JPMorgan new CIO controversy

 

JPMorgan Chase & Co. (NYSE:JPM) has quickly named a successor to Ina Drew, the chief investment officer who was part of Londongate. Internal candidate Matthew E. Zames will take over; he is currently the co-head of JPMorgan’s global fixed-income group and an executive in the mortgage division.

Known as Matt, he has been with bank since 2004 arriving from Credit Suisse Group AG (NYSE:CS) after a stint as an interest rates group trader.

But perhaps what’s more interesting about Zames is some of his previous work experiences. He kicked off his financial career as a junior trader with Long-Term Capital Management. It appears that Zames has a penchant to work in risky situations.

Remember the hedge fund Long-Term Capital Management? The massive quant hedge fund which had 100 to one leverage and required a bailout? It imploded after numerous dangerous strategies resulted in billions of dollars of losses. The Federal Reserve Bank of New York eventually had to help bail out the firm with a $3.6 billion rescue plan to keep it from advancing greater losses in the financial system.

Nothing like kicking off a new career in a difficult environment, witnessing a huge financial mess.

Next up for Zames was his involvement in the 2008 sale of Bears Stearns to none other than JPMorgan. While showing caution in an 11th decision according to The New York Times, his involvement was described in the book by William Cohan, “House of Cards: A Tale of Hubris and Wretched Excess on Wall Street.”

He wrote, “Around midnight, Matt Zames, the co-head of global rates and currency trading at JPMorgan, arrived in the conference room. The brusque Zames had been a trader at Long-Term Capital Management when it blew up ten years earlier. The Bear Stearns executives started to run through the situation for Zames. “About 10 minutes into it he goes, ‘Where’s the Fed?’” Friedman said. “We said, ‘They’re in one of the other conference rooms.’ He goes, ‘Well, we can’t talk about anything until we talk to the Fed. We’ve got Reg W issues’” — referring to a complicated regulation that limits the transactions between a bank and its affiliates. “Some number of weeks later, he actually apologized to me for being rude at that meeting. I said, ‘No, we’d been sitting there for hours. You’re the only one who made any sense.’”

Experience seemed to be a good thing in this instance and it led him to sniff out other risky controversies. Next up? The Bernie Madoff Ponzi scheme.

In a 2011 bankruptcy filing, Zames was one of three bankers to first have suspicions about a Madoff Ponzi scheme back in 2007; the disgraced financier held accounts with JPMorgan. No further details were either released about Zames’ knowledge, including how he gained it, but it arrived 18 months before the scheme was revealed.

From his actions about JPMorgan, in 2011, Zames was listed as a possible successor to Jamie Dimon.

And in the present time, Zames is the head of  Wall Street’s  Treasury Borrowing Advisory Committee. This group counsels the U.S. Treasury on management of its debt.

With Zames appointment and his connection to the U.S. Treasury, does this bode well for investors or JPMorgan?