TOPICS > Economy

JPMorgan Says Farewell to a Top Executive Amid Fallout From Huge Losses

May 14, 2012 at 12:00 AM EDT
After news broke last week of $2 billion in trading losses, JPMorgan Chase had its first major casualty Monday when CEO Jamie Dimon disclosed the retirement of longtime executive Ina Drew. Margaret Warner and Bloomberg News' Dawn Kopecki discuss the case and the debate it has spurred over financial regulation.
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JEFFREY BROWN: Banking giant JPMorgan Chase announced the departure today of a top investment officer after a huge and highly publicized trading loss.

Just before U.S. markets opened, CEO Jamie Dimon disclosed the retirement of longtime executive Ina Drew. She oversaw a London-based unit that lost at least $2 billion in trades and bets tied to corporate bonds and credit. Bank officials also announced a shakeup in that unit late today.

The case has reignited the debate over financial regulation, and the bank itself has lost nearly 13 percent of its stock value in just two days.

Margaret Warner has more on the story.

MARGARET WARNER: Ina Drew is the most prominent executive to leave JPMorgan over the losses so far, and so far the only one. But other departures may be coming, and questions are mounting about the bank.

For more, I’m joined by Dawn Kopecki. She covers J.P. Morgan and banking for Bloomberg News. She is in Tampa, where the J.P. Morgan annual shareholder meeting kicks off tomorrow.

And, Dawn, thanks for joining us.

Explain a little more for us, Ina Drew, how central a role she played in all of this. And are other departures expected?

DAWN KOPECKI, Bloomberg News: She didn’t necessarily have a central role in conducting the trades or the positions that the bank had that lost all the money. But she was the person that oversaw this office.

The office in London that was so problematic for JPMorgan reported up to Drew. And, apparently, Drew had no idea what was going on or how bad things were. In fact, when the bank first started discovering how bad the losses were, she initially argued to try to keep the hedge on, so that the bank could maybe see if it could wait it out a little bit.

But that was based on wrong information because the London office just wasn’t giving her all of the facts.

MARGARET WARNER: And then what about the people who actually ran the London office, who were conducting these trades, including the so-called “London Whale,” the trader who actually took these huge positions betting on I gather credit indices or something like that.

DAWN KOPECKI: Yes.

The London Whale, who is also known as Voldemort, his name is Bruno Iksil. And so far, what we know is he has not lost his job. And it’s unclear and may even be unlikely that he does. Iksil was following the orders of a man named Achilles Macris, which some find pretty ironic that his name is Achilles. He’s Greek.

Macris was the one who ordered these trades, who ordered this complicated set of derivatives that J.P. Morgan is blaming on its loss. Achilles is transitioning out of his duties. Basically, they’re keeping him on to help find the dead bodies. They need him there to try to explain what happened.

But he’s lost all trading responsibilities. He’s lost all day-to-day management responsibilities. They came in today. They named a new head of the chief investment office named Matt Zames and he cleaned house today, named a whole new slate of people to run that office. And they have been put in place immediately.

MARGARET WARNER: Now, what about CEO Jamie Dimon’s involvement here?

DAWN KOPECKI: Yes.

MARGARET WARNER: You had an interesting story this morning that he actually helped push this unit to become edgier, to take — if not take more risks.

DAWN KOPECKI: He did.

MARGARET WARNER: Explain that, would you?

DAWN KOPECKI: Yes.

Well, Jamie Dimon was at Bank One. And they were acquired by JPMorgan in 2004. Jamie, he came to the — to become CEO of the entire bank. And about that time, he promoted Ina Drew and gave her more freedom to invest in different types of products.

Generally, the chief investment office generally invests in very safe things, like U.S. Treasury bills, maybe some mortgage assets, generally agency debt. Those are all considered safe havens among investors. They don’t make a lot of money, but they don’t tend to lose money either. He expanded that portfolio and gave her a mandate to also make profit.

This is a very controversial subject being debated right now in D.C. because last year or two years ago lawmakers passed what is called the Volcker rule, which prohibits banks from using their deposits to invest in complicated things that are designed only to make money. Lawmakers want banks to get back to the business, the traditional business of banking and use those funds to hedge their risks.

MARGARET WARNER: And we’re going to hear from. . .

DAWN KOPECKI: Like, the. . .

MARGARET WARNER: Yes.

DAWN KOPECKI: Oh, go ahead.

MARGARET WARNER: We’re going to hear from a couple of the lawmakers — a couple lawmakers right after this.

Now, you’re down at this shareholder meeting, which I guess bad timing for perhaps JPMorgan’s management, begins tomorrow.

DAWN KOPECKI: Yes.

MARGARET WARNER: What’s the buzz? Is — he is expected to speak, isn’t he?

DAWN KOPECKI: Yes.

MARGARET WARNER: Is there any kind of shareholder unhappiness, revolt brewing?

DAWN KOPECKI: You know, we haven’t heard from the big mutual funds that are the biggest shareholders, but there is a lot of very irate, you know, mom-and-pop investors.

I’ve gotten dozens of emails from people who are apoplectic over this. Generally, these shareholders meetings are an opportunity for regular people like you and I to go and voice our concerns. A lot of activists use these moments to be able to protest the company as well.

So you can expect to see some fireworks tomorrow. As well, we will get the results of some votes on compensation and on splitting the chairman and CEO that may be interesting, although a lot of those votes were probably already done weeks ago. But it will be interesting to see how those votes come out tomorrow and what the investors have to say to Jamie Dimon, as well as his reaction.

MARGARET WARNER: And, finally, you cover these big banks more broadly. What are you hearing from them? Is there some concern on the street that they’re — a new spotlight is going on them? Do they have similar units?

DAWN KOPECKI: Oh, you know, there are.

And what I think the concern is among other banks is that regulators are going to be harder on them. You know, we’re already hearing that regulators are stepping up their scrutiny of banks. A lot of banks do have these types of investments. They may have them structured some different way or in a different division. But a lot of banks do make these kinds of investments.

And regulators are looking at them a lot more closely. This is a huge public embarrassment for J.P. Morgan, but it’s also a public embarrassment for the industry because they have all been lobbying against these rules. So this comes at an extreme inopportune time for the industry, when they have been trying to get regulators to trust them, to say, you know, look, we know what we’re doing. We’re making all safe bets here, when, in fact, you know, J.P. Morgan, their senior managers, Jamie Dimon included, had no idea what was going on in London.

And they had no idea how bad it was. In fact, it could get a lot worse before it gets better.

MARGARET WARNER: Yes, I’ve read that there could be further losses.

Well, Dawn Kopecki of Bloomberg news, thank you.

DAWN KOPECKI: Thank you.