Protesters held signs outside the gate of JPMorgan Chase’s annual stockholder meeting in Tampa, Fla.
Scott Iskowitz, Associated Press
Internal clashes had role in JPMorgan Chase debacle
- Article by: JESSICA SILVER-GREENBERG and NELSON D. SCHWARTZ
- New York Times
- May 19, 2012 - 7:47 PM
Ever since JPMorgan Chase disclosed a multibillion-dollar trading loss this month, the central mystery has been how a bank known for its skill at risk management could err so badly.
As early as 2010, the senior banker who has been blamed for the debacle, Ina Drew, began to lose her grip on the bank's chief investment office, according to current and former traders. She had guided the bank through some of the most rugged moments of the 2008 financial crisis, earning the trust of Jamie Dimon, JPMorgan's chief executive, in the process.
But after contracting Lyme disease in 2010, she was frequently out of the office for a critical period, when her unit was taking riskier positions, and her absences allowed long-simmering internal divisions and clashing egos to come to the fore, the traders said.
The morning conference calls Drew had presided over devolved into shouting matches between her deputies in New York and London, the traders said. That discord in 2010 and 2011 contributed to the chief investment office's losing trades in 2012, the current and former bankers said. "The strife distracted everyone because no one could push back," said one current trader in the office who insisted on anonymity. "I think everything spiraled because of the personality issues."
Dimon has described the trades as "sloppy" and "stupid," but has not identified the specific mistakes.
The trading loss, initially estimated at $2 billion but now said to equal at least $3 billion, is the most embarrassing misstep of Dimon's seven-year tenure, and it has also strengthened the hand of regulators in Washington who are in the final stages of writing new rules that could reshape the banking industry.
JPMorgan and Drew declined to comment. Dimon is due to make a presentation Monday at an investor conference in Manhattan. While JP- Morgan's stock has suffered since the disclosure of the loss, the bank's overall health remains strong.Shift in command
Drew, 55, resigned as chief investment officer last week. In 2011, she earned roughly $14 million, making her the bank's fourth-highest-paid officer.
But when the losses were mounting in recent weeks, Drew's command of the chief investment office was far different than it had been during her stellar performance of 2008, according to interviews with more than a dozen current and former traders, bankers and executives at JPMorgan Chase. All insisted on anonymity.
In the midst of the financial crisis, for example, Drew attended the regular morning huddle with traders and forced them to defend positions and outline the risks they would face during the approaching trading day.
"I always thought she was cool-headed and an excellent manager," said Petros Sabatacakis, a former senior executive at Citigroup who worked with Drew at Chemical Bank.
Drew also enjoyed the confidence of her subordinates, according to former employees. Part of her skill, they said, was her steely resolve. "She never panicked and made us exit positions out of fear," one former trader said.
But Drew's firm hand began to weaken after she contracted Lyme disease. Her absences from the office opened the door for rivalries and tensions among her deputies to flare into the open.
Most significant, her deputies in New York were increasingly at loggerheads with the trader in London who spearheaded the strategy behind the losing bet, Achilles Macris, the current and former traders said.
But there was only so much she could do when she was away, even though some current traders and senior executives at the bank emphasized that Drew remained vigilant about risky trades throughout her tenure. "No one could really challenge Achilles's traders," a former risk officer said.
Drew eventually returned from sick leave and reasserted herself as head of the chief investment office. But instead of sitting one floor above the trading desk, as she had done previously, Drew, in a reflection of her rising profile, moved upstairs to an office among senior executives.
As the infighting continued, Macris was supervising Bruno Iksil, now known as the London Whale for the huge positions he amassed in the credit markets. Said one former trader: "No one could sufficiently push back against Achilles, so he and Bruno could do what they wanted," one former trader said.
© 2013 Star Tribune