December 13, 2017

DealBook: 2 JPMorgan Directors Resign

David M. Cote and Ellen V. Futter, directors of JPMorgan Chase, were criticized for their lack of financial experience.Carlo Allegri/ReutersDavid M. Cote and Ellen V. Futter, directors of JPMorgan Chase, were criticized for their lack of financial experience.

1:27 p.m. | Updated

Two directors at JPMorgan Chase who  received lackluster support from shareholders at the bank’s annual meeting in May resigned on Friday.

The two board members, David M. Cote and Ellen V. Futter, were re-elected at the meeting, but narrowly.

Mr. Cote, the chairman and chief executive of Honeywell International, resigned after five years with the bank. Ms. Futter, the president of the American Museum of Natural History, had been on the board 16 years, JPMorgan said in a statement on Friday.

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Both Mr. Cote and Ms. Futter, members of the board’s risk committee, were buffeted by criticism after multibillion-dollar trading losses  that emerged last year from JPMorgan’s chief investment office in London. Some investors said the risk committee lacked the financial prowess to safeguard against the kind of trading losses that hit JPMorgan.

The trading debacle was also widely viewed as a black mark on the leadership of Jamie Dimon, the bank’s charismatic chairman and chief executive. A shareholder proposal to split Mr. Dimon’s two roles, while aimed at bolstering corporate governance, became a kind of referendum on Mr. Dimon’s stewardship of the bank.

It was a test he handily passed. Nearly 70 percent of the shares were voted to reject a proposal for an independent chairman. To voice their dissatisfaction, a small but vocal group of shareholders agitated against some of the board members’ re-election.

Shortly before the annual meeting in Tampa, Fla., Ms. Futter decided to resign, according to people with knowledge of the matter who spoke only anonymously. She was said to be sick of the swirl of negative attention clouding her service on the board, and worried that it would divert attention from both JPMorgan’s strong points and from the American Museum of Natural History.

Those plans changed, though, when Mr. Dimon called her to urge her to stay. A sudden resignation by a bank director, the people said, would have needlessly drawn attention from the centerpiece of the annual meeting: Mr. Dimon’s victory.

She was  re-elected with the lowest amount of support among directors, 53.1 percent of the vote. Mr. Cote was re-elected with 59.3 percent of the vote.

“I want to thank Ellen and Dave for their dedicated service to our firm,” Mr. Dimon said in a statement. “We have learned a great deal from both of them and will miss having them as members of our board.”

Mr. Dimon also reiterated his support for Mr. Cote on Friday. “As chairman and C.E.O. of Honeywell, Dave brought exceptional experience to JPMorgan Chase across a broad spectrum of issues., “ Mr. Dimon said in a statement. “He is a highly talented executive, and we were all fortunate to benefit from his knowledge and leadership.”

Despite JPMorgan’s overwhelming support for its board, criticism mounted as the annual meeting drew near in May.

Before the meeting, an influential shareholder advisory firm, Institutional Shareholder Services, or I.S.S., urged shareholders not to vote for three directors, including Mr. Cote and Ms. Futter.

In its report, the firm cited “material failures of stewardship and risk oversight” in the wake of the trading loss last year. For the advisory firm, it was a rare challenge, because the company noted that it only recommends that shareholders oppose directors under “extraordinary circumstances.”

The report, which came amid cries for an overhaul of JPMorgan’s board leadership, was another hurdle for the bank as it worked to restore its reputation as an astute manager of risk — an accolade JPMorgan won after emerging from the 2008 financial crisis in far better shape than its rivals.

While all three directors, including Mr. Cote and Ms. Futter, had served on the risk committee when JPMorgan navigated through that crisis, I.S.S. criticized them for not having strong enough backgrounds in risk management. Its report said “it is odd” that the bank’s biggest rivals had managed to find directors with stronger qualifications.

Ms. Futter had also served on the board of the insurance giant American International Group, which nearly collapsed in the 2008 financial crisis. Last year, 86 percent of shareholders voted for Ms. Futter, the lowest level of support for any director who was up for re-election at the bank that year.

Mr. Cote, as chief executive of Honeywell International, heads an industrial company, not a financial firm, I.S.S. noted, leaving him potentially lacking in relevant experience.

JPMorgan steadfastly stood by its board members ahead of the annual meeting. The board, JPMorgan executives noted, moved to cut Mr. Dimon’s compensation by 50 percent earlier this year. It also demanded a full accounting of what precipitated the trading loss and clawed back millions of dollars in compensation from the executives at the center of the bungled trades. And some executives inside the bank said that while Ms. Futter was not be a banker, she did bring perspective on reputational risk.

Both Mr. Dimon and Lee Raymond, the lead director of the board, have vowed to further rectify risk lapses and improve controls.

At the bank’s annual meeting, Mr. Raymond, the former chief executive of Exxon, hinted at the change. He told shareholders to “stay tuned” when he was asked if the board is planning to make changes to the risk committee.

Still, JPMorgan shareholders have much to be thankful for. Last week, the bank reported its 13th consecutive quarterly profit. JPMorgan has gained market share and has managed to buck many trends rattling its rivals.

JPMorgan said Friday that it would appoint new directors to the board later this year.

Article source: http://dealbook.nytimes.com/2013/07/19/2-jpmorgan-directors-resign/?partner=rss&emc=rss

DealBook: A Call for New Blood on the JPMorgan Board

Jamie Dimon, chief of JPMorgan Chase, at a Senate panel last year.Karen Bleier/Agence France-Presse — Getty ImagesJamie Dimon, chief of JPMorgan Chase, spoke to a Senate panel last year.

An influential shareholder advisory firm has recommended that investors withhold their support for three JPMorgan Chase directors, citing “material failures of stewardship and risk oversight” in the wake of a big trading loss last year.

The firm, Institutional Shareholder Services, or I.S.S., urged shareholders not to vote for three directors who serve on the board’s risk policy committee — David M. Cote, James S. Crown and Ellen V. Futter. The results of the vote will be announced at the bank’s annual meeting later this month.

In its report released late Friday, I.S.S. noted that only under “extraordinary circumstances” does it consider recommending shareholders oppose directors.

Several big investors interviewed over the weekend say they were struck by the harshness of the criticism directed toward the bank’s directors.

“The board appears to have been largely reactive, making changes only when it was clear it could no longer maintain the status quo,” I.S.S. wrote in its 33-page report on the bank. “The company’s board is in need of refreshment and it should begin searching for seasoned directors with financial and risk expertise.”

The firm, which advises shareholders on proxy votes and corporate governance issues, also backed, as expected, a proposal to split the roles of chairman and chief executive, a move that could strip Jamie Dimon, the bank’s powerful leader, of the dual roles he has held since 2006. I.S.S. does not actually vote shares, but many investors follow its recommendations, or use them as a basis on how to vote.

The report is another challenge to the bank’s effort to restore its reputation as an astute manger of risk following last year’s embarrassing multibillion-dollar trading loss by the bank’s chief investment office in London.

Since the loss was first disclosed a year ago, Mr. Dimon and the board have vowed to correct problems and bolster risk controls.

In a statement on Sunday, the bank said: “The company strongly endorses the re-election of its current directors and disagrees with I.S.S.’s position. The members of the board’s risk committee have a diversity and breadth of experiences that have served the company well. While the company has acknowledged a number of mistakes relating to its losses in C.I.O., an independent review committee of the board determined that those mistakes were not attributable to the risk committee.”

While the three directors had served on the risk committee when JPMorgan navigated through the financial crisis, I.S.S. criticized the three for failing to have strong backgrounds in risk management. Its report said “it is odd” that the bank’s biggest rivals have managed to find directors with stronger qualifications.

I.S.S. said it took its concerns about the risk policy committee to Lee Raymond, the board’s presiding director. Boards typically appoint presiding or lead directors to act as a counterbalance when the chairman also serves as chief executive.

Mr. Raymond, a former chief executive of Exxon Mobil, cited the challenges of finding qualified board members who were not conflicted from serving, according to I.S.S.

I.S.S. said that after its conversations with Mr. Raymond it concluded that any changes made since the 2012 trading loss were headed by management and not the board.

That assessment may sway some shareholders who are deciding how to vote their shares on another issue. A number of big investors grade the quality of a company’s lead director in considering whether to vote to split the roles of chairman and chief executive, said one major shareholder.

If shareholders conclude Mr. Raymond is not an adequate lead director, it may result in more investors supporting a split of the top jobs.

“We look at the lead director and ask ‘is this person up to the task, are they a leader and do they stand up to the C.E.O.?’ ” said one shareholder, who spoke on condition of anonymity because this person was not authorized to speak publicly. “If the answer is no, we support splitting the roles.”

JPMorgan shareholders are now deciding how to vote on the question of splitting the chairman and chief executive roles, and whether to vote for the company’s directors. The results will be announced on May 21 at the annual meeting in Tampa, Fla.

Their calculations come as the bank has found itself under scrutiny over its relations with regulators and over investigations into the trading loss and compliance problems.

At the same time, however, JPMorgan shareholders have much to be thankful for. Last month, the bank reported its 12th consecutive quarterly profit, aided by strong revenue gains from investment banking and mortgage-related activity. JPMorgan has gained market share and has managed to buck trends rattling its rivals.

Still, I.S.S. emphasized risk controls in its report, saying that the need for risk policy members “who can go toe-to-toe with management is particularly acute.”

The three directors it singled out “lack robust industry-specific experience,” and the failures of the last year have “demonstrated their unsuitability” on the risk policy committee and the board, the report said.

One of the three, Ms. Futter, is president of the American Museum of Natural History. She had served on the board of the insurance giant American International Group, which nearly collapsed in the 2008 financial crisis.

Last year, 86 percent of shareholders voted for Ms. Futter, the lowest level of support for any director. Some executives inside the bank, though, say that while Ms. Futter may not be a banker, she does bring perspective on reputational risk.

Mr. Cote, as chief executive of Honeywell International, heads an industrial company, not a financial firm, I.S.S. noted, leaving him potentially lacking in relevant experience.

Mr. Crown, who has been a director of JPMorgan or one of its predecessor companies since 1991, is chairman of the risk policy committee. He is president of Henry Crown Company, a private investment firm.

“While Mr. Crown leads a privately owned investment company and has three years of investment banking experience, it is unclear if his experience is sufficiently robust for a large and complex institution like JPM,” I.S.S. said in its report.

The only member of the risk policy committee who is being backed is Timothy Flynn, a former KPMG executive who was appointed in August 2012 as part of the board and bank’s efforts to improve oversight and controls in the wake of the London trading loss.

In addition to Mr. Flynn’s appointment, an executive at the bank who was not authorized to speak on the record said that while an independent committee of the board looked into the trading loss and found the risk policy committee was not at fault, a number of changes have been made over the last year and that group now receives more timely information from management.

The proxy firm reserved some of its harshest criticism for the board itself, faulting it for its lack of communication with shareholders over the last year.

“Unlike company managers, boards have a fiduciary responsibility to shareholders and should play an active role in crisis management and shareholder communication,” I.S.S. wrote. “In this case, however, the board does not appear to have conducted any significant outreach to shareholders.”

Article source: http://dealbook.nytimes.com/2013/05/05/a-call-for-new-blood-on-the-jpmorgan-board/?partner=rss&emc=rss

DealBook: JPMorgan Sues Boss of Trader Behind Loss of Billions

Offices of JPMorgan Chase in London. The trade losses were associated with London workers.Carl Court/Agence France-Presse — Getty ImagesThe offices of JPMorgan Chase in London. The trade losses were associated with London workers.

The fallout continues from a multibillion-dollar trading loss at JPMorgan Chase.

JPMorgan, the nation’s largest bank, is suing Javier Martin-Artajo, a former executive in its chief investment office, a once little-known unit at the center of the bungled trades. Mr. Martin-Artajo directly supervised Bruno Iksil, the so-called London Whale, according to a lawsuit made public on Wednesday.

Mr. Iksil gained that moniker after reports emerged in April that he had built up an outsize position in an obscure corner of the credit markets. That position proved devastating for the bank, resulting in a $6.2 billion loss.

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The lawsuit, filed in a London court, did not disclose the details of JPMorgan’s claims against Mr. Martin-Artajo, according to a person who read the complaint.

Both men have left the bank. A spokeswoman for JPMorgan declined to comment on the lawsuit. Mr. Martin-Artajo’s lawyer could not be reached immediately.

Since announcing the problem in May, JPMorgan has worked to reassure skittish investors. The bank has broadly reshuffled its management ranks and united some of its business operations.

Timeline: JPMorgan Trading Loss

As part of that effort, the bank conducted an internal investigation, combing through thousands of e-mails and phone records to determine what went wrong at the chief investment office.

The investigation, led by Michael J. Cavanagh, the bank’s former chief financial officer, found that some traders might have improperly valued their positions as losses mounted.

Some phone recordings suggest that Mr. Martin-Artajo encouraged Mr. Iksil to value troubled positions favorably, according to people with knowledge of the investigation.

Mr. Martin-Artajo, Mr. Iksil and two others who worked in the chief investment office are under investigation by criminal and civil authorities, these people said. The authorities are examining whether the group mismarked positions to cover up losses. After revising the valuations, JPMorgan had to restate its first-quarter earnings.

But authorities face a high legal bar. Traders are given significant leeway to price financial instruments like the complex credit derivatives at the center of the bet. None of the people have been accused of criminal wrongdoing.

JPMorgan, too, faces scrutiny. The Securities and Exchange Commission, the Office of the Comptroller of the Currency and the Federal Reserve are all looking into the botched trades.

The aftershocks have been felt throughout the bank. The multibillion-dollar loss tarnished the reputation of Jamie Dimon, the bank’s chief executive, considered one of Wall Street’s best risk navigators. In June, Mr. Dimon appeared before Congress to try to explain the misstep.

The debacle also claimed the job of one of Mr. Dimon’s most seasoned and trusted lieutenants, Ina R. Drew, who resigned as head of the chief investment office shortly after the losses were announced and offered to give back her pay. The bank has clawed back millions of dollars of compensation from Mr. Martin-Artajo, Mr. Iksil and others.

Mr. Dimon has moved to remake his management team. Douglas L. Braunstein, the bank’s chief financial officer since 2010, will resign by the end of the year, current and former executives said. Mr. Braunstein initially played down concerns about the chief investment office that emerged in April. Barry Zubrow, a former chief risk officer who now runs the bank’s regulatory affairs, said last month that he, too, would resign.

The huge loss stemmed from a complex wager on credit derivatives made by Mr. Iksil out of the London unit of the chief investment office, which was formed five years ago. The office was transformed from a relatively sleepy operation into a profit center as the complexity and risk of its positions swelled.

The group’s risk controls did not keep up with its increasingly large bets, according to several current and former executives familiar with the unit. Part of the problem, these executives said, was that the London branch operated without sufficient oversight. When some executives in New York called for greater risk controls, they said, they were ignored or shouted down.

During JPMorgan’s latest earnings call, Mr. Dimon emphasized that the bank had contained the loss from the troubled trade. It closed out the position and moved the remainder of the credit derivative trade to the investment bank.

Ben Protess and Mark Scott contributed reporting.

Article source: http://dealbook.nytimes.com/2012/10/31/jpmorgan-sues-boss-of-london-whale/?partner=rss&emc=rss