Discord at Key JPMorgan Unit Is Faulted in Loss

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Ever since JPMorgan Chase disclosed a multibillion-dollar trading loss this month, the central mystery has been how a bank known for its skill at risk management could err so badly.

As early as 2010, the senior banker who has been blamed for the debacle, Ina Drew, began to lose her grip on the bank’s chief investment office, according to current and former traders. She had guided the bank through some of the most rugged moments of the 2008 financial crisis, earning the trust of Jamie Dimon, JPMorgan’s chief executive, in the process.

But after contracting Lyme disease in 2010, she was frequently out of the office for a critical period, when her unit was making riskier bets, and her absences allowed long-simmering internal divisions and clashing egos to come to the fore, the traders said.

The morning conference calls Ms. Drew had presided over devolved into shouting matches between her deputies in New York and London, the traders said. That discord in 2010 and 2011 contributed to the chief investment office’s losing trades in 2012, the current and former bankers said.

“The strife distracted everyone because no one could push back,” said one current trader in the office who insisted on anonymity because of the nature of the issue. “I think everything spiraled because of the personality issues.”

Mr. Dimon has described the trades as “sloppy” and “stupid,” but has not identified the specific mistakes. The trading loss, initially estimated at $2 billion but now said to equal at least $3 billion, is the most embarrassing misstep of Mr. Dimon’s seven-year tenure, and it has also strengthened the hand of regulators in Washington who are in the final stages of writing rules that could reshape the banking industry. In his radio address on Saturday,President Obama urged tighter restrictions on banks’ trading activity.

JPMorgan and Ms. Drew declined to comment. Mr. Dimon is due to make a presentation Monday at an investor conference in Manhattan sponsored by Deutsche Bank . While JPMorgan’s stock has suffered since the disclosure of the loss, the bank’s overall health remains strong, and the company is expected to post a significant profit in the second quarter.

Ms. Drew, 55,resigned as chief investment officer last week. In 2011, she earned roughly $14 million, making her the bank’s fourth-highest-paid officer.

But when the losses were mounting in recent weeks, Ms. Drew’s command of the chief investment office was far different from what it had been during her stellar performance of 2008, according to interviews with more than a dozen current and former traders, bankers and executives at JPMorgan Chase. All insisted on anonymity because the losses were being examined by a host of regulators, as well as the Federal Bureau of Investigation.

In the midst of the financial crisis, for example, Ms. Drew attended the regular morning huddle with traders and forced them to defend positions and outline the risks they would face during the approaching trading day.

“I always thought she was coolheaded and an excellent manager,” said Petros Sabatacakis, a former senior executive at Citigroup who worked with Ms. Drew at Chemical Bank.

Senior executives at JPMorgan said that her success in 2008, even as other banks were sustaining crippling losses, helped forge a sense of implicit trust between Ms. Drew and Mr. Dimon, one reason that he believed her initial assurances last month that the trades were not seriously troubling.

Ms. Drew also enjoyed the confidence of her subordinates, according to former employees. Part of her skill, they said, was her steely resolve. One former trader recalled that Ms. Drew counseled a credit trader who had a large bet in bank-preferred securities, which began to lose money during 2009. Instead of folding, Ms. Drew supported the trader who wanted to hold on, ultimately generating $1 billion in profits.

Ms. Drew’s success during the market crisis in 2008 also left the chief investment office feeling much more confident — too confident, in the eyes of some former employees there.

“When Ina was there, things ran smoothly,” one former trader there said.

But Ms. Drew’s firm hand began to weaken after she contracted Lyme disease. Her absences opened the door for tensions among her deputies to flare into the open. “Look,” one current trader added, “it is a tough place to work.”


Most significant, her deputy in New York was increasingly at loggerheads with her deputy in London who spearheaded the strategy behind the losing bet, Achilles Macris, the current and former traders said.

But there was only so much she could do when she was away, even though some current traders and senior executives at the bank emphasized that Ms. Drew remained vigilant about risky trades throughout her tenure.

“No one could really challenge Achilles’s traders,” a former risk officer said.

Beyond that, the chief investment office was performing well, earning sizable profits for JPMorgan even as other businesses at the bank, like home loans, began to hemorrhage money. Those gains came as the size of the unit’s trades was increasing, but the office’s success blunted questions that were raised about the added risk.

During this time, Mr. Macris gained more latitude to build and expand trades from his desk in London — including the wagers that ultimately went so wrong for the bank.

For example, Althea Duersten, who was Mr. Macris’s counterpart in New York and oversaw North American trading, raised objections to Mr. Macris’s outsize bet but was routinely shouted down by Mr. Macris during conference calls between London and New York, former traders said.

What’s more, the brewing tension between Mr. Macris and Ms. Duersten left traders feeling whipsawed, said one trader in New York who spoke on the condition of anonymity because of the delicate nature of the trading loss within the bank.

At one point, Ms. Duersten called one trader into her office at the New York headquarters and told him that he would report to her, instead of to Mr. Macris, the trader said. “Achilles hit the roof” upon hearing of the meeting, the trader said, adding that he “didn’t know who to listen to.”

Mr. Macris was unavailable for comment, as was Ms. Duersten.

Ms. Drew eventually returned from sick leave and reasserted herself as head of the chief investment office. But instead of sitting one floor above the trading desk, as she had done previously, Ms. Drew, in a reflection of her rising profile, moved upstairs to an office among senior executives on the 48th floor of JPMorgan’s headquarters at 270 Park Avenue.

Ms. Drew was now markedly less hands-on with the trading book than she had been in the past, former employees said.

“It felt like there was a land grab where no one was pushing back because Althea and Achilles both wanted more responsibility,” one of the former traders said.

The situation worsened in early 2011 when Irene Tse, who came from the hedge fund Duquesne Capital Management, took over for Ms. Duersten as head of the North American trading desk.

The chief investment office continued to post healthy profits in 2011, as it had in 2010 and 2009. But the size of its bets continued to grow, and many of the trades assembled by Mr. Macris’s traders were growing more complex, making them harder to exit when market conditions turned against the bank in 2012.

In addition, Ms. Tse was even less equipped to battle Mr. Macris because, unlike Ms. Duersten, she was a newcomer to the firm and first had to find her bearings, the current and former traders said. Before her retirement, Ms. Duersten had been at JPMorgan for over 16 years.

On the conference calls, the yelling continued, only now it was between Ms. Tse and Mr. Macris. Ms. Tse was unavailable for comment.

As the infighting continued, Mr. Macris was supervising Bruno Iksil, now known as the London Whale for the huge positions he amassed in the credit markets.

“No one could sufficiently push back against Achilles, so he and Bruno could do what they wanted,” one former trader said.

Undergirding these trades was a bullish bet linked to an index of investment-grade bonds. Unfortunately for JPMorgan Chase, the market has grown much more anxious about corporate credit in recent months. Now, with losses rising as hedge funds and other investors profit from JPMorgan’s distress, the company is trying to unwind the disastrous trade.

Its architects — Mr. Macris and Mr. Iksil — are both expected, like Ms. Drew, to leave the firm.