* Cavanagh parts with boss who shaped his career
* Long-time banker discouraged by new regulations
* Carlyle picks up finance veteran as its profit rises
* Cavanagh joins Youngkin as Carlyle co-president
(Adds details about Cavanagh's reasons for the move, adds
By Greg Roumeliotis and David Henry
NEW YORK, March 25 Private equity firm Carlyle
Group LP poached one of Jamie Dimon's closest aides,
Michael Cavanagh, from JPMorgan Chase & Co on Tuesday,
in a surprise hire that reflects both the increasing prominence
of so-called shadow banking and the regulatory challenges faced
Cavanagh, 48, who was co-head of JPMorgan's corporate and
investment bank, will become the co-president and co-chief
operating officer of Carlyle, as the alternative asset manager
puts its own succession plan in place. He will also join
Carlyle's executive board.
He will share both new titles with Carlyle veteran Glenn
Youngkin, 47, who has until now been sole chief operating
Cavanagh's departure is a blow to Dimon, and sources
familiar with the situation said the move came as a surprise to
senior bank executives. Dimon hired Cavanagh more than two
decades ago and has worked with him ever since. In recent years,
Cavanagh, who was also a member of the bank's operating
committee, had come to be seen as one of the potential
successors to the JPMorgan chairman and CEO. Daniel Pinto, who
had the same role as Cavanagh, was named sole CEO of JPMorgan's
corporate and investment banking division.
Cavanagh's move underscores the challenges banks face in
retaining talent amid an onslaught of regulations in the
aftermath of the financial crisis, which have complicated bank
managers' jobs and reduced their pay.
Several other long-time bankers, such as former JPMorgan
executives Jes Staley and Steven Black, have moved in recent
years to private equity, hedge funds and other more lightly
regulated corners of high finance, broadly referred to as shadow
banking. The sector offers executives more business
opportunities as banks pull back, as well as higher pay.
Carlyle's founders - David Rubenstein, William Conway and
Daniel D'Aniello - each received $92.9 million in dividends and
salaries in 2013. They also received $108.1 million, $252.8
million and $109.5 million, respectively, from Carlyle's funds
in 2013 as a result of investing alongside the firm's clients.
By comparison, Dimon was paid $20 million for 2013, with $18.5
million of that coming in restricted stock.
Cavanagh told Dimon over the weekend that he was considering
the job after having been approached by Carlyle earlier this
year, one of the sources said. The increased demands from
changing regulations and JPMorgan's myriad problems in recent
years with regulators were factors that played into Cavanagh's
decision, the source added.
Over the past two years, new people have moved into seven of
nine key positions at JPMorgan, according to a count by analyst
Mike Mayo of CLSA. Cavanagh, Mayo said, "was a familiar face in
a shuffled deck."
Cavanagh, the source added, was not tired of waiting in the
wings to become chief executive, as Dimon, one of the
longest-serving U.S. bank CEOs, shows no signs of stepping down.
Cavanagh will be on "gardening leave" at JPMorgan until he
joins Carlyle in the summer. Gardening leave is the typical
cooling-off period that senior executives go through when they
switch jobs, allowing them to receive their salary while not
actively carrying out their duties.
The decision marks a major career move for Cavanagh, who
went to work for Dimon at age 26 at Smith Barney. The brokerage
was one of the companies that Dimon's mentor, Sandy Weill, would
roll up into Citigroup Inc. Dimon personally interviewed
Cavanagh for the job, according to the source.
After Weill fired Dimon, Cavanagh followed him to
Chicago-based Bank One Corp and then on to JPMorgan.
Cavanagh was tasked in 2012 with overseeing the bank's
internal investigation of the derivatives loss that became known
as the "London Whale" trades.
Before taking his current role at JPMorgan's investment
banking arm, Cavanagh headed the unit that manages JPMorgan's
cash for corporations and keeps securities in custody for large
money managers. Earlier, he served as chief financial officer.
"While we would prefer he stay at the firm, we are glad he
is going to a valued client in Carlyle," Dimon said.
With Cavanagh's departure, the most obvious successors to
58-year-old Dimon from within JPMorgan include Pinto and Chief
Operating Officer Matthew Zames, 43, according to sources inside
Zames got his current job after Dimon dispatched the former
bond trading executive to salvage the London Whale derivatives
portfolio and to overhaul the bank's Chief Investment Office
where the bad trades were made.
Other possible in-house successors include Gordon Smith, 55,
the CEO for the consumer bank, which accounts for about half of
the company, and Mary Erdoes, chief executive of asset
DEEP CARLYLE TIES
Carlyle does not handle deposits from savers, is much
smaller than JPMorgan and does not face the same regulatory
requirements that are forcing banks to reconfigure and shrink
Carlyle's fund investors are mainly public pension funds,
insurance firms, endowments and sovereign wealth funds.
Private equity firms are posting bumper profit thanks to
red-hot capital markets that allow them to sell companies for
top dollar. This has enriched their investors as well as
insiders at these firms.
Founded in Washington, D.C., in 1987, Carlyle had $189
billion in assets at the end of December in private equity,
credit, real estate and funds of funds. JPMorgan has $2.4
trillion of assets.
The appointments also highlight the succession planning
under way at some of the major private equity firms, which have
been run by their founders for decades.
Now in their 60s, Carlyle's founders also poached veteran
dealmaker Kewsong Lee from Warburg Pincus LLC last year and
named him deputy chief investment officer for private equity.
"He is a very capable executive and I think will be a great
addition to their team," Oppenheimer & Co Inc analyst Chris
Cavanagh and Youngkin will manage Carlyle's global
operations on a day-to-day basis. While neither has been
explicitly named as successors to Carlyle's founders, the move
positions them to potentially take the reins in the future.
(Additional reporting by Aman Shah in Bangalore and Steve
Slater in London; editing by Kirti Pandey, Alden Bentley and