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JPMorgan Said to Close Prop Trading Desk to Meet Volcker Rule
2010-08-31 23:53:03.585 GMT
By Dawn Kopecki and Chanyaporn Chanjaroen
Sept. 1 (Bloomberg) -- JPMorgan Chase & Co. told traders
who bet on commodities for the firm's account that their unit
will be closed as the company, the second-biggest U.S. bank by
assets, starts to shut down all proprietary trading, according
to a person briefed on the matter.
The bank eventually will close all in-house trading to
comply with new U.S. curbs on investment banks, said the person,
who asked not to be identified because New York-based JPMorgan's
decision hasn't been made public.
Closing the proprietary trading desk for commodities
affects fewer than 20 traders, one in the U.S. and the rest in
the U.K., the person said. The unit is based in London, and
traders there were given notice on Aug. 27 that their jobs were
at risk as required by U.K. law, according to the person.
Proprietary traders in fixed-income and equities, who account
for 50 to 75 employees, will need to find jobs when those desks
are shut down, this person said.
Congress passed restrictions on financial firms this year
designed to prevent a recurrence of the 2008 credit crisis,
which almost caused the banking system to collapse. Proprietary
trading involves transactions made on behalf of the bank rather
than its customers. The curbs are known as the Volcker rule,
named after former Federal Reserve Chairman Paul Volcker, who
campaigned for limits on risk-taking by lenders.
The Volcker rule may cost JPMorgan as much as $1.4 billion
in annual profit, analysts at Barclays Capital led by Jason
Goldberg estimated in a June 28 research report.
Revenue Goes Away
"This revenue and the risk it carries with it now goes
away," said Christopher Whalen, a Federal Reserve Bank of New
York analyst in the 1980s and co-founder of Institutional Risk
Analytics in Torrance, California. "This will put more pressure
on JPM to look for growth outside the U.S. market."
JPMorgan traders will be given a chance to apply for jobs
elsewhere in the company, according to the person. JPMorgan
spokeswoman Kimberly Weinrick declined to comment.
Coal derivatives trader Chan Bhima, who made a bad bet on
coal prices that the New York Post said cost JPMorgan as much as
$250 million in the second quarter, isn't affected by the cuts,
the person said. The proprietary trading desk reports to
commodities head Blythe Masters, who discussed Bhima's trade and
other matters in a July conference call with her team.
U.S. banks are exploring ways to comply with the new
trading rules. Citigroup Inc. was looking at three options to
meet the new rule, including moving a team of proprietary
traders into its hedge-fund unit, people briefed on the matter
said in July. The bank would set up the traders as hedge-fund
managers and seed their funds, then raise money from outside
investors to redeem its stakes, the people said.
*T
For Related News and Information:
Top finance: FTOP <GO>
Top commodities: TOP CMD <GO>
Top energy: ETOP <GO>}
Government bailouts: WDCI BAILOUTS <GO>
JPMorgan's top management: JPM US <Equity> MGMT <GO>
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--With assistance by Bradley Keoun in New York. Editors: Rick
Green, William Ahearn
To contact the reporters on this story:
Dawn Kopecki in New York at +1-212-617-9115 or
dkopecki@bloomberg.com;
Chanyaporn Chanjaroen in London at 44-20-7073-3544 or
cchanjaroen@bloomberg.net.
To contact the editor responsible for this story:
Rick Green in New York at +1-212-617-5804 or
Rgreen18@bloomberg.net
