Twenty-three years at Bears Stearns, seemingly wiped out in a week. It was Sunday night, March 16, 2008, and Peter Cherasia got into his car to begin the hour-plus drive back to his home in Rumson, New Jersey, from midtown Manhattan. Bear’s board of directors had agreed to sell the storied firm to JPMorgan Chase & Co., and Bear Stearns would be no more. He was emotional. Even depressed.
It was a grueling week as Cherasia, who ran technology and operations at Bear, and his team spent the week trying to plug the holes of a rapidly sinking ship. Being on the management and compensation committee, he saw every detail of the failure: Customers were withdrawing their funds as there was a run on the bank; there were increased collateral calls; firms were demanding additional margins on trades that Bear had against them; and the US Federal Reserve and other institutions were examining the firm with a fine-toothed comb. Near failure and then, finally, merger. It came at a great cost as numerous talented people lost their jobs and much of their life’s savings.
After an experience like that, Cherasia thought that he had had his fill of the investment banking industry. Numerous suitors on Wall Street came calling, and he told each one the same thing: “Thanks, but no thanks.”
The plan was to head down to the Caribbean with his family, do some fishing and relaxing to collect his thoughts and recharge his battery. After being involved in the run-up to the collapse—the meetings, endless nights, constant worry and emotional distress—it was time for a break from Wall Street. Or so he thought.
Over the course of the next few weeks, as Bear and JPMorgan moved to fully close the deal, he kept having regular conversations with JPMorgan’s CEO Jamie Dimon, co-heads of investment banking William Winters and Steven Black, and chief administrative officer (CAO) Frank Bisignano. Each one continued to express his desire to have Cherasia stay on with the newly expanded JPMorgan.
He can’t remember now who said it, but someone asked: “What’s the worst that can happen? Join JPMorgan and you will learn a little bit about mergers.”
That was an understatement. Finally, after nearly throwing in the towel, Cherasia relented and joined JPMorgan. Two years later, he is working on his fourth major merger integration.
Changing a Tire at 75 MPH
Cherasia learned right away that in order to successfully manage technology and operations through a merger, you have to plan out the work and work your plan. This is a motto he now lives by. And despite the sour taste left in his mouth in the aftermath of Bear’s epic collapse, he has gotten a rush out of being the head of technology, operations and real estate for JPMorgan’s investment bank.
“We are investing $1 billion a year and solving the world’s most complex financial problems. What’s happening at JPMorgan is more exciting, I think, than anywhere else,” he says.
Coming from a small firm, he rarely got to do a major integration. Now he has four under his belt: First was Bear Stearns. Next, JPMorgan nabbed UBS Commodities Canada and UBS AG’s global agriculture business in December 2008. Then, Cazenove Group was acquired in November 2009. Finally, RBS Sempra was acquired in February and the deal will be closed later this year.
One major merger can be a daunting task, rife with pitfalls, says Robert Iati, partner and global head of consulting at research firm Tabb Group.
From a technology perspective, Iati says things can go wrong in three major ways. First, there is a rush to tell customers that you are officially one firm and long-term technology upgrades are shelved. Second, if you get bogged down in an integration project, technological innovations pass you by and you wind up playing a perpetual game of catch-up. Third, you get so focused on cutting costs that all your time and money goes into the integration and nothing is left for development.
Iati says, however, that JPMorgan has become adept at staying focused and not getting lost in the minutiae of a merger.
“These things are enormous and labor-intensive, but JPMorgan has become quite good at it simply from practice,” Iati says. “They are very efficient in their integration process.”
The first hurdle was moving more than 600,000 derivatives trades from Bear over to JPMorgan’s platform. Cherasia calls it “the largest risk migration in the history of the planet.” Despite the fact that Bear Stearns was relatively small compared to the other major investment banks, it had large concentrations in fairly esoteric products.
Carlos Hernandez, global head of equities for JPMorgan, says Cherasia acclimated quickly and got the trades to JPMorgan’s platform in just 18 months—faster than expected.
“With everything that was going on in the marketplace in 2008 and 2009, I would say it was the equivalent to changing a tire on a car going 75 miles per hour on the highway,” Hernandez says. “It was a fantastic achievement and that was under Peter’s leadership.”
Old Problems, New Platform
From there, Cherasia and his team replaced the securities clearing and settlement platform at JPMorgan and built one core processing platform across the entire firm.
The challenge the firm now faced was that many of its systems and platforms were never properly reengineered and streamlined because the firm continued to roll on from merger to merger—recall, of course, that the behemoth now known as JPMorgan Chase & Co. came about from many smaller institutions merging, well before Bear Stearns was ever acquired. There were a good deal of legacy platforms left over from previous acquisitions, which meant that a large amount of clearing out was required.
Historically at JPMorgan, each business division has tended to its own technology and operations from front to back, so commonalities and synergies between silos were not always captured.
“One of the things that we didn’t do properly was take a step back and say, ‘OK, what kind of platform do we want to build on for the future?’” Cherasia says.
So after Cherasia came in, the firm worked on its governance issues. “The first thing we did was spend a lot of time thinking about what kind of governance we wanted to employ,” he says. “We had to put the right models in place and put the right people in the right seats.”
Next was getting technology and operations to function as a unit, which was not the case pre-Bear. “We didn’t fully recognize or leverage the collective intellect of the teams,” Cherasia says. “It was mainly about short-term execution as opposed to building the best technology and operations platform that we could use for the future.”
Once governance was in line and the people were properly situated, Cherasia decided to make his big pitch to build a single core-processing platform. At the bottom of the cycle, when firms were cutting staff by as much as 30 and 40 percent, CEO Dimon and CAO Bisignano—who had talked Cherasia into staying on with the firm—gave Cherasia $50 million to improve and upgrade the infrastructure of JPMorgan’s global equities business. Cherasia knew the equities franchise had all the products, but with better integration, there was a lot more leverage to be gained with improvements in the cash order management systems (OMSes).
So Cherasia made a proposal, suggesting that the right thing to do was to build a platform, rather than retrofit old systems that originally came from predecessor firms including Flemings, Chase, Bear Stearns and legacy JPMorgan.
“I’m not sure why, but I was kind of surprised when they said, ‘Yeah, that’s the right thing to do,’” he says.
Under Cherasia, JPMorgan now has a dedicated technology budget for operations. It has also expanded into prime services, fully disclosed correspondent clearing, broker-dealer services and high-net-worth retail businesses, Cherasia says.
In addition to eliminating redundancies and costs, the single platform has allowed for greater straight-through processing (STP), end-to-end ownership of resources along business lines, and level stratification of having a common architecture across the organization.
The next stage will be to take JPMorgan’s 10 major derivatives trading platforms and reduce that number to two: one for fixed income and one for equities. As part of this overhaul, Cherasia says the most pressing issues facing the firm are creating an environment of managing to metrics and not aspirations; growing its cash equities business in Asia; removing 52 legacy platforms, which have an average age of 18 years; and, of course, not making any mistakes that cost money.
According to an executive who has worked with JPMorgan but asked not to be named due to a confidentiality agreement, JPMorgan is very big on one fact: If they can do it themselves, it must be better and cheaper, and they should not outsource anything they can do better by staying in-house—otherwise, they shouldn’t be in that business. Also, before those businesses agreed to a single platform, the source says, the management team, starting with Dimon and Bisignano, had to commit to spending a significant amount of money to upgrade the broker workstations, enhance service levels and then create a new platform through which they could all integrate onto a single processing system.
“It is a wonderful project because it is the right thing to do, but it is froth with challenges because you have egos, cultures and ‘My bat is bigger than yours,’ ‘I hit the ball further,’ ‘Why should I use your bat?’—things like that,” says the source.
It’s not as if mergers have become old-hat for JPMorgan, but Cherasia does admit they are vastly better prepared for them now than when the markets were crumbling in 2008.
“We are making decisions with each merger more intelligently,” Cherasia says. “We now have a better idea of where the landmines are heading into a transaction. We know how to do things right and make them leverage-able. Because of the Bear merger and other incremental acquisitions, when we got to the Cazenove integration, it was seamless.”
The New Guy
In terms of egos and cultures, it can’t be forgotten that Cherasia himself had to overcome a number of personal challenges after being installed as the head of technology and operations at the investment bank. He replaced Mike Ashworth, who became head of global infrastructure technology.
Tabb’s Iati says Cherasia was likely tapped because he had a handle on Bear’s technology and to shake up the culture, but more so the latter. “Those kinds of choices are not really made on a technology basis,” he says.
“Those senior roles—the choice of who leads that effort—are going to be based on the individual more than it is the technology. If they didn’t like Peter, but liked the technology, they would have kept the technology and gotten rid of Peter.”
After arriving at JPMorgan, Cherasia made no changes to the staffing model for about nine months. Instead, he flattened down the structure and had more than 20 executives reporting to him directly. “I gave everybody an opportunity to show me what they could do,” he says.
Cherasia, who now has 12 employees reporting directly to him—a mix of heritage JPMorgan staffers and former Bear alumni—adds that he knew it was rare for the new head of a business to be from the acquired firm. So he expected some push-back.
And he admits that having spent so much time at one firm, he had developed some opinions on the right and wrong ways to do things. He found it frustrating when people wouldn’t take him at his word, but understood that they wanted to see action first. “It takes a while for people to trust you and what I learned was that you have to get away from your desk and develop relationships, mentor, communicate and network. By the time I got six or seven months into it, I found that I had a lot of supporters.”
One of those supporters was Blythe Masters, head of global commodities at JPMorgan. “Peter has been an integral part of the decision-making process and execution of the major acquisitions that we have done over the past two-and-a-half years,” she says. “I wouldn’t have been as comfortable undertaking those acquisitions without him.”
A Rose by Another Name
Cherasia is a comfortable, jovial man. At one point during his photo shoot with Waters, he took the photographer’s camera to snap a few shots of his own. He says that if he has to spend a large chunk of his life away from his family, he wants to be challenged but he also wants to laugh and have a good time with his colleagues.
Born and raised in New Jersey, Cherasia still calls the Garden State home. It has helped to supply him with charisma and character. On the wall in the conference room adjacent to his office, he has hung framed, autographed photos of baseball great Pete Rose—one, brawling with former New York Mets shortstop Bud Harrelson, even though the Mets are Cherasia’s favorite team; and another after Rose got his record-breaking hit to surpass Ty Cobb as the all-time hits king. He appreciates that “Charlie Hustle” attitude that Rose, the player, was known for, and he gives it himself and expects it from his employees.
When Cherasia joined Bear Stearns in 1985, he estimates it employed about 4,000 people, a number that grew to about 14,000 during his more than two decades at the firm. It was a notoriously quirky place to work with a very unique culture.
Despite having a global business model, Bear was small compared to the other so-called “big five” investment banks, and as a result, Cherasia developed a lot of close, personal friendships. So it was especially tough when his first integration was that of a firm he loved. In fact, he still considers people like Bear chairman Alan “Ace” Greenberg and former co-president Warren Spector the most influential forces in his business life.
While at Bear, Cherasia helped to form the Financial Analytics and Structured Transactions Group and was one of the main principals for running fixed income through Spector. He was a leading driver toward turning the firm to e-commerce. In addition, he helped to form another group, Equity Analytics and Systematic Trading. Bear survived the 1987 market crash, a major lawsuit, and numerous recessions. His best memories of his time there were watching the people advance and the firm’s status grow.
“Building a business. Watching it grow. There is a lot of pride that I take with the advancement of the firm,” Cherasia says. “Hiring people and getting them into positions where they can be successful and then watching them be successful, and being successful, yourself—it was a really good ride.”
PETER CHERASIA: FUNDAMENTAL DATA
Peter Cherasia was born and raised in New Jersey. He holds a degree in electrical engineering from Rutgers University. Today, he serves on Rutgers’ board of overseers, is a member of the board of directors and is on the executive council of the School of Engineering.
What keeps him up at night:
JPMorgan is present in 47 countries with thousands of workers involved with IT in one way or another: “It doesn’t keep me awake at night, but there is always something I’m worried about. A little healthy fear is good.”
What he learned after the collapse of Lehman Brothers:
Despite the chaos that arose during and after the Lehman Brothers bankruptcy in September of 2008, Cherasia says he saw a lot of character in the people at JPMorgan that weekend. Lehman was a major counterparty to JPMorgan as well as many of its prime brokerage clients. “The way that our management team responded to the crisis was incredible,” he says. “From Jamie [Dimon] to Steve Black to Bill Winters to Jes Staley to Frank Bisignano—the entire management team was in through the weekend. We made sure we had the right roles and responsibilities in place and we communicated effectively through the course of the crisis.” He continues: “It was a huge challenge. When you are fighting fires, you usually make a few mistakes—and there were definitely some lessons learned—but all in all, I was happy with the results.”
Alternate career choice:
Cherasia says he would probably be a trader or open a business.
Favorite vacation spots:
During the winter, skiing at his house in Vermont. In the summer, his favorite vacation spot is wherever his boat, Shark Byte, is. Currently, it is docked in the Bahamas.
Last book read:
The End of Wall Street by Roger Lowenstein. Now he is reading Alan Greenberg’s The Rise and Fall of Bear Stearns.
A baseball legacy:
One of Cherasia’s cousins is San Francisco Giants utility man Mark DeRosa, who is currently out of the lineup recovering from wrist surgery.
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