Investment chief sacrificed over bank’s big losses

The biggest bank in the United States by assets said Ms Drew, its New York-based chief investment officer and one of its highest-paid executives, would retire.

The statement made no mention of two of her subordinates who were involved with the costly derivatives trades, London-based Achilles Macris and Javier Martin-Artajo, who sources have said were expected to leave.

Neither could be reached for comment yesterday. A woman who answered the door at Mr Macris’s London apartment in a grandiose 19th century mansion block overlooking Westminster Cathedral said he was at work.

The departure of Ms Drew after 30 years at JPMorgan comes after the unit she ran, known as the Chief Investment Office (CIO), mismanaged a portfolio of derivatives tied to the creditworthiness of bonds, according to bank executives.

The portfolio included layers of instruments used in hedging that became too complicated to work and too big to quickly unwind in the esoteric, thinly traded market.

One hedge fund manager who previously ran a proprietary trading book at JPMorgan said the bank’s public commitments to trim balance sheet risk were at odds with its network of trading silos, who were making bets independently with only a handful of the bank’s most senior executives notified of their vast, complex exposures.

“This (CIO) group was completely separate, completely distinct from the proprietary trading unit. We had no clue about their prop book and they would have no clue about ours for that matter,” the manager said.

Until the loss was disclosed late on Thursday, Ms Drew was considered by some market participants as one of the best managers of balance sheet risks.

She earned more than $15m in each of the last two years.

The losses have marred JPMorgan’s reputation for risk management, prompted a downgrade in its credit ratings and thrown an unflattering spotlight on Mr Dimon, a critic of increased regulation who had become one of America’s best-known bankers.

He is a board member of the Federal Reserve Bank of New York.

The congresswoman Elizabeth Warren, who chaired the congressional committee that oversaw the US bank bailout programme, said he should not be on the panel advising the Fed on bank management and oversight.

“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,” she said.

Mr Dimon has struck a more contrite pose since revealing the losses. In an interview, he said the bank’s handling and oversight of the derivative portfolio was “sloppy” and “stupid” and that executives had reacted badly to warnings last month that the bank had large losses in derivatives trading.

He said executives were “completely wrong” in public statements they made in April after being challenged over the trades in news reports.

“We got very defensive. And people started justifying everything we did,” Mr Dimon said. “We told you something that was completely wrong a mere four weeks ago.”

The loss, and Mr Dimon’s failure to heed the warnings, have become major embarrassments and have given regulators new arguments for tightening controls on big banks and requiring them to hold more capital to cushion possible losses.

Issues relating to the bank’s internal controls were raised in 2010 when it was fined £33m by the Financial Services Authority for failing to segregate client money from its own in the UK – an incident that also led to its auditor PwC being fined £1.4m for failing to spot the transgression.

JPMorgan lost $15bn in stock market value the day after the latest loss announcement.