JPMorgan Executive Out After $2B Loss
Created: 2012-05-14 13:27 EST
Chairman and CEO, JPMorgan Chase & Co, James 'Jamie' Dimon speaks during An Evening With the Fortune 500 at the New York Stock Exchange on May 7, 2012 in New York City. (emal Countess/Getty Images for Time)
Ina Drew, JPMorgan Chase’s chief investment officer, will retire after her division posted a $2 billion dollar quarterly loss.
A 30-year employee of JPMorgan, Drew was the head of JPMorgan’s chief investment office in London. The division had a $2.3 billion trading loss, revealed in a regulatory filing last week. She will be replaced by Matt Zames, the co-chief of the bank’s global fixed income.
Chief executive James Dimon shouldered the blame after the report came out, and initially rejected Ina Drew’s resignation.
The bank took the trading loss with a risky derivatives trading strategy, involving credit default swap indexes. Recent changes in the bond market forced JPMorgan to sell its assets at a loss.
Dimon called the strategy “flawed, complex, poorly reviewed, poorly executed, and poorly monitored,” in a conference call with analysts and investors on Thursday.
The loss has analysts wondering whether stricter regulation is required for banks.
“This doesn’t violate the Volcker Rule, but it violates the Dimon principle,” the CEO said in a conference call with analysts and investors on Thursday.
The Volcker Rule, set to go into effect this summer, is a rule to restrict banks from speculative trades done for the bank’s profit. It is part of the Dodd-Frank Act, with the goal of large-scale financial regulation in response to the recession of 2008.
Among its goals, the Volcker Rule seeks to prevent risky trading practices in order to decrease the frequency and impact of bank losses.
However, the trading strategy that caused this loss is generally thought to hedge riskier investments, rather than being a speculative investment, and thus would not have fallen under the Volcker Rule.
Dimon had been arguing against tighter regulation of banks, but his reputation is likely to suffer from this trading loss. JPMorgan and Dimon are both seen as one of the top banks and executives on Wall Street, and important figures against financial regulation, as the bank had navigated through the recession relatively unscathed. Dimon and other opponents to the Volcker Rule argue that the restriction of trading practices will reduce economic growth.
The $2 billion loss will not affect taxpayers or consumers. The $2.3 trillion company will still post $4 billion in profits for the quarter. However, shareholders felt the pains of the loss, as its stock dropped some 9% on Friday, representing a $15 billion drop in market value.
Dimon suggested that the trades may end up costing JPMorgan another $1 billion this upcoming quarter, depending on market volatility.
The Securities and Exchange Commission has opened an investigation into the trading loss.