JP Morgan Merges 'London Whale' Division with Treasury

(April 6, 2014) — JP Morgan Chase has merged its chief investment office and treasury in an effort to minimize risky strategies such as those that produced a $6.2 billion trading loss in 2012, according to an internal memo obtained by the Financial Times.

“Further integrating the firm’s global asset and liability management responsibilities will position us well to deliver on our strategic priorities for the firm, and supports our efforts to strengthen and streamline our infrastructure, processes, and controls,” said Matt Zames, JP Morgan’s COO, in the note.

The folding of the chief investment office into the treasury would create an organization that resembles “asset and liability management functions of a traditional bank,” the Financial Times reported. The joint branch will combine the chief investment office’s responsibilities of investing the bank’s excess deposits and the treasury’s management of bank funding.

The firm named 43-year-old Craig Delaney, current head of the chief investment office, as the chief of the new unit, with the titles global CIO and treasurer. Delaney had been promoted to his current role in 2012 from COO of the mortgage banking unit when JP Morgan began reshuffling the management in the aftermath of the London Whale incident.

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In April and May 2012, it was revealed that Bruno Iksil, a trader nicknamed the “London Whale” lost more than $6 billion from making offsetting bets in the London credit default swaps portfolio.

Ina Drew, former CIO at JP Morgan, resigned due to the affair after a 30-year career at JP Morgan. However, in her testimony to a US Senate panel last March, she claimed she was not responsible for the London Whale losses and instead blamed members of the London team.

“I did not—and do not—believe I bore personal responsibility for the losses in the synthetic credit book,” Drew said in her statement. “My management of the chief investment office and oversight of the synthetic credit book was reasonable and diligent.”

The bank reported to have largely pulled out of credit derivative bets under Delaney’s leadership.

The internal memo also announced the appointment of Sandie O’Connor, JP Morgan’s current treasurer, to chief regulatory affairs officer. She succeeds Tim Ryan, 68, who will be named vice-chairman.

“She served as treasurer during a time of unprecedented change and, under her leadership, we made material improvements to the firm’s liquidity position and stress management framework,” said COO Zames in the letter.

(April 3, 2014) — One of the UK’s largest local authority pension funds has become only the second of its type to apply for authorisation by the financial regulator.

The £4.1 billion Lothian Pension Fund has applied to the Financial Conduct Authority (FCA)for authorisation to run its own money without needing approval from a third party, such as a consultant. The move will “improve governance of the fund’s £2.8 billion investments that are managed in-house”, it announced today.

The South Yorkshire Pension Fund Authority was the first to take the step and were authorised last year.

The Lothian fund, which runs pensions for City of Edinburgh Council and associated employers, has been building its in-house capabilities over the past few years. It now employs a nine-strong investment team, but a spokesperson for the fund told aiCIO there were no plans to expand it.

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Some 60% of its assets are managed internally; these include regional and global equity mandates, and alternatives.

“This is an important step for the fund in making itself responsive and prepared for the challenges ahead in public sector pensions in the future,” said Alastair Maclean, director of corporate governance for the City of Edinburgh Council.

The fund underwent a review by Mercer Sentinel to assess its ability to operate as an authorised entity.

“The review has provided comfort that our internal investment operations are well structured and effective. It has also provided direction to further improvement in our controls if we are to gain authorisation from the FCA,” said Maclean.

Lothian has to create a separate corporate vehicle from the council to enable it to become authorised. The process is envisaged to take several months.

While public sector pensions have barely started to move towards FCA authorisation, several large corporate pension funds have already made the move.

Railpen, Barclays, and the Coal Pension, have all been authorised to carry out investment activity for several years. Last year, the Universities Superannuation Scheme also registered with the FCA.