Three top executives involved with a failed hedging strategy that cost JPMorgan Chase & Co at least $2 billion (1 billion pounds) and tarnished its reputation are expected to leave the bank this week, sources close to the matter said on Sunday.
The bank - the biggest in the United States by assets - is expected to accept the resignation 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 expected to be asked to leave, they said. The departures come after the unit Drew runs, known as the Chief Investment Office, 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. 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 Drew's past performance at the bank.
Until the loss was disclosed late on Thursday, Drew was considered 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." While departures had been expected in the wake of the trading losses, JPMorgan appeared to be moving swiftly. 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. The losses have deeply marred JPMorgan's reputation for risk management, prompted a downgrade in its credit ratings and thrown an unflattering spotlight on Dimon, who had become perhaps America's best-known banker and a cavalier critic of increased regulation. On Sunday, Dimon's bravado was badly burnished 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 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," Warren said. 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" program 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," 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.