[ by Howard Haykin ]

The Stench of $6+ Billion Trading Loss Continues to Foul the Halls of JPMorgan Chase.

Forgive me for this literary departure, but it doth seem that .....    The aftermath of JPMorgan's $5.8 or so billion loss in London by the bank's Central Investment Office, has played out so far in a manner that's similar to William Shakespeare's Macbeth. 

In Act V, Lady Macbeth is tortured by her conscience for having consipired with her husband to murder Duncan, King of Scotland.  Lady Macbeth's tell-tale heart repeatedly conjures up images of King Duncan;s blood on her hands.  Though she washes and washes her hands, she is unable to cleanse them of the blood - a reminder of the deadly deed.  Ultimately, Lady Macbeth committs suicide offstage.

Doctor:  What is it she does now? Look how she rubs her hands.
Gentlewoman:  It is an accustom'd action with her, to seem thus washing her hands. I have known her continue in this a quarter of an hour.
Lady Macbeth:  Yet here's a spot.
Doctor:   Hark, she speaks. I will set down what comes from her, to satisfy my remembrance the more strongly.
Lady Macbeth:  Out, damn'd spot! out, I say!—One; two: why, then 'tis time to do't.—Hell is murky.—Fie, my lord, fie, a soldier, and afeard? What need we fear who knows it, when none can call our pow'r to accompt?—Yet who would have thought the old man to have had so much blood in him?

Parallel to the JPMorgan $5.8 or so billion loss. The losses incurred through series of derivative transactions supposedly were conjured up and executed by the bank's London-based outpost - the Central Investment Office.  In the aftermath of the loss, as the numbers have grown exponentially and the explanations for breakdowns in internal controls and oversight become murkier, the episode is dominated by a constant flow of internal accusations and the killing off careers (terminations) of long-time loyal executives of the bank - some of whom had been viewed as key. 

Could it be that this incident, which Jamie Dimon initially wrote off as being a nominal trading loss, has embarassed and laid guilt among JPMorgan's top core management?  Realizing that this loss, and this story has a long after-life that, in no possible way, can be beneficial to the public relations of the bank or its management.  CEO Jamie Dimon is deeply troubled, unable to hide his feelings and the personal pr essure he carries. 

Outwardly, bank management puts up a strong front - a "What Me Worried?" personna that looks a little too glib. We see very little in the way of pangs of guilt, contrition on the part of core management.  We have people like CEO Jamie Dimon, who typically is mild mannered, a sponge for details and risk factors within multiple business areas.  He's like the doctor who keeps his finger to the pulse of each business area, cognizent that too much risk can cause securities position to come crashing down on the bank. 

Yet, in a departure from his usual steeliness and aversion to unnecessary risk, Mr. Dimon claims to have not monitored the situation - because he had implicit faith in the department and its head, Ina Drew.  He was so confident of his convictions that he expresses those sentiments to his management team - who, in turn, take his message as an order to not interfere with the trading activiteis of CIO. 

Even when it's time to terminate Ina Drew – or at least permit her to retire – Mr. Dimon can only sing praises of Ms. Drew's wonderful service and value to JPMorgan Chase.  Nothing negative about her failed oversight that seemingly wiped out all her 20 or 30 years of valuable service.  Somehow, a supposed series of 'hedge transactions' morphed into large uncovered positions that, in fact, came crashing down on the bank- the concern that Jamie Dimon has always looked out for.

The Latest Event at JPMorgan Chase - Which Brought About this Literary Kick?   It could possibly be attributed to any number of things.  But I'm pretty sure it was the story in Friday's Dealbook - "After Multibillion-Dollar Loss, JPMorgan Continues to Revamp."  Written by Jessica Silver-Greenberg, we learn that 2 senior executives at JPMorgan Chase are expected to leave by the end of the year, in the latest round of management reshuffling after the bank's multibillion-dollar trading loss.

• Irene Tse --  who headed up the North American arm of the chief investment office, the powerful but previously little known unit at the center of the trading mishap -- is leaving to start her own hedge fund.
• Barry Zubrow --  who currently runs the bank's regulatory affairs, is expected to cede his current position by January, according to several current and former executives with knowledge of the move.

Their exits come in the long aftermath of the trading blunder, which stemmed from a soured credit bet. The losses have been a rare black eye for Jamie Dimon, JPMorgan's chief executive, once considered among the most skilled risk managers on Wall Street.

As chief risk officer at the bank from 2007 to January 2012, Mr. Zubrow has been associated with the trading losses.  Ms. Tse, meanwhile, joined the bank in early 2011 from hedge fund Duquesne Capital Management to take over as head of the North American trading desk.

Taken as a whole, the entire post script to the discovery of the trading loss comes across as a revampiing of several areas within JPMorgan's organization.

• The bank has appointed a new head of the chief investment unit to succeed Ina Drew, one of the most notable casualties of the trading mess.
• The bank has promoted a number of younger executives, including Mike Cavanagh and Daniel Pinto, to head up a united corporate and investment bank.
• Mr. Cavanagh is leading the cleanup operation.

During Mr. Dimon's nearly 6-year reign, the bank has undergone a number of management shuffles.  Few of the executives who made up Mr. Dimon's inner circle during the financial crisis - including Bill Winters, Steve Black, and Heidi Miller - remain.
 

[C-I Note: Given the fact that Mr. Dimon has revamped his management team again and again, it would appear that there are few if any individuals who would be considered ready to succeed Mr. Dimon as chief of JPMorgan Chase.  Perhaps, Mr. Dimon should begin now to prepare for his succession.  Having lost his mantle as the top banker in New York - one who could do no wrong - he has suddenly steered his organization into a number of deep potholes and if any turn out to have serious underpinnings, he could be terminated by the bank's directors in a "New York Minute."]

For further details, go to:  [Dealbook, 10/5/12].