Who is Really Minding the Store for JPM's High Risk Portfolio?

While doing my usual morning trolling of the financial websites I ran across a very interesting article published by Bloomberg about the 3 person Risk Committee that oversees the slightly controversial and very risky portfolio that recently logged a $2B loss at JPM Chase. (I have my suspicions that the $2B loss is really just the tip of the iceberg, but that’s an opinion for another thread.)

According to the Bloomberg article found here: JPMorgan gave Risk Oversight to Museum Head with AIG Roll, the 3 directors of the Rick Committee are in charge of the following:

The committee, which met seven times last year and hasn’t changed its composition since 2008, approves the bank’s risk- appetite policy and oversees the chief risk officer, according to the company’s April 4 proxy statement.

Hmm, interesting. It sounds as though they better have some financial whiz kids sitting on that committee in order to steer it in the right direction, doesn’t it? So, who are these elusive 3 committee members? Let’s take a looksee.

Crown, 58, who is president of Chicago-based Henry Crown & Co. and lead director of defense contractor General Dynamics Corp. (GD), sits on the risk committee with Ellen Futter and David Cote. Futter, 62, is president of the American Museum of Natural History in New York, and Cote, 59, is CEO of Honeywell International Inc. (HON)

Source being the same Bloomberg article.

Let’s take them one at a time.

James Crown, grandson of billionaire Henry Crown, sits as CEO of the family business Henry Crown & Co., who according to Yahoo Finance’s mini business bio is involved with the following endeavors:

The jewels of Henry Crown and Company shine on like crazy diamonds. Controlled by Chicago's prominent Crown family, Henry Crown and Company is an investment firm that owns or has interests in a variety of business assets. These holdings include stakes in sports teams (the Chicago Bulls and the New York Yankees), leisure (Aspen Skiing Company), banking (JPMorgan Chase), and real estate (Rockefeller Center). The company also has a stake in General Dynamics; after once controlling the company outright, it still has a seat on the board. Affiliate CC Industries holds and manages some of the Crown family's investments.

Yahoo Source

It’s also of some note that James Crown is the only one of the 3 with any real Wall Street experience, but has not been in that line of work for over 25 years now having worked at bond-trading firm Salomon Brothers Inc. for five years until 1985. Moving on…..

David Cote, currently Chairman and CEO of Honeywell International, Inc., he was also CEO of TRW, Inc. and GE Appliances. According to his Forbes mini business bio, his qualifications for his JPM risk committee position consist of:

Areas of Relevant Experience: Senior leadership roles in global, multi-industry organizations; ability to drive a consistent One Honeywell approach across a large multi-national organization; detailed knowledge and unique perspective and insights regarding the strategic and operational opportunities and challenges, economic and industry trends, and competitive and financial positioning of the Company and its businesses; significant public policy experience, including service on the bipartisan National Commission on Fiscal Responsibility and Reform and as Co-Chair of the U.S.-India CEO Forum.

Forbes Source

National Commission of Fiscal Responsibility and Reform? Whoops, seems as though he may not have learned very much while sitting on that commission, huh? Moving on…..

Ms. Ellen Futter, perhaps the most unqualified of the 3 seems to be the focus of the sourced Bloomberg article. Her ‘experience’ sited as the reason she was voted on the risk committee seems to be this:

Futter headed the audit committee of Bristol-Myers, a New York-based drugmaker, during an accounting scandal that began in 1999 and that the company settled for $300 million to avoid criminal prosecution. She also served on AIG’s compliance and governance committees, resigning in July 2008 before the insurer took a $182.3 billion bailout from the U.S. government.

Stellar performances there, looks like she got out of AIG just in the nick of time, lucky for her. (note sarcasm) According to Forbes, her business bio reads as such:

Ms. Futter became President of the American Museum of Natural History in 1993, prior to which she had been President of Barnard College since 1981. The Museum is one of the world?s preeminent scientific and cultural institutions. Her career began at Milbank, Tweed, Hadley & McCloy where she practiced corporate law. Ms. Futter is a director of Consolidated Edison, Inc. (since 1997) and was previously a director of American International Group Inc. (1999-2008), Bristol-Myers Squibb Company (1999-2005), and Viacom (2006-2007). Ms. Futter graduated from Barnard College in 1971 and earned a law degree from Columbia Law School in 1974. She is a member of the Board of Overseers and Managers of Memorial Sloan-Kettering Cancer Center, a Fellow of the American Academy of Arts and Sciences and a member of the Council on Foreign Relations. Ms. Futter is also a director of The American Ditchley Foundation and NYC & Company. She was a director of the Federal Reserve Bank of New York (1988-1993) and served as its Chairman (1992-1993).

Forbes Source

With financial friends like this, who needs enemies, right? It never fails to surprise me when thing like this come out and I have to ask myself just why in the world would JP Morgan Chase even entertain the idea that these 3 would even be remotely qualified to lead a very high risk portfolio such as this. That is until you read further into the Bloomberg article to find just how deeply rooted these 3 are into JPM in the past as well as the present and how other ‘connections’ come into play. It points out just how the good old boy network is still alive and well in the banking industry and it’s not what you know but WHO you know that lands you into the big bucks and high profile positions. Financial and Big Corporation incest at its best.

The Bloomberg article does state that JPM MAY be looking to put more qualified risk managers in place on the board.

The Wall Street Journal reported after this story was first published that the panel may add current directors with risk and finance backgrounds. Candidates include Timothy Flynn and James Bell, the Journal said, citing people familiar with the matter. Bell served as chief financial officer at aircraft maker Boeing Co. Flynn, ex-chairman of accounting firm KPMG International, joined the board May 15. Jennifer Zuccarelli, a bank spokeswoman, said she couldn’t confirm the report.

But can we really expect any kind of real change here? With their track record I cannot help but think this will be more of the same buffoonery and fiscal irresponsibility we've already seen from them.

JPMorgan board to shake up risk committee: WSJ

(Reuters) - The board of JPMorgan Chase & Co is expected to make changes to its risk-policy committee after the bank's trading losses of more than $2 billion, The Wall Street Journal reported on Friday, citing anonymous sources.

The board is expected to add either Timothy Flynn or James Bell to the committee, the Journal said. Flynn and Bell have backgrounds in risk and finance, the report said.

Just a tad late, huh?

Notice how they're not getting rid of any of the original three? Just adding one to the mix with risk and finance background to appease the public.

Politics as usual...

It seems to me that JP Morgan didn't want competent watch-dogs to oversee their risky and fool-hardy bets. They wanted three old cronies who are deeply rooted in corporate malfeasance and adept at sweeping things under the rug to avoid government regulators. Three who would say yes to anything.

Why should JPM worry, when they know damned well the Fed will bail them out, even at the cost of destroying the economy of the US?

In this past week both Greece and Spain suddenly came up with funds to carry them along farther down the road to ruin. Who ponied up the dough? All signs point to our Federal Reserve.....They don't ask the American people, they just do what they want. Which is fine, except that the money they are printing isn't THEIR money, it's OUR money. They can't let those countries default just yet, because JPM guaranteed this risky business in Europe and a default would mean JPM crashes and burns.

Originally posted by FissionSurplus
In this past week both Greece and Spain suddenly came up with funds to carry them along farther down the road to ruin. Who ponied up the dough? All signs point to our Federal Reserve.....They don't ask the American people, they just do what they want. Which is fine, except that the money they are printing isn't THEIR money, it's OUR money. They can't let those countries default just yet, because JPM guaranteed this risky business in Europe and a default would mean JPM crashes and burns.

Great points and observations! Oddly enough the portfolio that these "banking master minds' oversaw, was chocked full of credit default swaps... you know those things that Greece used earlier this year for their "controlled default".

A theory that I am working on is that we are seeing the losses in this portfolio of JPM's because they were the ones buying up Greece's credit default swaps. Now this is only my theory, it's not grounded in any hardcore facts other than a hunch that this portfolio was stuffed with credit default swaps, Greece was involved with them earlier in the year for their 'controled default' and the "London Whale", a London based JPM trader has been mentioned several times during this portfolio scandal as being able to move trades in the trillions of dollars in the credit default swaps, some of those moved coming just before the $2B loss was announced.

At any rate, I appreciate your time reading the thread and leaving a comment!

Originally posted by Iamonlyhuman

Just a tad late, huh?

Notice how they're not getting rid of any of the original three? Just adding one to the mix with risk and finance background to appease the public.

Politics as usual..

LOL, yeah....just a tad too late. And yes, I thought it quite telling that they are not getting rid of the original 3, although there seems to be some rumor that Futter may tender her resignation. But rumors being what they are, I'll not be holding my breath on a sudden attack of consciousness that will facilitate her stepping down. If the board does not vote her off of the committee, why in the world would she have any incentive to take herself out of a very lucrative position?

JPM saying they may add more members with risk management experience is like you say, only a move to appease the public and nothing more.

Thanks for leaving a comment!