JPMorgan Chase & Co. boss James Dimon replaced longtime lieutenant Charles Scharf, who oversaw a large retail-banking and mortgage unit that is still reeling from the U.S. housing crisis.
The decision to move Scharf, who first began working for Dimon more than two decades ago, to a less senior role is part of a management shakeup that also includes the planned retirement of Heidi Miller, another of Dimon's longtime allies. Although Scharf is joining the bank's small private-equity arm, analysts say he is now an unlikely successor to the 55-year-old Dimon, who has served as chief executive since 2005.
Dimon has told colleagues he could stay as leader of the nation's second-largest bank for at least another five years but has said that an orderly succession is one of his top priorities.
Scharf, 46, had been considered one of the leading candidates as the head of JPMorgan's huge retail bank -- a division that produced 30% of the bank's revenue in 2010. He will no longer be a member of the bank's operating committee, the company's top decision-making body.
His new role is to invest the bank's money in outside companies as one of 14 partners in JPMorgan's private-equity arm, a unit that barely got a mention in the company's 2010 annual report.
"Going from running the [retail bank] to being a partner in their private investment arm, most people would say on the surface it looks like a lateral to a downtick move," said Gerard Cassidy of RBC Capital Markets. "Certainly that would not help" his chances of succeeding Dimon, Cassidy added.
Dimon said in an interview the new role for Scharf isn't a demotion. "I think it is a great thing for him."
Scharf, who said in an interview that he requested a new job, said the many headaches weighing down his unit had become too much.
"You get to a point in life where you have to enjoy what you do when you come in every day," he said. "I wasn't enjoying it."
Scharf's unit had been struggling with a series of hangovers from the financial crisis, including large loan losses, an embarrassing disclosure that it foreclosed on homes owned by active-duty military members, mounting requests from investors to repurchase bad mortgages and scrutiny over document errors from state and federal watchdog agencies. In the first quarter of 2011 it was the only JPMorgan unit in the red, losing $208 million.
Scharf's various responsibilities are being split among three other executives.
Dan Fitzpatrick is a reporter for The Wall Street Journal, where this story originally appeared. Write to him here.