JPMorgan Chase & Co. (JPM), grappling with a $5.8 billion trading loss and a securities-industry slump, promoted Matt Zames to co-chief operating officer in a management shuffle that replaced the head of its investment bank.
Zames, 41, who was enlisted this year to staunch the loss in the firm’s chief investment office, will take the co-COO role alongside Frank Bisignano, the bank said today in a statement. The overhaul catapults Zames, a former fixed-income trader, into the pool of potential successors to Chief Executive Officer Jamie Dimon. James “Jes” Staley, 55, who ran the investment bank, will relinquish daily operational duties as Mike Cavanagh and Daniel Pinto oversee an expanded version of the division.
Staley, once seen as a possible CEO candidate, was moved to a new post as chairman of a unit that combines the investment bank, treasury and securities services and the global corporate bank. Dimon, 56, said in an interview today he hopes to continue leading the firm for “many, many more years,” and that the shuffle doesn’t indicate any immediate succession plans.
“Staley’s basically becoming a diplomat,” said David Hendler, an analyst at CreditSights Inc. in New York. “He’s working on the big picture issues, but the day-to-day activities seems to be gravitating to Cavanagh and Pinto.”
The overhaul combines several of JPMorgan’s units into two new divisions. In addition to the corporate and investment bank overseen by Cavanagh and Pinto, a combined consumer and community banking business will be led by Gordon Smith and Todd Maclin.
“I see this as a continued response to the embarrassment and the gaffe that was the last quarter,” said Michael Holland, chairman of New York-based Holland & Co., referring to the CIO losses. Holland, whose firm oversees more than $4 billion including shares of JPMorgan, said it was typical for Dimon to remake the management team, “which after all is the key to all of these successes and failures.”
Dimon said in the interview that the changes were part of “a normal progression,” and “had nothing to do with anything else,” including the CIO’s loss.
JPMorgan rose 3 percent to close at $36.89 in New York. The firm’s shares have climbed 11 percent this year, compared with a 17 percent gain for the 24-company KBW Bank Index.
The move comes as some finance leaders including former Citigroup Inc. CEO Sanford “Sandy” Weill call for the breakup of the biggest U.S. banks, which grew larger after the repeal of the Depression-era law that required companies backed by government insurance to be separate from investment banks.
“JPMorgan and some other large institutions were ports of safety in the storm,” Dimon said, referring to the financial crisis. Breaking them up would make have made them riskier “because they’d be less diversified,” he said.
Staley will hand off “his current responsibilities to new leaders in the business,” JPMorgan said in the statement. Within the corporate and investment bank, Cavanagh, 46, will head the banking business, which includes investment banking, the global corporate bank and treasury services. Pinto, 49, will be the main contact for markets and investor services, which will include fixed income, equities, commodities, prime services and securities clearing.
Dimon said Staley played a role in the decision to change his responsibilities. “Jes himself would always say ‘When the time comes that it’s time to promote some great new talent, then I should move up,’” Dimon said in the interview.
Zames will still be in charge of the CIO, the firm said. Bisignano, 52, who was appointed to run mortgage banking last year, will hand off that responsibility to Smith, who will become sole CEO of consumer and community banking by the end of next year as Maclin assumes the role of the unit’s chairman.
Chief Financial Officer Doug Braunstein, 51, who previously reported to Dimon, will report to Zames, Dimon said today in a memo to employees, a copy of which was obtained by Bloomberg News. Barry Zubrow, 59, who runs corporate and regulatory affairs, will also report to Zames instead of Dimon, according to the memo.
“It’s a promotion for Matt Zames,” Dimon said in the interview.
Dimon said the heads of businesses such as the corporate and investment bank will report directly to him, rather than to Zames and Bisignano.
Asset management and commercial banking will remain separate from the other units. Mary Erdoes, 44, will continue to run asset management, and Douglas Petno will remain as head the commercial bank.
JPMorgan is grappling with a trading loss spurred by bets on synthetic credit. The loss, which was disclosed May 10 after it surpassed $2 billion, had grown to $5.8 billion by the end of the second quarter. The botched trades led to the retirement of former Chief Investment Officer Ina Drew, 55, and the shutdown of the London-based team that built the position.
Regulators, investors, analysts and lawmakers have called for the break-up of too-big-to-fail banks to unlock shareholder value and prevent another financial crisis. JPMorgan’s trading loss gave ammunition to those who favor stricter bank regulation, including supporters of the Volcker rule, which would bar most proprietary trading by deposit-taking institutions.
JPMorgan needs to “ensure that we comply with all new regulatory requirements, which will have a significant impact on global markets, products and services,” Dimon, who has fought the Volcker rule, said in the memo.
Bank of America Corp., the second-biggest U.S. lender by assets, also reorganized earlier this year, dividing the firm into consumer and institutional businesses and naming a pair of co-COOs to manage them. David Darnell heads the Charlotte, North Carolina-based bank’s consumer and business banking division, and Thomas K. Montag, 55, runs trading and investment banking.
“We believe this could help fuel the speculation that some of the larger banks may look to more formally separate their consumer and investment banking operations,” Jason Goldberg, an analyst at Barclays Plc who has an overweight rating on the shares, said today in a note.
If a bank breakup occurs, it will result from shareholder pressure and will happen slowly over time, said Paul Miller, an analyst at FBR Capital Markets Corp. in Arlington, Virginia, who has a market perform rating on JPMorgan shares.
“My guess is the mindset of Jamie and the rest of the senior management team of JPMorgan is, that’s a ridiculous concept,” Miller said. “I think it’s going to eventually happen, I think it’s going to happen against a lot of these wills, and Jamie might not be there when it happens.”
Zames shook up the CIO’s leadership after taking over the unit and announced a “renewed focus” on hedging risks. JPMorgan hired Zames from Credit Suisse First Boston in 2004 to run trading in Treasuries, agencies and interest-rate swaps and options.
In 2009, Zames and Pinto were picked to run fixed income after Staley took over the firm’s investment bank from William Winters and Steven Black. Under Zames and Pinto, JPMorgan has become the top bank globally in fixed-income trading. The firm’s 17 percent market share in 2011 was a record for Wall Street, Staley told shareholders earlier this year.
“Matt has done an exceptional job overseeing our global fixed-income business, and more recently, jumping in to skillfully help us deal with the difficult CIO issue,” Dimon said in the memo. “We are fortunate to be able to leverage his skills and counsel across the entire firm.”
Bisignano has been JPMorgan’s chief administrative officer since 2005, when he left Citigroup, where he ran global transaction services, to rejoin Dimon. Bisignano worked at Smith Barney in the late 1990s. At JPMorgan, Bisignano took on the additional role in February 2011 as head of Chase Home Lending. JPMorgan praised his work there, saying he led “the highly successful transformation of mortgage banking.”
Cavanagh, who will run the corporate and investment bank with Pinto, led JPMorgan’s internal investigation into the trading loss and previously ran treasury and securities services. A longtime Dimon loyalist, Cavanagh was hired by the firm’s chief at Salomon Smith Barney in 1993 and then again in 2000 at Bank One Corp., which merged with JPMorgan in 2004.
“The same clients that I’ve been calling on in my old job will be the same clients I’m calling on in the new job,” Cavanagh said today in an interview, referring to the customers of the units he oversaw.
Holland of Holland & Co. said Cavanagh is “the one name consistently that keeps coming up as a go-to guy.”
“The change, particularly bringing on the younger people, is an important part of continuing to strengthen the management team,” Holland said. “As a shareholder, I’m pleased with the continuation here.”
Staley has worked at JPMorgan since 1979, including an eight-year stint as head of the bank’s money-management division. He became head of the investment bank in September 2009 when Dimon announced that Winters and Black, the division’s co-heads, would step aside after leading the bank through the 2008 financial crisis. Winters departed immediately, surprising analysts who had viewed him as a potential successor to Dimon. Black, 60, was named executive chairman and left the firm in early 2011.
In the late 2000s, Staley was among executives -- along with Winters and Black -- who questioned Dimon on why risk controls inside the CIO weren’t as extensive or robust as in other departments, according to people who participated in or witnessed the conversations. Staley told Fortune magazine in April 2010 that he considered himself a contender to succeed Dimon.
“If Jamie doesn’t leave, then I probably need to leave myself in a few years,” Staley added.
JPMorgan hired Smith to run its Chase card services group in 2007. He was previously president of the global commercial card unit at American Express Co. (AXP), where he had worked for more than 25 years.
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