JPMorgan Said to End Proprietary Trading to Meet Volcker Rule
JPMorgan Chase & Co. told traders who bet on commodities for the firm’s account that their unit will be closed as the company, the second-biggest U.S. bank by assets, starts to shut down all proprietary trading, according to a person briefed on the matter.
The bank eventually will close all in-house trading to comply with new U.S. curbs on investment banks, said the person, who asked not to be identified because New York-based JPMorgan’s decision hasn’t been made public.
Closing the proprietary trading desk for commodities affects fewer than 20 traders, one in the U.S. and the rest in the U.K., the person said. The unit is based in London, and traders there were given notice on Aug. 27 that their jobs were at risk as required by U.K. law, according to the person. Proprietary traders in fixed-income and equities, who account for 50 to 75 employees, will need to find jobs when those desks are shut down, this person said.
Congress passed restrictions on financial firms this year designed to prevent a recurrence of the 2008 credit crisis, which almost caused the banking system to collapse. Proprietary trading involves transactions made on behalf of the bank rather than its customers. The curbs are known as the Volcker rule, named after former Federal Reserve Chairman Paul Volcker, who campaigned for limits on risk-taking by lenders.
The Volcker rule may cost JPMorgan as much as $1.4 billion in annual profit, analysts at Barclays Capital led by Jason Goldberg estimated in a June 28 research report.
Revenue Goes Away
“This revenue and the risk it carries with it now goes away,” said Christopher Whalen, a Federal Reserve Bank of New York analyst in the 1980s and co-founder of Institutional Risk Analytics in Torrance, California. “This will put more pressure on JPM to look for growth outside the U.S. market.”
JPMorgan traders will be given a chance to apply for jobs elsewhere in the company, according to the person. JPMorgan spokeswoman Kimberly Weinrick declined to comment.
Coal derivatives trader Chan Bhima, who made a bad bet on coal prices that the New York Post said cost JPMorgan as much as $250 million in the second quarter, isn’t affected by the cuts, the person said. The proprietary trading desk reports to commodities head Blythe Masters, who discussed Bhima’s trade and other matters in a July conference call with her team.
U.S. banks are exploring ways to comply with the new trading rules. Citigroup Inc. was looking at three options to meet the new rule, including moving a team of proprietary traders into its hedge-fund unit, people briefed on the matter said in July. The bank would set up the traders as hedge-fund managers and seed their funds, then raise money from outside investors to redeem its stakes, the people said.