By The Associated Press
NEW YORK – The banker who ran J.P. Morgan Chase & Co.’s chief investment office, which incurred a trading loss of more than $2 billion, has decided to retire, becoming the first high-ranking casualty in a scandal that has dented the bank’s reputation and prompted fresh calls for tighter financial regulation.
Shares of J.P. Morgan Chase, part of the Dow Jones Industrial Average, closed Monday down 3.2 percent at $35.79, after having slumped more than 9 percent on Friday.
Soon before the stock market opened, the bank said in a statement that Ina Drew, who has been at the firm for more than 30 years, will retire as chief investment officer. Her departure had been widely expected after her office suffered a roughly $2 billion trading loss, disclosed last Thursday.
J.P. Morgan’s statement on Monday didn’t specify the terms of Drew’s retirement. The Wall Street Journal reported on Sunday that she may receive $14.65 million of accelerated equity awards depending on the terms of her departure. Her compensation is likely to come into the spotlight as J.P. Morgan holds its annual shareholder meeting on Tuesday.
Drew, 55, reportedly is one of the highest-paid women on Wall Street. Back in 1993, Crain’s New York Business named Drew one of the “40 under 40” executives to watch; at the time, she was working for Chemical Bank, which later bought Chase Manhattan Bank.
J.P. Morgan said that Drew will be replaced by Matt Zames, the co-head of global fixed income in the company’s investment bank and head of capital markets in the mortgage bank.
In addition, executive Mike Cavanagh will oversee a team tasked with responding to the firm’s trading loss, which resulted from a soured hedge on credit derivatives. With the bank still in the process of unwinding these trading positions, the final scale of the loss remains unclear.
In a statement, Chairman and Chief Executive Jamie Dimon praised Drew for her work, saying: “Despite our recent losses in the (chief investment office), Ina’s vast contributions to our company should not be overshadowed by these events.”
Dimon, who has been a vocal opponent of stricter regulation of the banking industry in the wake of the 2008-09 financial crisis, also said Monday that his bank is “very strong and well capitalized.”
“We will learn from our mistakes,” he added.
Pressure has been growing on the J.P. Morgan chief in recent days. Over the weekend, Elizabeth Warren, the Democratic candidate for the U.S. Senate from Massachusetts, called on Dimon to resign from the board of the Federal Reserve Bank of New York, a role in which he advises the Fed on oversight and policy for the industry.
“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,” said Warren, who helped establish the federal government’s Consumer Financial Protection Bureau, in a statement.
Kevin Giddis, head of fixed-income capital markets at Morgan Keegan amp& Co., a unit of Raymond James Financial, said that the significance of J.P. Morgan’s loss extends well beyond the firm. “A loss of that magnitude from the bank widely considered to be the industry exemplar in terms of risk management makes it much more likely that the controversial ‘Volcker rule’ will be enacted, with the final language being much stricter than its opponents might have hoped for,” he wrote in a note to clients.
The Volcker rule – named after former Federal Reserve Chairman Paul Volcker, who suggested it – seeks to prohibit big banks from trading stocks and derivatives with their own money and significantly limit banks’ investments in hedge funds and private-equity funds.
In an interview with NBC’s “Meet the Press” program aired Sunday, Dimon said that the bank supports around 70 percent of the provisions in the Dodd-Frank act on Wall Street reform, such as higher capital requirements for banks.
“You’re not going to make banks risk-free, but we agree with a lot of the standards that are going to make it safer,” he added. “I actually think a lot of the things in Dodd-Frank will accomplish that purpose.”
As for the $2 billion trading loss, the J.P. Morgan boss said: “We took far too much risk. The strategy we had was barely vetted; it was barely monitored.”
But Dimon stressed that the loss doesn’t threaten J.P. Morgan’s existence: “We are still going to earn a lot of money this quarter. So it isn’t like this company is jeopardized.”