The executives involved with the failed hedging strategy that has left JPMorgan with a $2 bn trading loss are expected to leave this week
Three executives involved with the failed hedging strategy that has left JPMorgan Chase & Co with a $2 billion trading loss and a tarnished reputation are expected to leave the bank this week, sources close to the matter said on Sunday.
The company is expected to accept the resignation of Ina Drew, its 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, Achilles Macris and Javier Martin-Artajo, are expected to be asked to leave, they said.
The unit Drew runs, known as the Chief Investment Office, mismanaged a portfolio of derivatives tied to the creditworthiness of bonds, according to bank executives. The portfolio was layered with hedging strategies that became too complicated to work and too big to unwind in the esoteric market.
Drew had repeatedly offered to resign after the magnitude of the debacle became clear, according to one of the sources. But the resignation was not immediately accepted because of Drew's past performance at the bank.
Until the loss was disclosed on Thursday night, Drew was considered in the industry to be 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 last trade."
'Sloppy' 'stupid'
CEO Jamie Dimon said when he announced the loss on Thursday that the bank was continuing to investigate what went wrong and that disciplinary actions would be taken.
Dimon called the handling and oversight of the derivative portfolio "sloppy" and "stupid."
Earlier on Sunday, Dimon said in a nationally televised interview that bank executives had reacted badly to warning flags last month that it had large losses in financial derivatives trading.
In the interview on NBC's "Meet the Press" television program, Dimon said bank executives were "completely wrong" in public statements they made in April after being challenged over the trades in media 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.
JPMorgan lost $15 billion in stock market value the day after the announcement. Analysts were shocked that 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.
Paying the price
Dimon did not explain in the NBC interview why the trades went wrong. He had declined on Thursday, too, to describe details of the trades when pressed by the analysts. He said the positions were first designed to hedge risks in the bank's investments.
"The strategy we had was badly vetted," Dimon said in the interview. "It was badly monitored. It should never have happened."
The debacle provides ammunition to advocates already calling for tougher regulation of banks, Dimon said. "This is a very unfortunate and inopportune time to have had this kind of mistake," he said.
Dimon has the been the most outspoken bank executive in arguing that new regulations being finalized and implemented by the U.S. government go too far.
"We hurt ourselves and our credibility," Dimon said in the NBC interview. "We got to fully expect and pay the price for that." He said the huge trading loss was not "life threatening" to JPMorgan.
The comments to NBC were Dimon's first public statements since he spoke to analysts in a conference call on Thursday. He is scheduled to speak again on Tuesday at the company's annual meeting in Tampa, Florida.
JPMorgan is the biggest bank in the United States by assets and has major investment banking and trading operations in Europe. The losses in Drew's unit stemmed from trades largely made in London in credit default swaps, an instrument that institutions use to buy and sell insurance against defaults and declines in the market value of bonds.
Some of the trades attracted attention and gossip in the swaps earlier this year because of their size. One JPMorgan trader working the portfolio, Bruno Iksil, was dubbed the 'London Whale.'
© Thomson Reuters
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