James “Jes” Staley is leaving his job as chairman of the investment banking unit of JPMorgan Chase & Co to join a hedge fund that profited from the bank’s $6.2 billion derivatives loss at the hands of the “London Whale” trader.
The 56-year-old Staley, who was moved aside in July from his position as chief executive for investment banking at JPMorgan, is becoming a partner at BlueMountain Capital Management, the hedge fund company said on Tuesday.
BlueMountain was among a group of hedge funds that profited by betting against JPMorgan in credit derivatives transactions known as “the London Whale” trades, which ended up costing the bank billions of dollars.
Later, BlueMountain worked for JPMorgan to help the bank close the positions, according to a person familiar with the matter.
The hedge fund manages more than $US12 billion, and was founded by JPMorgan alums.
Staley, a 34-year veteran of JPMorgan, was sidelined in a management reshuffle in July that foreshadowed his departure. He had long been seen as a possible successor to JPMorgan chief executive Jamie Dimon, but both men are the same age, and Dimon seems to be focusing on promoting younger executives now.
At BlueMountain, Staley will focus on cultivating relationships with clients and developing new strategies, the firm said, echoing the kind of talk about financial innovation that used to be routine at investment banks.
Many bankers complain that regulations are making it harder to innovate. The new rules were put in place after a financial crisis that was fueled in large part by abuses of innovations like securitisation.
Staley will buy a stake in BlueMountain, and the money will be used on new technology and staff, the firm said. The amount of his investment was not disclosed.
Staley spent nearly 22 of his 34 JPMorgan years at its investment bank. He was a founding member of its equities business in the early 1980s. He later worked as CEO of its asset management unit, which includes its private bank.
As Dimon reorganised business units, he named two younger executives to be co-CEOs of commercial and investment banking and made Staley chairman of the unit and head of a committee to consider the future of global banking.
Staley, appearing on CNBC on Tuesday, said of no longer being in contention for Dimon’s job, “There is a generational issue. The bank has to get ready for that. The transition that Jamie and I have been able to execute from JPMorgan to a firm like BlueMountain, I feel very proud of.”
The Whale trades were made through JPMorgan’s chief investment office in London, which was a separate business unit from the investment bank. One of the key engineers of the trade was Bruno Iksil, who took big enough positions to earn the nickname “the London Whale.”
Andrew Feldstein, the CEO of BlueMountain, worked for JPMorgan for more than a decade before starting the hedge fund in 2003. His jobs at JPMorgan included heading structured credit and the global credit portfolio.
Dimon, in a memo to senior managers after the announcement of Staley’s departure, said, “BlueMountain is an important client of ours, and we look forward to working with Jes in the future.”
Execs ‘acted like children’
Meanwhile, Dimon said some top executives at the largest US bank “acted like children” in handling the errant derivatives bet.
“Instead of helping, they were running around with their head chopped off, ‘what does this mean for me personally, how’s my reputation?’,” Dimon said at a conference in San Francisco hosted by the New York-based bank. Some people “felt they could take advantage of it personally, they were willing to hurt the company by maneuvering.”
At least a dozen state, federal and international bodies are investigating the trades.
“We had 100 people who worked every day for 90 days to help the real problem, the risk, not the ongoing regulatory review, but the real problem to get the risk down so we didn’t have ongoing exposure,” Mr Dimon said. “You learn the good and the bad about people and that’s invaluable to find out who those people are. Invaluable.”
While some people “acted terribly,” he said the bank now has the “best management team I’ve ever had in my entire life.”
The original release of this article first appeared on the website of Hangzhou Night Net.