J.P. Morgan's top brass is trying to reassure employees the firm isn't going down the same unfortunate path other risk-loving banks have followed after disclosing a $2 billion trading loss generated by the bank's Chief Investment Office.
Internal memos obtained by FINS from Chief Executive Jamie Dimon -- previously thought to be immune from such calamities -- and Chief Risk Officer John Hogan seek to assure employees that the bank will fix whatever went wrong. It is typical for leaders of large organizations to issue widely distributed responses to employees following the disclosure of big bad news.
Sent by Dimon at 5:07 p.m. last evening to all employees, the first memo said that firm "has made serious mistakes in how we managed this portfolio which was riskier, more volatile and less effective as a hedge than we had previously thought." He said the bank has "top people" "digging deep into these issues," and that the firm "will learn from this experience and take whatever correction is needed."
He told employees that no customers suffered and that he was proud of the 270,000 people who work at J.P. Morgan.
"Thanks for all that you do," he wrote.
The second memo was sent by Hogan and addressed to employees in the risk department. It read in part:
"I want to reiterate the critical role that we play at J.P. Morgan Chase. We must remain vigilant in early identification of risks as they relate to clients, counterparties or markets. Relaxing our guard is never an option. We need to use the tools available to us and not lose sight of tail events. Our focus is no surprises and a readiness to escalate quickly continues to be vitally important. Remember as an independent oversight function it's our responsibility to escalate early and as often we see fit."
Among other things, the risk department's job is to monitor and oversee the credit quality of trades and counterparties. J.P. Morgan said on a hastily arranged conference call yesterday evening that it lost $2 billion due to an oversized trade on credit default swaps, which are essentially insurance contracts betting on whether debt from corporations or countries will go bad.
Dimon didn't spell out what form corrective action at the bank will take. On the conference call with news reporters and analysts yesterday, the CEO said, "all appropriate corrective actions will be taken, as necessary, in the future." The bank, he said, is "changing appropriately as we are getting our hands around it, but we are going to have a CIO who is going to have talented people there, continue to do what they've always done."
Three executives sure to be involved in determining how the firm will avoid such losses in the future include:
1. Ina Drew, head of the CIO and one of two women on the firm's operating committee. Drew, 55, took charge of the office in February 2005 and earned $15.5 million in compensation last year. She's been at J.P. Morgan and its predecessor for 30 years.
2. Bruno Michel Iksil, London-based trader in the CIO. He piled on the credit-default swaps that resulted in the trading loss. He's been nicknamed the "London whale."
3. John Hogan, 46, chief risk officer. Hogan replaced Barry Zubrow in January as CRO. Before his promotion, he served as chief risk officer for the investment bank arm at J.P. Morgan.
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