UPDATE: JPMorgan Exec Leaves In Wake Of Losses
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Drew has been trying to step down since the losses became known (Courtesy Bloomberg)
Drew will be replaced by Matt Zames, the head of global fixed income at the firm, Bloomberg reported. The London staff at the chief investment office where the losses occurred may also be at risk of dismissal.
The massive losses, which were announced Thursday night, were the result of a failed hedging strategy, the New York Times reported. Drew had repeatedly tried to resign after losses became apparent in April but CEO Jamie Dimon had refused to accept the resignation until now. Two of Drew's subordinates who were involved in the losses, Achilles Macris and Javier Martin-Artajo, are expected to be asked to leave as well, according to Reuters.
"There's almost no excuse for it," Dimon said on "Meet the Press" Sunday. He also admitted that the bank had been "sloppy" and "stupid."
The blunder has given ample ammunition to advocates of financial regulation. Sen. Carl Levin co-authored the so-called Volcker rule to restrict proprietary trading by banks which have federally-insured deposits. He told "Meet the Press" that the cost of JPMorgan Chase's loss will include its inability to resist stricter regulations.
"The real problem here is the battle is not just between Washington and Wall Street," Levin said. "The battle is inside of Washington."
According to the San Francisco Chronicle:
Dimon has been a critic of Dodd-Frank provisions including the Volcker rule, which is meant to restrict proprietary trading by banks with federally insured deposits.
Elizabeth Warren, a Massachusetts candidate for U.S. Senate, called on Dimon to step down as a director at the Federal Reserve Bank of New York.
"He advises the Federal Reserve on the oversight of the financial industry," Warren said yesterday in an e- mailed statement. "Dimon should resign from his post at the New York Fed to send a signal to the American people that Wall Street bankers get it, and to show that they understand the need for responsibility and accountability."
Fed officials are gathering more information about the trading position, which they have known about for several weeks, according to a person familiar with the matter.
Until the losses were announced, Drew had been considered one of the industry's best managers of balance sheet risk and earned more than $15 million for each of the past two years.
CEO Jamie Dimon said the bank is continuing to investigate what happened and that disciplinary measures would be taken.
Comments
The derivative hedging game played by JPMorgan Chase is no different than that played by AIG in 2008.
Yet, Jamie Dimon tells us that Chase had merely “made a terrible, egregious mistake.”
He might as well have said that Chase was wrong in raising in a game of poker, when it would have been more prudent to have folded. Why was Chase busy gambling right after our economic meltdown in the first place, and while fighting government regulations?
One answer is because Chase could bear the gambling losses.
That’s right. With $2 trillion at hand, Chase can yawn when $3 billion goes down the tube.
Nonetheless, Dimon tells us that he sees no problem with the government dismantling big failing banks. This is good to know because the government should start dismantling big banks before they fail -- and before they have another chance to take us down with them.
The important lesson then from this Chase episode is not that stringent regulations are needed to reign in on derivatives, but that banks big enough to take a huge hit standing up, are ripe enough for us to chop them down to size.