JPMorgan Chase & Co. sacrificed investment chief Ina Drew on Monday in response to trading losses that have been reported at $2 billion or more and which have tainted the reputation of the bank's high profile chief executive Jamie Dimon.
The biggest bank in the United States by assets said Drew, its New York-based chief investment officer and one of its highest-paid executives, would retire. The statement confirmed what sources close to the matter had previously told Reuters, that Drew would depart the firm.
It also said Matt Zames would take Drew's position, while Daniel Pinto, currently co-head of global fixed income with Zames, would become sole head of the group.
Mike Cavanagh, chief executive of the investment ban's treasury and securities services group, will lead a team of executives overseeing and coordinating the group's response to the recent losses.
The statement made no mention of two of Drew's subordinates who were involved with the costly derivatives trades -- London-based Achilles Macris and Javier Martin-Artajo, who the sources had also said were expected to leave.
Neither could be reached for comment earlier on Monday. A woman who answered the door at Macris's London apartment in a grandiose 19th century mansion block overlooking Westminster Cathedral said he was at work.
JPMorgan said Cavanagh "will ensure that best practices and lessons learned are carried across the firm."
Issues relating to the bank's internal controls were raised in 2010 when it was fined $53.1 million by Britain's Financial Services Authority for failing to segregate client money from its own in the UK -- an incident that also led to its auditor PwC being fined $2.25 million 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.
A valued employee
The departure of Drew after 30 years at JPMorgan comes after the unit she ran, known as the chief investment office, mismanaged a 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 quickly unwind in the esoteric, thinly traded market.
One hedge-fund manager who previously ran a proprietary, known as a 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, which were making bets independently with only a handful of the bank's most senior executives notified of their vast, complex exposures.
"This [Drew's] 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."
Offers to resign
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 last trade."
Departures had been on the cards in the wake of the trading losses, though in disclosing the losses on Thursday, chief executive 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 reputation was 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.
Stop the cycle
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 in Massachusetts, 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.
U.S. regulation attempts
A piece of financial regulation known as the Volcker rule would prevent banks from certain kinds of trading for their own profit. Dimon has said the trading involved in the $2 billion loss would not have fallen under the rule.
Dimon conceded to NBC that the bank "hurt ourselves and our credibility" and expects to "pay the price for that."
Asked what the price should be, Sen. Carl Levin (D-Mich.) said that banks will lose their fight to weaken the rule. "This was not a risk-reducing activity that they engaged in. This increased their risk," Levin told NBC. "So we've got to be very, very careful that the regulators here are not undermined by this huge effort to weaken the rule by putting in a huge loophole" that includes the trading involved in the JPMorgan loss, he said.
Dimon said the bank is open to inquiries from regulators. He has also promised, in an email to the bank's employees and in a conference call with stock analysts, to get to the bottom of what happened and learn from the mistake.
Dimon told NBC that he supported giving the government the authority to dismantle a failing big bank and wipe out shareholder equity. But he stressed that JPMorgan, the largest bank in the United States, is "very strong."
Addressing public anger toward Wall Street, Dimon said he wants a more equitable society and does not mind paying higher taxes. But he said attacking all of business is "very counterproductive.
This story was compiled with reports from Reuters and The Associated Press.