The three directors who oversee risk at JPMorgan Chase & Co. (JPM) include a museum head who sat on American International Group Inc.’s governance committee in 2008, the grandson of a billionaire and the chief executive officer of a company that makes flight controls and work boots.
What the risk committee of the biggest U.S. lender lacks, and what the five next largest competitors have, are directors who worked at a bank or as financial risk managers. The only member with any Wall Street experience, James Crown, hasn’t been employed in the industry for more than 25 years.
“It seems hard to believe that this is good enough,” said Anat Admati, a professor of finance at Stanford University who studies corporate governance. “It’s a massive task to watch the risk of JPMorgan.”
The bank has been under siege since CEO Jamie Dimon said May 10 that the firm’s chief investment office suffered a $2 billion loss trading credit derivatives. He later called it “a Risk 101 mistake.” Shares of the New York-based company have fallen 17 percent since, and at least half a dozen agencies, including the U.S. Department of Justice and the Securities and Exchange Commission, are investigating.
The probes began after traders in the London office, which manages the bank’s excess cash, made wrong-way bets on illiquid credit derivatives, some of them so large they distorted market prices. Dimon transformed the division under Ina Drew, who resigned over the losses, from a sleepy haven for traders of U.S. Treasuries into a profit center with an increasing appetite for exotic wagers.
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)
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.
JPMorgan, with $1.13 trillion of deposits, is the only one of the six largest U.S. lenders that doesn’t have a former banker, regulator or finance professor on its risk committee.
Susan Bies, who served as a Federal Reserve governor for six years and risk manager at First Horizon National Corp., sits on Bank of America Corp.’s panel. Morgan Stanley’s includes Masaaki Tanaka, CEO for the Americas at Bank of Tokyo-Mitsubishi UFJ Ltd., while Robert Joss, a former U.S. Treasury Department official who ran Westpac Banking Corp., is on Citigroup Inc.’s. Nicholas Moore, a former PricewaterhouseCoopers LLP chairman and CEO of its U.S. unit, is one of six directors on Wells Fargo & Co. (WFC)’s risk committee.
Only Bank of America’s risk committee is as small as JPMorgan’s. Goldman Sachs’s has eight members, including Stephen Friedman, a former chairman of the firm who advised President George W. Bush on economic policy, and James Schiro, a former CEO of Zurich Financial Services AG.
Futter, a former president of Barnard College in New York, joined the JPMorgan board in 1997. Her re-election this year was opposed by Washington-based investor group Change to Win and shareholder advocate Glass Lewis & Co. over her previous experience on the boards of AIG and Bristol-Myers Squibb Co.
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.
“Given Ms. Futter’s inability to effectively monitor credit risk during her tenure at AIG, and the company’s similar level of involvement in the same markets, we do not believe her continued service on the company’s board is in shareholders’ interest,” Jack Ferdon and Courteney Keatinge, analysts at Glass Lewis, wrote in an April 24 report recommending that JPMorgan stockholders vote against her.
JPMorgan cited Futter’s experience as a director of the Federal Reserve Bank of New York from 1988 to 1993, a non- supervisory position, in supporting her nomination. She won 86 percent of the votes, the lowest of any board member,Bloomberg reported.
