* Departures to follow loss on derivatives trades
* CEO Dimon says loss could reach $3 bln or more
* Executive Ina Drew made over $15 mln a year
* CEO Dimon continues admitting mistakes
By Matt Scuffham and David Henry
LONDON/NEW YORK, May 14 JPMorgan will
move to limit the fallout from a shock trading loss that could
reach $3 billion or more by parting company with three top
executives involved in its costly failed hedging strategy,
sources close to the matter said.
The bank - the biggest in the United States by assets - is
expected to accept the resignation this week of Ina Drew, its
New York-based chief investment officer and one of its
highest-paid executives, in the next few days, the sources said.
Two of Drew's subordinates who were involved with the
trades, London-based Achilles Macris and Javier Martin-Artajo,
are also expected to be asked to leave, they said. Neither was
available for comment on Monday.
The departures come after the unit Drew runs, known as the
Chief Investment Office (CIO), mismanaged a portfolio of
derivatives tied to the creditworthiness of bonds, according to
The portfolio included layers of instruments used in hedging
that became too complicated to work and too big to quickly
unwind in the esoteric, thinly traded market.
One hedge fund manager who previously ran a proprietary (or
prop) trading book at JPMorgan said the bank's public
commitments to trim balance sheet risk were at odds with its
network of trading silos, who were making bets independently
with only a handful of the bank's most senior executives
notified of their vast, complex exposures.
"This (CIO) group was completely separate, completely
distinct from the prop trading unit. We had no clue about their
prop book and they would have no clue about ours for that
matter," the manager said.
"They were all totally independent. All the activities were
reported to New York and they ran the allocation of capital to
each and every strategy ... those decisions were definitely not
taken in London. These things were very, very opaque. Every bank
is, whether you're Goldman, Morgan (Stanley) or JP."
Drew had repeatedly offered to resign in recent weeks after
the magnitude of the debacle became clear, according to one of
the sources, but the resignation was not immediately accepted
because of her past performance at the bank.
Until the loss was disclosed late on Thursday, Drew was
considered by some market participants as one of the best
managers of balance sheet risks. She earned more than $15
million in each of the last two years.
"Ina is an amazing investor," said a money manager who knows
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
Departures had been on the cards in the wake of the trading
losses, though in disclosing the losses on Thursday, CEO Jamie
Dimon said only that the bank was continuing to investigate and
would take disciplinary action with those involved.
Dimon said the bank's losses could reach $3 billion or more
as it unwinds the positions in coming months.
The losses have marred JPMorgan's reputation for risk
management, prompted a downgrade in its credit ratings and
thrown an unflattering spotlight on Dimon, a critic of increased
regulation who had become one of America's best-known bankers.
On Sunday, Dimon's bravado was badly tarnished when the New
York Times reported remarks he made recently at a dinner party
in Dallas. 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 Times.
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 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," Warren said.
Dimon has struck a more contrite pose since revealing the
losses. In an interview that aired on Sunday, he told NBC's
"Meet the Press" 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," Dimon said. "We told you something that was
completely wrong a mere four weeks ago."
The loss, and 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.
Issues relating to the bank's internal controls were raised
in 2010 when it was fined 33 million pounds by Britain's
Financial Services Authority for failing to segregate client
month from its own in the UK - an incident that also led to its
auditor PwC being fined 1.4 mln by its professional
body for failing to spot the transgression.
No-one at PwC, JPM's global auditor, could immediately be
reached for comment.
JPMorgan lost $15 billion in stock market value the day
after the latest loss announcement. Some analysts were shocked
Dimon did not have as much control of the company's derivatives
book as they had thought. Before the loss, Dimon had been widely
praised for successfully managing the company through the credit
bubble and the financial crisis.
His strategy in dealing with the issue has been to apologize
repeatedly and say straight-forwardly that he and the bank
erred. He has not, however, been willing to describe the exact
trading positions, for hear of giving traders in the market
information with which to inflict deeper losses.
Dimon is scheduled to speak on Tuesday at the bank's annual
meeting in Tampa, Florida.