Twice in the past 100 days, JPMorgan Chase & Co. (JPM:US) Chief Executive Officer Jamie Dimon has turned to a 41-year-old former hedge-fund trader to tackle challenges facing the largest U.S. bank.
Matt Zames, named chief investment officer in May to contain trading losses that have cost at least $5.8 billion, became the firm’s co-chief operating officer last week. Zames, who began the year as co-head of the bank’s fixed-income business, now oversees senior executives including Chief Financial Officer Douglas Braunstein, 51, and regulatory affairs head Barry Zubrow, 59.
“He had the guts and the brains,” Dimon said in an interview after announcing the management shakeup on July 27. “Matt is straight, direct, does his work. He’s got that kind of confidence without arrogance.”
Zames’ promotion comes as Wall Street’s five biggest banks reported the worst start to a year since 2008, and as a growing number of investors, analysts and industry veterans, including Citigroup Inc. (C:US) creator Sanford “Sandy” Weill, call for the breakup of U.S. financial conglomerates. Zames will help lead a bank that faced two congressional hearings last month and is the subject of at least four federal probes into the chief investment office’s trading losses.
Zames shoots sporting clays, described by its national association as “golf with a shotgun.” He studies military history, reading books about World War II and more recent conflicts. A husband and father of three, he leaves his bed in New Jersey at 4:45 a.m., he said in an interview.
“I wake up every morning -- every morning -- excited to actually make this place a better place,” he said. “I am truly humbled and honored to have been given the opportunity.”
Zames will continue to lead the chief investment office while adding oversight of finance, strategy and regulatory affairs, according to a memo sent to employees last week. The additional duties place him among senior executives who might one day succeed Dimon. Zames will serve as co-COO alongside Frank Bisignano, 52, whose responsibilities include technology and security.
Two JPMorgan executives who weren’t authorized to speak on the matter said Zames is particularly interested in trying to help shape regulatory policies so they’ll be better for the New York-based bank and the broader economy.
He and Dimon, 56, were both involved in an earlier multibillion-dollar trading crisis. After graduating from the Massachusetts Institute of Technology’s Sloan School of Management in 1993 and spending some months at Goldman Sachs Group Inc. (GS:US), Zames became a trader for Long-Term Capital Management LP.
The hedge fund was bailed out in 1998 after Russia’s debt default led to $4 billion of losses in what was then one of the largest collapses in U.S. investment history. The Federal Reserve Bank of New York organized support from banks including the firm Dimon was leading, Salomon Smith Barney. Zames said he “definitely” remembers meeting Dimon then, though his boss doesn’t. “No,” Dimon said when asked about the encounter.
Even so, Long-Term Capital veterans recall Zames as one of the firm’s most-trusted young traders.
“You did not get hired at Long-Term unless you were the best and brightest -- you just didn’t, it didn’t matter if you were a secretary,” said James Rickards, once the fund’s general counsel, who wrote the book “Currency Wars.” “Even in that milieu, Matt stood out.”
Zames was trusted and mentored by senior colleagues, according to Rickards and Long-Term partner Eric Rosenfeld.
“He’s a mathematician and he’s a poet: He understands the math, but he understands qualitatively what’s going on,” said Rosenfeld, who now teaches fixed-income at Sloan. Zames is one of the people on Wall Street who “live and breathe the trades they’re doing,” he said.
The trading that Zames has overseen at JPMorgan has made the firm billions of dollars. Fixed-income trading revenue last year was $14.8 billion excluding accounting adjustments, more than any other global bank. JPMorgan posted the only increase in debt trading among the largest firms that year, while Bank of America Corp. (BAC:US) and Goldman Sachs slid more than 30 percent.
JPMorgan’s 17 percent market share in fixed-income trading among the top 10 global firms is probably a Wall Street record, the investment bank unit’s then-CEO, James “Jes” Staley, said in February.
While Zames was elevated in last week’s shakeup, Staley, 55, relinquished daily operational duties, becoming chairman of an expanded corporate and investment bank division. Once seen as a potential Dimon successor, Staley was Zames’ boss until this year. The new division will be co-led by Mike Cavanagh, 46, and Daniel Pinto, 49. Ina R. Drew, 55, once among Wall Street’s most powerful women and a Dimon confidante, resigned as the CIO’s chief in May, days after that unit’s losses were disclosed.
While Dimon said in last week’s interview that he hopes to keep leading JPMorgan for “many, many more years,” Zames’ promotion fueled speculation that the former trader is now a potential successor, along with Dimon’s long-time lieutenant, Cavanagh. By working with the so-called corporate division, the top of the bank that oversees administrative functions, Zames will gain experience dealing with investors, regulators and the company’s board, Dimon said in the interview.
“I love executives to spend some time in corporate,” Dimon said. Cavanagh served as chief financial officer for about six years and helped integrate JPMorgan with Bank One, where both he and Dimon had worked.
JPMorgan’s shares have slid 17 percent since Bloomberg News first reported April 5 that the bank had built illiquid bets on credit derivatives that were big enough to move markets. The stock closed at $36.89 last week.
Since Zames’ emergency appointment to the CIO in May, the bank has said it reduced the unit’s positions, shored up risk controls and will seek to claw back pay from three London-based employees who oversaw the bets. Drew has also agreed to return compensation. In a worst-case scenario, the trades may yet lose an additional $1.7 billion, compared with $5.8 billion during the year’s first half, the bank said July 13.
In last week’s interview, Dimon praised Zames’ handling of the crisis and recounted their meeting in May to discuss the situation. Dimon had called Zames into work on a Saturday, and the two were standing in a hallway when the CEO asked him to take over the money-losing unit. Zames’ promotion came fewer than three months later.
“When you have a talent like that, you got to give him a challenge,” Dimon said.
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