(AP Photo/Kathy Willens, File)
WASHINGTON – Three JPMorgan Chase senior executives are set to resign this week over the firm’s $2 billion loss on derivatives trades, including the executive who oversaw the trade, US media reported Sunday.
The reports came as the bank’s chief executive Jamie Dimon admitted that the stunning loss had jeopardized the bank’s credibility and given regulators a fresh opportunity to target Wall Street.
Dimon is set to accept as early as Monday the resignation of Ina Drew, a 55-year-old chief investment officer who has worked at the firm for three decades, The New York Times said, citing company executives.
The Wall Street Journal said two other high-ranking executives were set to leave during the week: Achilles Macris, who heads the London-based desk that placed the trades, and trader Javier Martin-Artajo, a managing director on Macris’s team.
Drew had repeatedly tendered her resignation since the extent of the loss became apparent in late April, but Dimon had refused to accept it until now, according to the reports.
London-based trader Bruno Michel Iksil, nicknamed “The London Whale” for the large positions he took in credit markets, is also likely to leave though it remains uncertain when he will do so, the Journal said.
In a contrite but unshaken appearance, Dimon told NBC’s “Meet the Press” program that the big loss incurred by the New York-based bank, which triggered a slide in banking shares on Friday, was “stupid” and damaging, but not bad enough to stop the company from making a profit this quarter.
The Wall Street boss has led US banks in fighting the proposed Volcker Rule, which would ban so-called proprietary trading, when banks trade on their own accounts. Banks are also resisting curbs on their hedging activities.
Asked if JPMorgan’s losses had given regulators new ammunition to clamp down on Wall Street after the US government spent billions to bail out financial institutions during the 2008 crisis, Dimon replied: “Yes, absolutely. This is a very unfortunate and inopportune time to have had this kind of mistake.”
He denied that the company’s hedging scheme — designed to lower investment risk, but which instead spectacularly backfired — had placed its future in doubt.
“It’s a question of size. This is not a risk that is life-threatening to JPMorgan,” said Dimon, who late Thursday told analysts that the loss could increase to $3 billion through the end of June due to market volatility.
“This is a stupid thing that we should never have done, but we’re still going to earn a lot of money this quarter. So, it isn’t like the company is jeopardized.”
The losses, however, could prompt unwanted ramifications.
“We hurt ourselves and our credibility yes, and we’ve got to fully expect and pay the price for that,” the JPMorgan chief added.
The interview, aired Sunday, was conducted Friday after JPMorgan shares closed down 9.3 percent, wiping $14 billion off the company’s market value.
The Wall Street Journal reported Saturday that JPMorgan told traders several months ago to make bets aimed at shielding the bank from the market fallout of Europe’s deepening crisis.
But instead of shrinking the risk, their complicated bets backfired into losses of as much as $200 million a day in late April and early May, the paper said.
The shock loss came over the past six weeks in JPMorgan’s risk management unit, the Chief Investment Office, and involved trading in credit default swaps, a so-called “synthetic hedge.”
The losses were a humiliation for Dimon — one of the US financial industry’s biggest figures — and for the bank, after it proudly came through the 2008 crisis in far better shape than many of its rivals.
Politicians who want tighter regulatory controls on banks have seized on JPMorgan’s losses.
Four years on from the crisis however, with profits booming once more, the banking industry has said the Volcker Rule — named after former Federal Reserve chairman Paul Volcker — would amount to an unnecessary block on its freedom to conduct business.
Senator Carl Levin, who has drafted the Volcker legislation, said it would be known by July if banks were going to face tougher rules, or if the law would be undermined by a “massive lobbying effort from Wall Street.”