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Tags: jpmorgan | zames | investment | office

JPMorgan's New Investment Chief Shakes Up Unit Leadership

Monday, 14 May 2012 05:46 PM

JPMorgan Chase & Co.’s Matt Zames, newly appointed to lead the bank’s chief investment office after the unit suffered a $2 billion loss, shook up leadership and announced a “renewed focus” on hedging risks.

Zames named new finance and risk chiefs and wrote in a staff memo that top London-based trading executive Achilles Macris would hand off duties. JPMorgan named Zames head of the office earlier today to succeed Ina Drew, whose retirement after the surprise loss marked the downfall of one of the highest- ranking women on Wall Street.

“We will have a sharp, renewed focus on our hedging strategies, risk management and execution,” Zames, 41, wrote in the memo. “JPMorgan Chase will come out of this experience as a stronger firm.”

Chief Executive Officer Jamie Dimon, 56, announced the loss May 10, assailing his firm’s handling of trading in synthetic credit positions as “flawed, complex, poorly reviewed, poorly executed and poorly monitored.” New York-based JPMorgan is examining whether anyone in the unit, which employs a few dozen people in London, sought to hide risks, though there isn’t yet evidence that’s the case, the person said.

New London Chief

“It’s good to see there’s accountability as well as responsibility here,” said David Hendler, an analyst at CreditSights Inc., a New York-based research firm. “This person was in charge of this strategy and it appears was not aware, or giving the right signals to top management, of the risks that were building.”

Zames named Rob O’Rahilly to lead the office in Europe, the Middle East and Africa, as Christopher Chan continues overseeing Asia, according to the memo. Marie Nourie will become the global group’s finance chief, and Chetan Bhargiri will join the unit as chief risk officer, the memo shows.

Drew, 55, was one of two women on the operating committee at JPMorgan, the biggest and most profitable U.S. bank. Her office oversees about $360 billion, the difference between money from deposits and what the bank lends. Drew was named chief investment officer in 2005, reporting directly to Dimon.

Taking Risks

Dimon encouraged her unit to boost earnings by buying higher-yielding assets, including structured credit, equities and derivatives, in an expansion of risk-taking led by Macris, ex-employees said in April. That shifted the office from a role mitigating lending risks to becoming a profit center, former executives said.

Dimon said on May 10 that the unit made “egregious mistakes” by taking flawed positions on synthetic credit holdings and that JPMorgan could lose an additional $1 billion or more as it winds down the position. The U.S. Securities and Exchange Commission, the Federal Reserve and the Commodity Futures Trading Commission are investigating, according to people familiar with the probes.

Drew’s departure leaves Mary Erdoes as the only woman on the bank’s operating committee with one dozen men. The bank said in July that Heidi Miller, president of its international business, would retire this year. Sallie L. Krawcheck, one of the few women in a senior Wall Street position, was dismissed in September as Bank of America Corp.’s wealth-management division head. Former Morgan Stanley co-president Zoe Cruz, ousted in 2007, is returning money to investors after losing 8 percent last year at her $200 million hedge fund, Voras Capital Management LP.

‘Not Be Overshadowed’

Until recently, Drew did well with her investments, with the corporate division under which she reports earning a peak of $3.7 billion in 2009. The bank doesn’t break out results for the chief investment office. JPMorgan rewarded her with a $15 million pay package for 2010 and $14 million for her performance last year, according to regulatory filings.

“Ina Drew has been a great partner over her many years with our firm,” Dimon said in the statement. “Despite our recent losses in the CIO, Ina’s vast contributions to our company should not be overshadowed by these events.”

Drew was credited with guiding the company through the Russian debt crisis and collapse of hedge fund Long-Term Capital Management in 1998; market dislocation after the World Trade Center attacks and Enron Corp. bankruptcy in 2001; and the more recent financial crisis in 2008.

Avoids Limelight

Drew had a “tremendous ability through many crises to steer the firm through what would have otherwise been very painful liquidity periods,” said Lesley Daniels Webster, who was the bank’s head of market and fiduciary risk and worked with Drew for more than a decade. “JPMorgan Chase became a safe haven during the financial crisis” due to her management.

Drew, who declined to be interviewed for this article, is a private person who avoids the limelight, according to more than a dozen people who have worked with or know her personally. She graduated in 1978 from Johns Hopkins University in Baltimore and later got a master’s degree from the School of International Affairs at Columbia University. She began her career as a foreign-exchange and fixed-income trader at the Bank of Tokyo in 1979 and was hired in 1982 by Chemical Bank, which eventually became JPMorgan through a series of mergers.

Health Leave

She rose through the ranks at Chemical and was given oversight of U.S. interest-rate risk for the broader bank as well as a some discretionary trading positions in 1991 when it merged with Manufacturers Hanover Corp., according to a press release at the time. She was eventually given oversight of interest-rate and foreign-exchange risk globally, said incoming Freddie Mac CEO Don Layton, who was Drew’s boss from 1992, when Chemical Bank and Manufacturer’s Hanover merged, until 2002 at JPMorgan.

“She had a smart group of people who managed the investment portfolio well, developed good advanced techniques for measuring and managing the risk, sought the liquidity needs of the bank so we were well positioned at all times,” Layton said in an interview.

Drew went on leave for health reasons in 2010, said two people familiar with the matter, who asked not to be identified because the information is private. While she was out, Macris and Althea Duersten, who ran North America at the time and has since left the bank, assumed her duties for about six months, reporting directly to Dimon, a senior JPMorgan executive said.

Credit Trader

Macris, 50, and another trader on his team, Javier Martin- Artajo, are leaving the New York-based firm, the Wall Street Journal reported yesterday, citing the unidentified people. Martin-Artajo was not mentioned in Zames’s memo, and he didn’t respond to messages seeking comment. Kristin Lemkau, a JPMorgan spokeswoman, didn’t have an immediate response.

JPMorgan hired Zames from Credit Suisse First Boston in 2004 to run trading in Treasuries, agencies and interest-rate swaps and options. His responsibilities increased to include currencies, securitized products and municipal bonds. In 2009, Zames and Daniel Pinto were picked to run fixed income after Jes Staley took over the firm’s investment bank from William Winters and Steven Black. Pinto will become sole head of the business, according to the statement.

Under Zames and Pinto, JPMorgan has become the top bank globally in fixed-income trading. The firm’s 17 percent market share in 2011 was a record for Wall Street, Staley told shareholders earlier this year.

Bear Stearns

Zames previously worked at Long-Term Capital Management, which collapsed in 1998. Zames, then a 27-year-old trader, was one of two people at LTCM that Bill Krasker, described as the partner who had constructed many of the firm’s models, sought out in late August 1998 when he saw that U.S. swap spreads were trading in a wider range than the fund’s models had predicted, according to “When Genius Failed,” Roger Lowenstein’s book about the collapse of Long-Term Capital Management.

A decade later, in March 2008, Zames led a JPMorgan credit team dispatched to the offices of Bear Stearns Cos. to determine the investment bank’s financial position, according to “Last Man Standing,” Duff McDonald’s book on Dimon. JPMorgan ultimately provided Bear Stearns a secured loan facility with the Federal Reserve Bank of New York before agreeing to buy the firm two days later.

Zames, as chairman of the Treasury Borrowing Advisory Committee, wrote a letter to Treasury Secretary Timothy Geithner last year that said a failure to raise the nation’s $14.3 trillion debt limit could be “catastrophic.”

Madoff Scheme

He told JPMorgan Chief Risk Officer John Hogan in June 2007 that there was speculation that Bernard L. Madoff’s investment returns were part of a Ponzi scheme, according to a complaint filed against the bank by Irving Picard, the trustee liquidating Madoff’s firm. That was a year and a half before Madoff was arrested. Madoff, 74, is serving a 150-year sentence in a North Carolina federal prison after admitting he directed the biggest Ponzi scheme in history.

Picard sued the bank for $19 billion, saying the lender turned a blind eye to the fraud and should have alerted regulators. JPMorgan, which was Madoff’s primary banker, denied the allegations and U.S. District Judge Colleen McMahon in November dismissed the lawsuit.

© Copyright 2022 Bloomberg News. All rights reserved.

Monday, 14 May 2012 05:46 PM
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