Commodity Chief Blythe Masters to Leave JPMorgan Chase

By JESSICA SILVER-GREENBERG

April 2, 2014, 1:34 pm Joe Amon/The Denver PostBlythe Masters, head of the JPMorgan Chase commodities business. A prominent executive is leaving JPMorgan Chase as her powerful trading operation has stopped performing up to expectations, underscoring that Chase, the nation’s largest bank, is not immune to the boom and bust cycles that periodically sweep through Wall Street. The departure of Blythe Masters, the head of JPMorgan’s giant commodities unit, comes as the bank completes a sale of crucial parts of that business. Commodities operations, which trade in things like oil, metals and electricity, have recently stumbled at several Wall Street companies. But JPMorgan’s partial retreat from the business is particularly noteworthy because the bank, under Ms. Masters, made ambitious efforts to increase its presence in commodities soon after the financial crisis. New regulations, greater competition and relatively stable commodities prices have combined in recent years to make the business far less profitable for big banks. JPMorgan is selling its physical commodities business, which trades hard assets, as opposed to the financial instruments that are tied to commodities, to the Mercuria Energy Group of Switzerland for $3.5 billion in cash. The firm, started by two Goldman Sachs traders, does not have to follow the United States regulations that aim to make banks like JPMorgan less risky. The announcement on Wednesday comes after another loss for JPMorgan. Last week, Michael Cavanagh, a top lieutenant to the bank’s chief executive, Jamie Dimon, said he would leave the bank for the Carlyle group, a private equity company. The departure of Ms. Masters closes a chapter in one of the most closely followed careers on Wall Street. She joined JPMorgan as a college intern almost 30 years ago and rapidly rose to its upper echelons. When she was 28, she became the youngest managing director the bank had had. She gained particular prominence for helping to pioneer credit default swaps, the financial instruments that later helped stoke the mortgage crisis. Addressing that issue in 2008, Ms. Masters said in a speech, “Unfortunately, tools that transfer risk can also increase systemic risk if major counterparties fail to manage their own risk exposures properly.” Privately, Ms. Masters has noted that she never built or worked with mortgage derivatives, people close to her said. Since joining the firm in 1991 after college, she has held several roles, including chief financial officer of the investment bank. With the firm backing of Mr. Dimon, Ms. Masters took over the commodities unit in 2007. But she attracted scrutiny there. Last spring, Ms. Masters was mentioned in an investigation by the Federal Energy Regulatory Commission into accusations of illegal trading in the California and Michigan electricity markets. Manuel Balce Ceneta/Associated PressBlythe Masters of JPMorgan Chase at a Senate panel in 2009. Investigators for the regulator found that JPMorgan had designed trading “schemes” that converted “money-losing power plants into powerful profit centers,” according to a commission document reviewed by The New York Times. In that preliminary document, investigators took aim at Ms. Masters, saying she had made “false and misleading statements” under oath. From the outset, JPMorgan vociferously defended Ms. Masters, saying that neither she nor any other employee had lied or acted inappropriately. The bank ultimately reached a $410 million settlement with the agency, which never brought a separate action against Ms. Masters, who oversaw energy traders in Houston in her role as commodities chief. Within the bank, the accusations against Ms. Masters, who had forged strong ties with Mr. Dimon, were met with a mixture of outrage and disbelief, according to people briefed on the matter, who spoke on the condition they not be named because they were not authorized to discuss the matter. The overwhelming feeling, they said, was that Ms. Masters was unfairly singled out by investigators at an agency that was looking to flex its enforcement muscle. Still, the accusations, which surfaced last spring in a confidential commission document reviewed by The Times, cast a long shadow as Ms. Masters brokered the sale of the bank’s physical commodities unit. To ensure that the sale to Mercuria goes smoothly, Ms. Masters will remain at JPMorgan for the next few months, according to an internal bank memo circulated on Wednesday. It is important to Ms. Masters, the people briefed on the matter said, that as many employees as possible make the jump to Mercuria. JPMorgan announced its intention to sell the business last summer, meeting at the time with other suitors, including Macquarie, but settling on Mercuria. In the memo announcing her departure, Daniel Pinto, head of the corporate and investment bank, and Mr. Dimon said Ms. Masters intended to “take some well-deserved time off.” JPMorgan will still trade financial contracts tied to commodities, a business that is less likely to be hit by new regulations. Regulators have become skittish about banks’ trading in physical commodities, partly because it exposes them to expensive risks. For example, a bank might be overwhelmed by the costs of cleaning up an oil spill caused by a physical operation that it owns. In a securities filing, JPMorgan said its commodities activities carried “the risk of unforeseen and catastrophic events, including natural disasters, leaks, spills, explosions, release of toxic substances, fires, accidents on land and at sea, wars, and terrorist attacks.” New capital rules have also made it harder to earn an attractive return on commodities trading. JPMorgan has not reported earnings from its commodities unit separately. But the assets it is selling do not appear to have been particularly profitable in recent months. JPMorgan said the sale would not have a material effect on earnings, suggesting that the assets were not making enough profit to make a difference in the bank’s overall results. JPMorgan’s management certainly did not expect the commodities business to falter when they piled into it in 2010. “When all our efforts are completely integrated and are running at full capacity, profits of this business will grow even more strongly. And this should happen in the next two to three years,” Mr. Dimon wrote in the bank’s 2010 annual report.

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