JP Morgan chief investment officer Ina Drew 'to retire' after $2bn loss
JP Morgan said Ina Drew will retire as chief investment officer after more than 30 years at the bank, following a $2bn trading loss as a result of a failed hedging strategy.
Matt Zames, the head of global fixed-income at the investment bank, will take over as chief investment officer. New York-based Ms Drew was one of JP Morgan's highest-paid executives.
Three top executives involved with the huge loss which came to light last week, including Ms Drew, were expected to leave the bank this week, according to reports.
Two of Ms Drew's subordinates who were involved with the trades, London-based Achilles Macris and Javier Martin-Artajo, are expected to be asked to leave, according to Reuters.
Reports earlier today also suggested that the entire staff of JP Morgan's chief investment office (CIO) in London is at risk of dismissal.
The departures come after the CIO, a unit Ms Drew was responsible for running, mismanaged a large portfolio of derivatives tied to the creditworthiness of bonds, according to bank executives.
The portfolio included layers of instruments used in hedging that became too complicated to work and too big to unwind quickly in the esoteric, thinly traded market.
Ms Drew had repeatedly offered to resign in recent weeks, after the magnitude of the debacle became clear, according to one of Reuters' sources. But her resignation was not immediately accepted because of Ms Drew's past performance at the bank.
Until the loss was disclosed late last Thursday, Ms Drew was considered one of the best managers of balance sheet risks. She earned more than $15m in each of the past two years.
"Ina is an amazing investor," said a money manager who knows Ms Drew, but who declined to be quoted by name. "She's done a really good job over a lot of years. But they only remember your last trade."
The losses have deeply marred JP Morgan's reputation for risk management, prompted a downgrade in its credit ratings and thrown an unflattering spotlight on Jamie Dimon, chief executive, who had become perhaps America's best-known banker and a cavalier critic of increased regulation.
On Sunday, Mr Dimon's bravado was badly burnished when the New York Times reported remarks he made recently at a dinner party in Dallas.
Mr Dimon called arguments about too-big-to-fail banks - arguments made by former Federal Reserve chief Paul Volcker and Richard Fisher, president of the Federal Reserve Bank of Dallas - "infantile" and "nonfactual", according to the NYT.
Mr Dimon is himself a board member of the Federal Reserve Bank of New York. Elizabeth Warren called for him to resign that post on Sunday. Warren, who chaired the congressional committee that oversaw the bank bailout program known as TARP and is currently running for the Senate, said he should not be on the panel advising the Fed on bank management and oversight.
"We need to stop the cycle of bankers taking on risky activities, getting bailed out by the taxpayers, then using their army of lobbyists to water down regulations," Ms Warren said.
Mr Dimon certainly has struck a more contrite pose since revealing the losses. In an interview that aired on Sunday, he told NBC's Meet the Press programme that the bank's handling and oversight of the derivative portfolio was "sloppy" and "stupid" and that executives had reacted badly to warnings last month that the bank had large losses in derivatives trading.
He said executives were "completely wrong" in public statements they made in April after being challenged over the trades in news reports.
"We got very defensive. And people started justifying everything we did," Mr Dimon said. "We told you something that was completely wrong a mere four weeks ago."
The loss, and Mr Dimon's failure to heed the warnings, have become major embarrassments and have given regulators new arguments for tightening controls on big banks and requiring them to hold more capital to cushion possible losses.
JP Morgan lost $15bn in stock market value the day after the announcement. Analysts were shocked that Mr Dimon did not have as much control of the company's derivatives book as they had thought. Before the loss, he had been widely praised for successfully managing the company through the credit bubble and the financial crisis.
The bank hasn't said much publicly about the trades. But others in the market say they involved complex layers of credit default swaps, the same instruments that were central to the financial crisis. JP Morgan helped create the CDS market in the 1990s. But its trades have become ever more complex, involving indexes and derivatives based on corporate bonds. The instruments were known as "synthetic," because they trade the risk of default without trading the underlying bonds.
Under Ms Drew, JP Morgan's CIO unit had layered these trades in ways that exposed the bank to moves in both directions in the value of the bonds, according to CDS traders not at JP Morgan who spoke on condition of anonymity. Because these markets are so thinly traded, and JP Morgan's positions were so large, it was impossible for the bank to exit quickly when the positions soured.
Mr Dimon said the bank could lose $3bn or more as it unwinds the positions in the coming months.
He is scheduled to speak on Tuesday at the bank's annual meeting in Tampa, Florida.