The J.P. Morgan trading loss is turning into an action adventure movie. As the reported $2.3 billion trading loss grows potentially larger, some estimating as much as $4 billion when the smoke clears, J.P. Morgan has gone into Def Com mode, sending in what CEO Jamie Dimon is quoted as calling its "A Team" to fix this risk management juggernaut before the hole in the side of America's largest bank gets any larger.
This is a story in motion folks. New headlines are popping every hour, so stay tuned to Twitter for updates.
Here's some of the fallout as reported by a variety of sources including our own Sarah Butcher in the UK, where most of the action is taking place.
First off, heads are already rolling
The person responsible for trading strategy at JPMorgan Chase, one of the highest-ranking women in Wall Street, has become the first casualty of the bank's stunning $2 billion loss, according to the Associated Press. Chief Investment Officer Ina Drew, who worked at the bank for 30 years, has been replaced by Matt Zames, an executive in J.P. Morgan's investment bank.
Meanwhile, Bloomberg reports that the entire London staff of the bank's chief investment office, which numbers several dozen, are at risk of dismissal and that bonuses in London will fall, maybe by 50 percent.
Seal Team 6
A group of super risk managers, reportedly known internally as "Seal Team 6," have been summoned to sort out the mess and rectify the problem. Things at J.P. Morgan Europe are going to be different when the dust settles. Risk management within the CIO was inadequate, but risk management within the investment bank is now seen as having restorative powers.
Hence, the New York Times reports that once the problem was identified, a team of risk managers suddenly assigned the name of "Navy Seals" began meeting twice a day at 8 a.m. and 4 p.m. and that Jamie Dimon was often in attendance. The paper adds that the team of super-powered risk managers was referred to as the A Team. Immediately, Mr. Dimon assembled an eight-person team under John Hogan, the company’s chief risk officer. Dimon apparently uttered the words, "Let’s go get the A Team." It’s not clear whether he also played the music.
Once the problem was identified and the A Team activated, the Wall Street Journal reports that Jes Staley and John Hogan flew to London to attend the twice daily meetings. Daniel Pinto, head of the investment bank in Europe – and (until recently) a potential successor of Jamie Dimon, was summoned too.
The real hope for rectification, however, appears to lie with one man: Ashley Bacon, J.P. Morgan’s head of market risk. Bacon has been at J.P. Morgan for nearly 20 years and was previously co-head of European rates. It is up to Ashley to prevent the $2.3 billion turning into $3 billion, or $5 billion, or more.
Research firm Tricumen tries to put the CIO losses in a little context. The office generated $6.8 billion in revenues for J.P. Morgan over the past two years, it points out, adding that “while Jamie Dimon would doubtless like to wish away this incident, we suspect he would not want to wish away the unit.”
The Alleged Perpetrators
Further information has emerged on the alleged perpetrators of the $2.3 billion loss. Although the entirety of the London CIO business are apparently at risk of being let go, some are being fingered more heavily than others. In the process, a new name has emerged: Javier Martin-Artajo. The Wall Street Journal reports today that Ina Drew set the investment strategy and that Bruno Iskil and Martin-Artajo implemented it. Achilles Macris, head of the CIO for Europe, also seems implicated. We already know about Drew and Iskil, but who is Martin-Artajo?
He joined J.P. Morgan in May 2007 from Dresdner, where he was head of credit derivatives trading. Before that, he was head of emerging markets trading for Lehman in Europe. He has an electrical engineering degree from ICAI in Madrid and an MBA from Columbia University (which we assume was his ticket into banking). Within the CIO, Martin Artajo was responsible for investments in rates, credit, FX and equities for Europe.
The Wall Street Journal says the $2.3 billion loss accumulated over 15 days in late April and early May, at an average rate of $153 million per day.
However, the potential for disaster appears to have been flagged long before. The Telegraph reports that queries were raised about the quality of risk management in the CIO as early as 2007. It claims Bill Winters personally raised concerns about what was going on there.