More than a decade ago, William B. Harrison Jr. and Sanford I. Weill pioneered the model of the financial behemoth from their perches atop JPMorgan Chase and Citigroup. But today, the two Wall Street veterans hardly see eye to eye.
In an op-ed essay in The New York Times on Thursday, Mr. Harrison, former chairman and chief executive of JPMorgan, sticks up for big banks, extolling the benefits of the system he helped create.
The argument puts him squarely in opposition to Mr. Weill, Citigroup's former chief executive, who recently stunned the industry by saying financial giants should be broken up.
Anger at the financial system “has fueled the misguided idea that we should break up the nation's largest banks,†Mr. Harrison said in his essay in The Times.
“The problem,†he wrote, “is that every part of this argument is based on a fallacy.â€
Financial mergers like the one that built Citigroup were made possible by the repeal in 1999 of the Glass-Steagall Act, a Depression-era law that prevented traditional lenders from engaging in securities businesses. In his op-ed, Mr. Harrison played down the significance of Glass-Steagall's repeal.
The old law, he wrote, “did not prohibit banks from trading, engaging in derivatives, leveraging themselves or making bad loans.â€
The debate about whether banks are too big has become all-consuming on Wall Street. This week, the chief executive of Citigroup, Vikram S. Pandit, was quoted defending his bank in an article in The Financial Times. Richard M. Kovacevich, former chairman and chief executive of Wells Fargo, has also challenged the idea that big banks should broken up.
Mr. Harrison's view is perhaps not surprising, given his background. But he displays none of the regrets Mr. Weill, his contemporary and onetime ideological ally, apparently feels.
In the Times op-ed, Mr. Harrison writes that giant financial institutions emerged to meet a n eed in the market, using their capital and diversity to give customers services they would not otherwise have. He also says big banks were not the primary cause of the financial crisis, and that it is wrong to assume they are too complex to manage.
“In fact, large global institutions have often proved more resilient than others because their diversified business model ensures that losses in one part of the enterprise can be cushioned by revenues in other parts,†Mr. Harrison wrote. “In some cases, complexity can be an antidote to risk, rather than a cause of it.â€
He continued: “Breaking up some big banks would hurt their customers, clients and the broader economy. It would actually inject new risks into the financial system.â€
But to Mr. Weill, who dropped his bombshell of an argument during an appearance on CNBC last month, size and complexity can introduce their own risks. He said banks should “do something that's not going to risk the taxpay er dollars, that's not going to be too big to fail.â€
Others have also advanced this argument. John S. Reed, who helped Mr. Weill arrange the deal that created Citigroup, apologized in 2009 for creating a financial firm that required a taxpayer bailout. This summer, Philip J. Purcell, a former chairman and chief executive of Morgan Stanley, said in an essay in The Wall Street Journal that big banks would be more valuable if they were broken up.
The financial industry's response to Mr. Weill's comments was swift. Mr. Kovacevich appeared on CNBC to say customers benefited from Wells Fargo's size. Alan C. Greenberg, a former chief of Bear Stearns, later said on Bloomberg Television that Mr. Weill's remarks were so outlandish, he did not believe it was actually coming from the former Citigroup chief.
Mr. Harrison, a primary architect of the modern-day JPMorgan Chase, joined its predecessor company, the Chemical Banking Corporation, in 1967. By 1995, he had ris en to become vice chairman of Chemical, and he helped engineer the acquisition of the Chase Manhattan Corporation, and then, as head of Chase, the takeover of J.P. Morgan & Company.
In 2004, as chief executive of JPMorgan Chase, Mr. Harrison staged what was the biggest banking merger ever, purchasing Bank One for $58 billion.
