JPMorgan Chase & Co. (JPM:US) Chief Investment Officer Ina R. Drew, head of the unit responsible for a $2 billion trading loss, built a 30-year career at the largest U.S. bank by embracing risk and avoiding the spotlight.
“With everything she does, she thinks in terms of trading,” said Stephen Murray, head of CCMP Capital Advisors LLC, created from a JPMorgan private-equity unit in 2006. “There are risk-lovers, there are risk-haters, and the best traders will take the risk as long as they get paid for it.”
Drew’s operation, which helps manage the bank’s risk, has been transformed under Chief Executive Officer Jamie Dimon to make bigger speculative bets with the firm’s own money, according to five former employees, Bloomberg News reported last month. Some bets were so big JPMorgan probably couldn’t unwind them without roiling markets, the former executives said.
The loss disclosed yesterday came after an “egregious” investment-office failure tied to credit derivatives, Dimon said in a conference call. “In hindsight, the new strategy was flawed, complex, poorly reviewed, poorly executed and poorly monitored.”
Drew, 55, is one of two women who sit on the New York-based firm’s operating committee. Her office oversees about $360 billion, the difference between money from deposits and what the bank extends in loans. Dimon, 56, had pushed the unit to boost profit by buying higher-yielding assets, including structured credit, equities and derivatives, two former employees have said. The shift to riskier bets underscores how blurry the line can be between so-called proprietary trading and what banks say is hedging.
Drew has overseen both kinds at the firm for decades. She joined Chemical Banking Corp. in 1982 after graduating from Johns Hopkins University in Baltimore and receiving a master’s degree from Columbia University’s School of International Affairs, according to the bank.
When Chemical merged with Manufacturers Hanover Corp. in 1991, Drew was put in charge of managing U.S. interest-rate risks and given oversight of discretionary trading positions, according to a news release that year.
“Ina was all about risk-taking,” said Mark Schneiderman, a former human resources manager at Chemical. “She was scary- smart, she was very determined, she was very low-key compared to the crazies that you find on a trading floor -- but very, very determined.”
Petros Sabatacakis, a former chief risk officer for Citigroup Inc. and now a director of the National Bank of Greece SA (ETE), said he promoted her at Chemical.
“I don’t know what makes a good trader, but I could see the results,” he said in an interview.
Chemical merged with Chase Manhattan Corp. in 1996. Drew’s work as head of Chase’s domestic treasury helped position the firm for the collapse of hedge fund Long-Term Capital Management LP two years later, according to an executive who worked with her on risk management and stress tests. The person asked for anonymity because he wasn’t authorized to speak. While Chase reported record earnings (JPM:US) for the fourth quarter of 1998, Drew never sought publicity, the colleague said.
Drew, who was put in charge of JPMorgan’s chief investment office in February 2005, received $14 million from the bank last year, according to company filings. Dimon said yesterday that the portfolio she managed almost doubled in recent years.
“I read somewhere that we made it more aggressive,” he said yesterday. “I wouldn’t call it more aggressive, I would call it better.” Joseph Evangelisti, a spokesman for JPMorgan in New York, said Drew wouldn’t comment.
John Farrell, a former human resources chief at JPMorgan, said Drew would tell heads of the firm’s investment-banking and trading businesses, “I don’t agree with that, and here’s what we should be doing,” Farrell recalled. “And what we end up doing was what Ina said.”
“Remember, the CIO has done a great job for a long, extended period of time,” Dimon told analysts on the conference call. “This was a unique thing we did.” While the trade had been making money for the bank (JPM:US), “it’s obvious at this point that there were many errors, sloppiness and bad judgment.”
More than one trader was responsible for the losses that originated from the unit’s London team, which reports to Drew in New York, according to an executive at the bank. The company is reevaluating the risk-monitoring team within her unit as the firm examines what happened, according to the executive, and Dimon said yesterday that “corrective action” is coming.
Hubris played a role, said Terry Connelly, former dean of the Ageno School of Business at Golden Gate University in San Francisco and an ex-managing director at Salomon Brothers Inc. “There is a tendency when you are making money to think you will always make money,” he said. “How does something get away from you? Because it’s working.”
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