JPMorgan creates more management checks and balances

NEW YORK Fri Jul 27, 2012 7:06pm EDT

A man walks past JPMorgan Chase & Co's international headquarters on Park Avenue in New York July 13, 2012. REUTERS/Andrew Burton

A man walks past JPMorgan Chase & Co's international headquarters on Park Avenue in New York July 13, 2012.

Credit: Reuters/Andrew Burton

NEW YORK (Reuters) - JPMorgan Chase & Co Chief Executive Jamie Dimon reshuffled his management team, in a step that analysts see as creating more checks and balances in the upper ranks after the bank suffered from embarrassing trading losses.

Analysts said the changes, announced on Friday, position Michael Cavanagh and Daniel Pinto as prime candidates to succeed Dimon, 56, when he is ready to retire.

Cavanagh, 46, and Pinto, 49, were named co-chiefs of commercial and investment banking. Matt Zames, 41, was named co-chief operating officer and is also seen as a strong candidate to succeed Dimon.

In an interview, Dimon said that he has no plans to retire soon, but that he is always thinking about grooming successors.

"I serve at the pleasure of the board, but I do hope to be here for many, many more years," Dimon said.

The shake-up will result in a number of senior positions that are jointly held by two executives, at least temporarily.

Analysts said these co-heads may help prevent the bank from sustaining the same kinds of trading losses that occurred in the first half of the year. JPMorgan said two weeks ago that it had sustained nearly $6 billion of trading losses from bad bets made in its Chief Investment Office.

That group had been headed by Ina Drew before the losses surfaced in May and she left. The bank has admitted that few scrutinized Drew's group.

"What happened in the CIO office was that there weren't enough people taking a close enough look," said Richard Bove, an equities analyst at Rochdale Securities. "That was a lesson for every division in the company."

The losses from the bets known as the "London Whale trades" were a huge black eye for Dimon, a CEO long praised for his risk-management skills.

But Dimon said the changes were in motion before the CIO's difficulties emerged, and were driven in part by the difficulty of operating banking businesses given the profusion of new regulations globally.

"We have to make sure, for example, we are making loans in the right way around the world, and funding them properly and reporting them the right way," he said.

Dimon, whose bank was profitable throughout the financial crisis, has long complained about being stifled by new regulations. He famously ambushed Federal Reserve Chairman Ben Bernanke last year and expressed fear that new financial regulations will hinder economic recovery.

But as Dimon moves executives around for at least the third time in three years, it is clear that he is adapting to the new order. In a prior shake-up in June 2011, around the time of Dimon's confrontation with Bernanke, reporting lines were streamlined.

DECIPHERING THE PHOTO

Analysts scrutinize JPMorgan's executive changes with the intensity that Kremlinologists used to devote to May Day parade photos from Moscow, where the positions of Soviet officials hinted at who was on the way up or down.

For some executives, the news looks bad. Jes Staley, 55, heads JPMorgan's investment bank and has led its asset management and private banking arms. In the latest reshuffle, he was made chairman of the commercial and investment bank, a new position that on Wall Street often signals a more ambassadorial role rather than a hands-on management job.

Dimon likes to shift key lieutenants around, sometimes moving them from prestigious jobs to less impressive ones and then back up again. In June 2010, Cavanagh moved from chief financial officer to head of Treasury and Securities Services, a business that moves money around the world for big clients like multinational companies. That business generates stable revenue, but running it is not usually seen on Wall Street as requiring tremendous management acumen.

In May, Cavanagh was put in charge of a group that oversaw the bank's response to losses in the CIO, a key position for helping to rebuild investor trust in the bank. Cavanagh will now oversee corporate and investment banking businesses such as lending and merger advisory, a high profile position.

Cavanagh is a longtime protégé of Dimon. When Dimon was president of Citigroup, Cavanagh was chief administrative officer.

In 2000, Cavanagh followed Dimon to Banc One Corp as head of strategy and planning when Dimon became the bank's CEO.

Pinto, who heads JPMorgan's business in Europe, the Middle East and Africa as well as its global fixed-income business, will oversee all trading operations. He will remain based in London.

Dimon said he likes to move promising executives around to give them experience in different parts of the bank, a technique popularized by Jack Welch when he was CEO of General Electric Co.

"The key is constantly changing and challenging people so that they are prepared," Dimon said.

SMITH'S PORTFOLIO GROWS

Gordon Smith, 53, will have mortgage lending and retail banking added to his remit, giving him oversight of all consumer banking businesses.

Smith, a former American Express Co executive, currently oversees credit cards and auto lending, and some analysts view him as a possible successor to Dimon.

For now, Smith will run the consumer banking business together with Todd Maclin, 56. But in 2013, Maclin will become a chairman of the consumer business.

Frank Bisignano, 52, who was put in charge of overhauling the mortgage business last year, in addition to his role as chief administrative officer of the bank, will become co-chief operating officer of JPMorgan as Smith takes on the mortgage business.

All told, Smith's domain will include some 50 million customers, 160,000 employees and half the earnings power of the bank.

Smith said in an interview that he intends to continue building Chase branding and customer service to try to grow in an era when the company is unlikely to make acquisitions.

Bisignano will share the COO post with Zames, who will remain head of the CIO and Mortgage Capital Markets.

In May, Zames was put in direct charge of the CIO. He has been unwinding the money-losing portfolio and overhauling the office. He will continue to run the CIO in his new post.

This week, Sanford "Sandy" Weill, the architect of mega-bank Citigroup, said in a television interview that the big banks should be broken up, along the lines of how Glass-Steagall laws broke up commercial and investment banking after the Depression.

Dimon has said he has no interest in breaking up his bank, but to some analysts, Dimon's moves looked like the bank taking a small step in that direction on its own. JPMorgan moved control of traditional commercial and investment banking businesses to one set of executives, and control of retail banking to another set.

"To us, this is Glass-Steagall lite," wrote Mike Mayo, an analyst at CLSA.

(Reporting by David Henry and Jed Horowitz, Editing by Dan Wilchins, Dale Hudson, John Wallace and Bernard Orr)

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Comments (2)
ToTuffforYou wrote:
I think the headline should read “JP Morgan Creates More Checks for Management and Balances the Books”

Jul 27, 2012 11:14pm EDT  --  Report as abuse
breezinthru wrote:
Wall Street banks were able to repeal Glass-Steagall, an act of Congress.

How difficult will it be for them to gut their internal checks and balances when they become a nuisance? If JPM actually liked the idea of internal checks and balances they would have already been in place.

This is nothing more than posturing, hoping to avoid the punishments and regulations they have earned with their reckless behavior.

Jul 28, 2012 2:30am EDT  --  Report as abuse
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