NEW YORK (Reuters) – Stock indexes fell on Thursday as weak economic data spooked investors already concerned about Spain‘s economy and banking system, and about developments in Greece.

A gauge of future U.S. economic activity fell in April for the first time in seven months and the Philadelphia Fed business conditions index hit its lowest since September, compounding worries about a struggling economic recovery.

“The market wasn’t prepared for this; it was expecting risks from Europe,” said Subodh Kumar, chief investment strategist, Subodh Kumar & Associates in Toronto.

Adding to investors‘ worries, Spain’s El Mundo newspaper reported that customers at troubled Spanish lender Bankia had withdrawn more than 1 billion euros over the past week. The Spanish government denied the report. Bankia shares fell 14 percent after sliding as much as 30 percent earlier.

News that some Greek banks face emergency funding needs hurt sentiment and caused a further decline in risk assets which have already dropped over the past weeks.

“The whole equities market is being driven by a macro trade based upon contagion fear in Europe, and really the problem is undercapitalized banks there,” said Jack de Gan, chief investment officer at Harbor Advisory Corp in Portsmouth, New Hampshire.

Greek politicians who reject conditions for a bailout which is keeping the country’s finances afloat are likely to win next month’s election, adding to worries about Greece leaving the euro zone.

Spain’s medium-term borrowing costs rose sharply in a Thursday auction of 3- and 4- year bonds, hardly affecting broad views that Spanish yields are likely to rise further in coming weeks.

“We’re in a vacuum waiting for something to happen in Europe and if Greece isn’t going to have elections for another month, the markets are going to be backing and filling,” said De Gan, who expects volatility to continue.

The CBOE volatility index hit its highest level since mid January.

Giving investors some respite, Japan’s economy grew 1.0 percent in the first quarter, slightly more than expected. A 0.2 percent contraction in the final quarter of 2011 for the world’s third-largest economy was revised up to flat.

The Dow Jones industrial average dipped 32.66 points, or 0.26 percent, to 12,565.89. The S&P 500 Index fell 4.03 points, or 0.30 percent, to 1,320.77. The Nasdaq Composite fell 12.58 points, or 0.44 percent, to 2,861.46.

The pan-European FTSEurofirst 300 index fell 1.1 percent after hitting a fresh 2012 low. A gauge of European bank stocks dropped 2.5 percent.

Wal-Mart shares jumped 5.1 percent after the world’s largest retailer reported better-than-expected quarterly profit.

Sears Holdings Corp surged 11 percent after the company said it plans to spin off a large part of its stake in its Canada unit to better focus on its U.S. business.

(Additional reporting by Ryan Vlastelica. Editing by Bernadette Baum)

By Herbert Lash

NEW YORK (Reuters) – The euro pared losses and bond prices slid on Wednesday after comments by German Chancellor Angela Merkel bolstered hopes that Greece would remain in the euro zone, while U.S. stocks rose on encouraging U.S. economic data.

U.S. industrial production posted its fastest growth in over a year in April and a rebound in groundbreaking for new U.S. homes last month suggested a recovery in U.S. housing was gaining some traction, bolstering U.S. investor sentiment that has been heavily hit by news about Greece.

Industrial output grew 1.1 percent, the most since December 2010 and nearly twice the pace expected by analysts polled by Reuters. Housing starts increased 2.6 percent to a seasonally adjusted annual rate of 717,000 units, while March’s starts were revised upward.

“Nice to see some turnaround. Ideally supply is getting more in line with demand, and low (interest) rates may be finally helping the turnaround,” David Carter, chief investment officer at Lenox Wealth Advisors in New York, said about housing.

“However, this housing story is much smaller than news out of Greece and might get easily forgotten,” Carter said.

Stocks on Wall Street opened higher, while equity markets in Europe pared much of an early sell-off.

The Dow Jones industrial average (DJI:^DJI – News) was up 38.52 points, or 0.30 percent, at 12,670.52. The Standard & Poor’s 500 Index (MXP:^GSPC – News) was up 6.00 points, or 0.45 percent, at 1,336.66. The Nasdaq Composite Index (NAS:^COMP) was up 10.66 points, or 0.37 percent, at 2,904.42.

The FTSEurofirst 300 index (.FTEU3) fell 0.2 percent to 997.22.

MSCI’s global equity index <.MIWD00000PUS> was down 0.4 percent to 306.53.

Prices on German government Bund bond futures fell to a session low, while Spanish and Italian bond yields eased, with traders citing comments from Merkel reiterating that Germany wanted Greece to stay in the euro zone.

Bund futures fell to 143.11, and the benchmark 10-year U.S. Treasury note was down 11/32 in price to yield 1.81 percent.

Both Bunds and U.S. Treasuries have safe-haven appeal and their prices rise when investors become jittery.

The euro climbed to a session high against the dollar expectations that Germany and France will act together to keep Greece in the euro zone after Merkel met French President Francois Hollande on Tuesday. .

The euro pared losses to trade near break-even at $1.2725. The dollar (.DXY) rose 0.2 percent to 81.359 , its highest in four months against a basket of currencies.

Oil prices slid, accentuated by a surprise build in U.S. crude inventories.

Brent crude was down 64 cents at $111.60 a barrel and U.S. oil was down $1.16 to $92.82 a barrel.

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Reuters Insider on markets: http://link.reuters.com/zud38s

Euro zone debt crisis: http://r.reuters.com/hyb65p

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(Additional reporting by Richard Hubbard; Reporting By Herbert Lash Editing by W Simon)

WASHINGTON (Reuters) – Groundbreaking for homes rebounded in April and factory activity gained steam, suggesting the economy remains on a steady, if unspectacular recovery course.

The Commerce Department said on Wednesday housing starts increased 2.6 percent to a seasonally adjusted annual rate of 717,000 units, while the Federal Reserve said production at the nation’s mines, factories and utilities rose 1.1 percent.

The jump in industrial output, which was the largest since December 2010, was driven by a 4.5 percent increase in utility output, a 1.6 percent gain in mining and a 0.6 percent rise in factory production.

“More positive U.S. economic news pointing to continued moderate growth,” said Jennifer Lee, a senior economist at BOMB Capital Markets in Toronto.

Major U.S. stock indexes opened higher on the data and cautious hopes that debt-stricken Greece would remain in the euro zone. Prices for U.S. Treasury debt fell, while the dollar rose marginally against a basket of currencies.

March’s housing starts were revised up to a 699,000-unit pace from a previously reported 654,000 unit rate.

Economists polled by Reuters had forecast housing starts rising to 680,000-unit rate. Compared to April last year, residential construction was up 29.9 percent.

The housing market is showing some signs of life after collapsing six years ago, but remains hobbled by a glut of unsold homes.

However, rising demand for rentals, causing builders to break more ground on apartment projects, is helping to stabilize the market.

“Ideally supply is getting more in line with demand, and low rates may be finally helping the turnaround, said David Carter, chief investment officer at Lenox Wealth Advisors in New York. “However, this housing story is much smaller than news out of Greece and might get easily forgotten.”

Although home building accounts for about 2.3 percent of gross domestic product, the housing market has an outsized reach on the U.S. economy. A separate report on Wednesday showed applications for loans to buy homes fell last week.

Housing starts last month rose across the board. Groundbreaking for single-family homes increased 2.3 percent. This segment accounts for most of the market. Starts for multi-family homes advanced 3.2 percent.

Despite last month’s overall jump in starts, they remain less than a third of their peak in January 2006. Residential construction in the first quarter grew at the fastest pace in nearly two years and is expected to contribute to economic growth this year for the first time since 2005.

Last month, housing starts rose in two of the four regions, but fell 20.7 percent in the Northeast, suggesting a payback for the unusually warm weather that had boosted activity.

Sentiment among home builders touched a five-year high in May, a survey showed on Tuesday, amid growing optimism about current sales and buyer traffic over the next six months.

That suggests the 7 percent drop in permits to a 715,00-unit pace last month would be temporary. March’s permits were revised to a 769,000-unit rate, the highest since September 2008.

Economists had expected permits to fall to a 730,000-unit pace from March’s previously reported 764,000-unit rate.

Permits to build single-family homes rose 1.9 percent in April to a 475,000-unit pace. Permits for multi-family homes fell 20.8 percent to a 240,000-unit rate.

(Editing by Neil Stempleman)

LONDON/NEW YORK (Reuters) – The leader of JPMorgan Chase & Co’s hedging unit is retiring after trading losses that could end up exceeding $3 billion, a shortfall that President Barack Obama said might have led the government to step in had such losses struck a smaller bank.

The Federal Reserve meanwhile said it is now looking into whether JPMorgan has similar risk problems at other units, joining a probe by the U.S. Securities and Exchange Commission and upcoming hearings in the U.S. Senate.

Late Monday, a leading shareholder law firm said it filed a federal lawsuit against JPMorgan and various bank officials over the trading loss and its effect on the bank’s stock price. A JPMorgan spokeswoman had no immediate comment.

The news of the losses has wiped nearly $19 billion from JPMorgan‘s market capitalization in just two trading days and renewed the debate about financial regulation and the concept of being “too big to fail.”

“This is the best, or one of the best managed banks. You could have a bank that isn’t as strong, isn’t as profitable making those same bets and we might have had to step in. That’s exactly why Wall Street reform’s so important,” President Obama told ABC’s “The View” in an interview taped to air Tuesday. The network released a partial transcript late Monday.

JPMorgan said Chief Investment Officer Ina Drew, 55, who was among the highest-paid executives at the bank, had decided to “retire from the firm.”

She will be succeeded by Matt Zames, a trader by background who is well-versed in risky financial bets. He was at one time employed at Long-Term Capital Management, a hedge fund whose 1998 collapse nearly caused a global crisis. Zames has in past been tabbed as a potential successor to Dimon.

The bank’s statement made no mention of two subordinates of Drew who were involved with the trades — London-based Achilles Macris and Javier Martin-Artajo — who sources had said would leave. A memo Zames sent to staff, a copy of which was obtained by Reuters, said only that Macris would “transition his … responsibilities.”

“I am proud of the firm’s efforts over the past several days to address our mistakes and pleased to join the dedicated employees in our Chief Investment Office today,” Zames wrote.

Shares of JPMorgan closed 3.2 percent lower at $35.79 on the New York Stock Exchange on Monday. Ratings service Moody’s warned Monday the trading losses were a “credit negative” for bondholders as well.

But one investor called the sell-off “a gift” and said he was adding to his position, with an expectation the stock would rise roughly a third from current levels by year-end.

“Dimon has fallen on his sword, promised to take action, tossed a few players under the bus … nothing left to be done that is not already under way,” said Edward Shill, chief investment officer of QCI Asset Management, which held more than 280,000 shares as of March 31.

‘NO CLUE’ ON PROP BOOK

The departure of Drew after 30 years at JPMorgan comes after the unit she ran, the Chief Investment Office (CIO), mismanaged a portfolio of derivatives tied to the creditworthiness of bonds, according to bank executives.

Drew reported directly to Dimon, who was known to visit London to meet with traders from the CIO unit, including Macris. That said, it remains unclear how involved Dimon was in the precise details of the positions.

JPMorgan, the biggest U.S. bank by assets, also said that Mike Cavanagh, CEO of the Treasury & Securities Services group, would lead a team of executives overseeing its response to the losses.

In appointing Cavanagh to coordinate the bank’s response to the loss, Dimon is turning to a long-time protégé. “Jamie usually gives him jobs heavy on management and strategy,” said a former JPMorgan executive.

One hedge fund manager who previously ran a proprietary trading book at JPMorgan said the bank’s public commitments to trim risk were at odds with its network of trading groups making bets independently, with only a handful of the bank’s most senior executives notified of their vast, complex exposures.

“This (CIO) group was completely separate, completely distinct from the prop-trading unit. We had no clue about their prop book and they would have no clue about ours for that matter,” the manager said.

REGULATORY SCRUTINY

The mammoth losses have marred JPMorgan‘s reputation for risk management and thrown an unflattering spotlight on Dimon, a critic of increased regulation. He is scheduled to speak on Tuesday at the bank’s annual meeting in Tampa, Florida.

“JPMorgan is one of the best managed banks there is. Jamie Dimon, the head of it, is one of the smartest bankers we got and they still lost $2 billion and counting,” Obama told ABC. At one time Dimon was considered a favorite for Treasury secretary in a potential second Obama administration.

Dimon has said he is open to regulatory scrutiny of the losses, which the White House confirmed on Monday was under way.

“There is an investigation into what happened at JPMorgan that the SEC is conducting,” White House spokesman Jay Carney said, declining to elaborate.

A U.S. Treasury official said the Financial Stability Oversight Council had not convened to discuss the losses and did not plan to. The Senate Banking Committee plans to hold hearings in the coming weeks on Wall Street reform, it said on Monday, during which it will likely press U.S. regulators about the JPMorgan losses.

The Fed said late Monday it was reviewing JPMorgan’s risk practices across the firm.

PAST PERFORMANCE

Until the loss was disclosed late Thursday, Drew was considered by some market participants as one of the best managers of balance-sheet risks. She earned more than $15 million in each of the last two years.

According to JPMorgan’s last annual proxy statement, Drew would be entitled to the continuation of almost $14.7 million in stock awards in case of resignation, provided she had met “full-career eligibility” criteria.

A JPMorgan spokesman did not immediately return calls for comment on whether she will retain all the compensation awards. Drew could not immediately be reached.

“Ina is an amazing investor,” said a money manager who knows her but declined to be identified. “She’s done a really good job over a lot of years. But they only remember your last trade.”

Her expertise was in balancing the interest-rate risks of the banks’ loans and other assets against the rate risk associated with its deposits and other liabilities, said veterans who have worked with her.

JPMorgan described Drew’s replacement, Zames, as a “world-class risk manager and executive.”

Before joining JPMorgan in 2004 he ran prop trading in the interest rate group at Credit Suisse First Boston, having joined CSFB from a trading job at Morgan Stanley. He was seen as one of the winners in 2009, when Jes Staley reorganized JPMorgan’s investment bank, taking on the fixed income co-head role.

Last summer, the Wall Street Journal listed Zames among a group of senior JPMorgan executives in their mid-40s who were thought to be potential successors to Dimon.

(Additional reporting by Carrick Mollenkamp, Jed Horowitz, Dan Wilchins, Jonathan Spicer, Christian Murray and Lauren Tara LaCapra in New York, Rick Rothacker in Charlotte, North Carolina, Ross Kerber in Boston, Dave Clarke, Mark Felsenthal and Jeff Mason in Washington, Alister Bull aboard Air Force One, John O’Donnell in Brussels and Drazen Jorgic, Sinead Cruise, Kylie MacLellan and Anjuli Davies in London; Writing by Ben Berkowitz in Boston; Editing by Alwyn Scott, David Holmes, Jeffrey Benkoe, Tim Dobbyn, Phil Berlowitz, Matthew Lewis and Steve Orlofsky)

LONDON/NEW YORK (Reuters) – JPMorgan Chase & Co Chief Investment Officer Ina Drew is retiring, the first casualty after the bank suffered trading losses that could reach more than $3 billion and that have sparked an investigation by U.S. securities regulators.

In Drew’s place, the bank on Monday named Matt Zames, a trader by background who is well versed in risky financial bets. He was at one time employed at Long-Term Capital Management, whose 1998 collapse nearly caused a global crisis.

The biggest U.S. bank by assets said on Monday that Mike Cavanagh, CEO of the Treasury & Securities Services group, will lead a team of executives overseeing its response to the losses.

The bank’s statement made no mention of two of Drew’s subordinates who were involved with the trades — London-based Achilles Macris and Javier Martin-Artajo — who sources had said were expected to leave. Neither could be reached for comment.

The departure of Drew after 30 years at JPMorgan comes after the unit she ran, known as the Chief Investment Office (CIO), mismanaged a portfolio of derivatives tied to the creditworthiness of bonds, according to bank executives.

The portfolio included layers of instruments used in hedging that became too complicated to work and too big to quickly unwind in the esoteric, thinly traded market.

Shares of JPMorgan fell 2 percent to $36.19 at midday on the New York Stock Exchange. The stock has shed nearly 12 percent in value since the losses were disclosed, or some $18.12 billion in total. Ratings service Moody’s warned Monday the trading losses were a “credit negative” for bondholders as well.

One hedge fund manager who previously ran a proprietary (or prop) trading book at JPMorgan said the bank’s public commitments to trim balance sheet risk were at odds with its network of trading silos, who were making bets independently — with only a handful of the bank’s most senior executives notified of their vast, complex exposures.

“This (CIO) group was completely separate, completely distinct from the prop trading unit. We had no clue about their prop book and they would have no clue about ours for that matter,” the manager said.

REGULATORY OVERSIGHT

The mammoth losses have marred JPMorgan’s reputation for risk management and thrown an unflattering spotlight on Dimon, a critic of increased regulation. He is scheduled to speak on Tuesday at the bank’s annual meeting in Tampa, Florida.

Dimon has said he is open to regulatory scrutiny of the losses, which the White House confirmed on Monday was underway.

“There is an investigation into what happened at JPMorgan that the SEC is conducting,” White House spokesman Jay Carney told reporters aboard Air Force One, declining to elaborate.

But even as U.S. officials dig into the losses, European regulators had sharp words for the oversight to date.

“The issue does not only underline the failure of good risk management … but might also raise questions on external supervision,” Michel Barnier, European Union commissioner in charge of financial regulation, said in a statement. “More internal and external controls and supervision are needed. Supervisors need to be more proactive on this front.”

PAST PERFORMANCE

Drew had repeatedly offered to resign in recent weeks after the magnitude of the debacle became clear, according to one source, but the resignation was not immediately accepted because of her past performance at the bank.

Until the loss was disclosed late Thursday, Drew was considered by some market participants as one of the best managers of balance sheet risks. She earned more than $15 million in each of the last two years.

According to JPMorgan’s last annual proxy statement, Drew was one of the four largest holders of company stock among directors and executive officers, with 1.36 million shares or imminently exercisable options.

The proxy also indicated Drew would be entitled to the continuation of almost $14.7 million in stock awards in case of resignation, provided she was an employee in good standing and had met “full-career eligibility” criteria.

“Ina is an amazing investor,” said a money manager who knows her but declined to be identified. “She’s done a really good job over a lot of years. But they only remember your last trade.”

JPMorgan described her replacement, Zames, as a “world-class risk manager and executive.”

Before joining JPMorgan in 2004 he ran prop trading in the interest rate group at Credit Suisse First Boston, having joined CSFB from a trading job at Morgan Stanley. He was seen as one of the winners in 2009, when Jes Staley reorganized JPMorgan’s investment bank, taking on the fixed income co-head role.

Last summer, the Wall Street Journal listed Zames among a coterie of senior JPMorgan executives in their mid-40s who were thought to be potential successors to Dimon.

Zames was also briefly mentioned in the Bernard Madoff case. When the trustee in the bankruptcy sued JPMorgan, he quoted John Hogan, chief risk officer at the bank, as saying Zames had warned of speculation Madoff was a fraud.

(Additional reporting by Carrick Mollenkamp in New York, Rick Rothacker in Charlotte, North Carolina, Alister Bull aboard Air Force One, John O’Donnell in Brussels and Drazen Jorgic, Sinead Cruise, Kylie MacLellan and Anjuli Davies in London, writing by Ben Berkowitz in Boston; editing by David Holmes and Jeffrey Benkoe)

LONDON/NEW YORK (Reuters) – JPMorgan will move to limit the fallout from a shock trading loss that could reach $3 billion or more by parting company with three top executives involved in its costly failed hedging strategy, sources close to the matter said.

The bank – the biggest in the United States by assets – is expected to accept the resignation this week of Ina Drew, its New York-based chief investment officer and one of its highest-paid executives, in the next few days, the sources said.

Two of Drew’s subordinates who were involved with the trades, London-based Achilles Macris and Javier Martin-Artajo, are also expected to be asked to leave, they said. Neither was available for comment on Monday.

The departures come after the unit Drew runs, known as the Chief Investment Office (CIO), mismanaged a portfolio of derivatives tied to the creditworthiness of bonds, according to bank executives.

The portfolio included layers of instruments used in hedging that became too complicated to work and too big to quickly unwind in the esoteric, thinly traded market.

One hedge fund manager who previously ran a proprietary (or prop) trading book at JPMorgan said the bank’s public commitments to trim balance sheet risk were at odds with its network of trading silos, who were making bets independently with only a handful of the bank’s most senior executives notified of their vast, complex exposures.

“This (CIO) group was completely separate, completely distinct from the prop trading unit. We had no clue about their prop book and they would have no clue about ours for that matter,” the manager said.

“They were all totally independent. All the activities were reported to New York and they ran the allocation of capital to each and every strategy … those decisions were definitely not taken in London. These things were very, very opaque. Every bank is, whether you’re Goldman, Morgan (Stanley) or JP.”

Drew had repeatedly offered to resign in recent weeks after the magnitude of the debacle became clear, according to one of the sources, but the resignation was not immediately accepted because of her past performance at the bank.

Until the loss was disclosed late on Thursday, Drew was considered by some market participants as one of the best managers of balance sheet risks. She earned more than $15 million in each of the last two years.

“Ina is an amazing investor,” said a money manager who knows Drew, but who declined to be quoted by name. “She’s done a really good job over a lot of years. But they only remember your last trade.”

RISK MANAGEMENT

Departures had been on the cards in the wake of the trading losses, though in disclosing the losses on Thursday, CEO Jamie Dimon said only that the bank was continuing to investigate and would take disciplinary action with those involved.

Dimon said the bank’s losses could reach $3 billion or more as it unwinds the positions in coming months.

The losses have marred JPMorgan’s reputation for risk management, prompted a downgrade in its credit ratings and thrown an unflattering spotlight on Dimon, a critic of increased regulation who had become one of America’s best-known bankers.

On Sunday, Dimon’s bravado was badly tarnished when the New York Times reported remarks he made recently at a dinner party in Dallas. Dimon called arguments about too-big-to-fail banks – arguments made by former Federal Reserve chief Paul Volcker and Richard Fisher, president of the Federal Reserve Bank of Dallas – “infantile” and “nonfactual,” according to the Times.

Dimon is himself a board member of the Federal Reserve Bank of New York. Elizabeth Warren called for him to resign that post on Sunday. Warren, who chaired the congressional committee that oversaw the bank bailout program known as TARP and is running for the Senate, said he should not be on the panel advising the Fed on bank management and oversight.

“We need to stop the cycle of bankers taking on risky activities, getting bailed out by the taxpayers, then using their army of lobbyists to water down regulations,” Warren said.

Dimon has struck a more contrite pose since revealing the losses. In an interview that aired on Sunday, he told NBC’s “Meet the Press” the bank’s handling and oversight of the derivative portfolio was “sloppy” and “stupid” and that executives had reacted badly to warnings last month that the bank had large losses in derivatives trading.

He said executives were “completely wrong” in public statements they made in April after being challenged over the trades in news reports.

“We got very defensive. And people started justifying everything we did,” Dimon said. “We told you something that was completely wrong a mere four weeks ago.

The loss, and Dimon’s failure to heed the warnings, have become major embarrassments and have given regulators new arguments for tightening controls on big banks and requiring them to hold more capital to cushion possible losses.

Issues relating to the bank’s internal controls were raised in 2010 when it was fined 33 million pounds by Britain’s Financial Services Authority for failing to segregate client month from its own in the UK – an incident that also led to its auditor PwC being fined 1.4 million by its professional body for failing to spot the transgression.

No-one at PwC, JPM’s global auditor, could immediately be reached for comment.

JPMorgan lost $15 billion in stock market value the day after the latest loss announcement. Some analysts were shocked Dimon did not have as much control of the company’s derivatives book as they had thought. Before the loss, Dimon had been widely praised for successfully managing the company through the credit bubble and the financial crisis.

His strategy in dealing with the issue has been to apologize repeatedly and say straight-forwardly that he and the bank erred. He has not, however, been willing to describe the exact trading positions, for fear of giving traders in the market information with which to inflict deeper losses.

Dimon is scheduled to speak on Tuesday at the bank’s annual meeting in Tampa, Florida.

(Additional reporting by Carrick Mollenkamp in New York and Rick Rothacker in Charlotte, North Carolina.; Editing by David Holmes)

(Reuters) – Three top executives involved with a failed hedging strategy that cost JPMorgan Chase & Co at least $2 billion and tarnished its reputation are expected to leave the bank this week, sources close to the matter said on Sunday.

The bank – the biggest in the United States by assets – is expected to accept the resignation of Ina Drew, its New York-based chief investment officer and one of its highest-paid executives, in the next few days, the sources said. Two of Drew’s subordinates who were involved with the trades, London-based Achilles Macris and Javier Martin-Artajo, are expected to be asked to leave, they said.

The departures come after the unit Drew runs, known as the Chief Investment Office, mismanaged a large portfolio of derivatives tied to the creditworthiness of bonds, according to bank executives. The portfolio included layers of instruments used in hedging that became too complicated to work and too big to unwind quickly in the esoteric, thinly traded market.

Drew had repeatedly offered to resign in recent weeks, after the magnitude of the debacle became clear, according to one of the sources. But the resignation was not immediately accepted because of Drew’s past performance at the bank.

Until the loss was disclosed late on Thursday, Drew was considered one of the best managers of balance sheet risks. She earned more than $15 million in each of the last two years.

“Ina is an amazing investor,” said a money manager who knows Drew, but who declined to be quoted by name. “She’s done a really good job over a lot of years. But they only remember your last trade.”

‘SLOPPY’, ‘STUPID’

While departures had been expected in the wake of the trading losses, JPMorgan appeared to be moving swiftly. In disclosing the losses on Thursday, CEO Jamie Dimon said only that the bank was continuing to investigate and would take disciplinary action with those involved.

The losses have deeply marred JPMorgan’s reputation for risk management, prompted a downgrade in its credit ratings and thrown an unflattering spotlight on Dimon, who had become perhaps America’s best-known banker and a cavalier critic of increased regulation.

On Sunday, Dimon’s bravado was badly burnished when the New York Times reported remarks he made recently at a dinner party in Dallas. Dimon called arguments about too-big-to-fail banks – arguments made by former Federal Reserve chief Paul Volcker and Richard Fisher, president of the Federal Reserve Bank of Dallas – “infantile” and “nonfactual,” according to the Times.

Dimon is himself a board member of the Federal Reserve Bank of New York. Elizabeth Warren called for him to resign that post on Sunday. Warren, who chaired the congressional committee that oversaw the bank bailout program known as TARP and is currently running for the Senate, said he should not be on the panel advising the Fed on bank management and oversight.

“We need to stop the cycle of bankers taking on risky activities, getting bailed out by the taxpayers, then using their army of lobbyists to water down regulations,” Warren said.

Dimon certainly has struck a more contrite pose since revealing the losses. In an interview that aired on Sunday, he told NBC’s “Meet the Press” program that the bank’s handling and oversight of the derivative portfolio was “sloppy” and “stupid” and that executives had reacted badly to warnings last month that the bank had large losses in derivatives trading. He said executives were “completely wrong” in public statements they made in April after being challenged over the trades in news reports.

“We got very defensive. And people started justifying everything we did,” Dimon said. “We told you something that was completely wrong a mere four weeks ago.

The loss, and Dimon’s failure to heed the warnings, have become major embarrassments and have given regulators new arguments for tightening controls on big banks and requiring them to hold more capital to cushion possible losses.

JPMorgan lost $15 billion in stock market value the day after the announcement. Analysts were shocked that Dimon did not have as much control of the company’s derivatives book as they had thought. Before the loss, Dimon had been widely praised for successfully managing the company through the credit bubble and the financial crisis.

His strategy in dealing with the issue has been to apologize repeatedly and say straight-forwardly that he and the bank erred. He has not, however, been willing to describe the exact trading positions, for fear of giving traders in the market information with which to inflict deeper losses.

PAYING THE PRICE

Dimon did not explain in the NBC interview why the trades went wrong. He had declined on Thursday, too, to describe details of the trades when pressed by analysts. He said the positions were first designed to hedge risks in the bank’s investments. “The strategy we had was badly vetted,” Dimon said in the interview. “It was badly monitored. It should never have happened.”

The bank hasn’t said much publicly about the trades. But others in the market say they involved complex layers of credit default swaps, the same instruments that were central to the financial crisis. JPMorgan helped create the CDS market in the 1990s. But its trades have become ever more complex, involving indexes and derivatives based on corporate bonds. The instruments were known as “synthetic,” because they trade the risk of default without trading the underlying bonds.

Under Drew, JPMorgan’s CIO unit had layered these trades in ways that exposed the bank to moves in both directions in the value of the bonds, according to CDS traders not at JPMorgan who spoke on condition of anonymity. Because these markets are so thinly traded, and JPMorgan’s positions were so large, it was impossible for the bank to exit quickly when the positions soured.

Dimon said the bank could lose $3 billion or more as it unwinds the positions in the coming months.

The debacle provides ammunition to advocates already calling for tougher regulation of banks, Dimon said. “This is a very unfortunate and inopportune time to have had this kind of mistake,” he said.

Dimon has been the most outspoken bank executive in arguing that new regulations being finalized and implemented by the U.S. government go too far. “We hurt ourselves and our credibility,” he said in the NBC interview. “We got to fully expect and pay the price for that.” He said the huge trading loss was not “life threatening” to JPMorgan.

Dimon is scheduled to speak on Tuesday at the bank’s annual meeting in Tampa, Florida.

(Reporting by David Henry and Carrick Mollenkamp in New York and Rick Rothacker in Charlotte, North Carolina.; Editing by Alwyn Scott, Marguerita Choy and Ian Geoghegan)

(Reuters) – Three top executives involved with a failed hedging strategy that cost JPMorgan Chase & Co at least $2 billion and tarnished its reputation are expected to leave the bank this week, sources close to the matter said on Sunday.

The bank – the biggest in the United States by assets – is expected to accept the resignation of Ina Drew, its New York-based chief investment officer and one of its highest-paid executives, in the next few days, the sources said. Two of Drew’s subordinates who were involved with the trades, London-based Achilles Macris and Javier Martin-Artajo, are expected to be asked to leave, they said.

The departures come after the unit Drew runs, known as the Chief Investment Office, mismanaged a large portfolio of derivatives tied to the creditworthiness of bonds, according to bank executives. The portfolio included layers of instruments used in hedging that became too complicated to work and too big to unwind quickly in the esoteric, thinly traded market.

Drew had repeatedly offered to resign in recent weeks, after the magnitude of the debacle became clear, according to one of the sources. But the resignation was not immediately accepted because of Drew’s past performance at the bank.

Until the loss was disclosed late on Thursday, Drew was considered one of the best managers of balance sheet risks. She earned more than $15 million in each of the last two years.

“Ina is an amazing investor,” said a money manager who knows Drew, but who declined to be quoted by name. “She’s done a really good job over a lot of years. But they only remember your last trade.”

‘SLOPPY’, ‘STUPID’

While departures had been expected in the wake of the trading losses, JPMorgan appeared to be moving swiftly. In disclosing the losses on Thursday, CEO Jamie Dimon said only that the bank was continuing to investigate and would take disciplinary action with those involved.

The losses have deeply marred JPMorgan’s reputation for risk management, prompted a downgrade in its credit ratings and thrown an unflattering spotlight on Dimon, who had become perhaps America’s best-known banker and a cavalier critic of increased regulation.

On Sunday, Dimon’s bravado was badly burnished when the New York Times reported remarks he made recently at a dinner party in Dallas. Dimon called arguments about too-big-to-fail banks – arguments made by former Federal Reserve chief Paul Volcker and Richard Fisher, president of the Federal Reserve Bank of Dallas – “infantile” and “nonfactual,” according to the Times.

Dimon is himself a board member of the Federal Reserve Bank of New York. Elizabeth Warren called for him to resign that post on Sunday. Warren, who chaired the congressional committee that oversaw the bank bailout program known as TARP and is currently running for the Senate, said he should not be on the panel advising the Fed on bank management and oversight.

“We need to stop the cycle of bankers taking on risky activities, getting bailed out by the taxpayers, then using their army of lobbyists to water down regulations,” Warren said.

Dimon certainly has struck a more contrite pose since revealing the losses. In an interview that aired on Sunday, he told NBC’s “Meet the Press” program that the bank’s handling and oversight of the derivative portfolio was “sloppy” and “stupid” and that executives had reacted badly to warnings last month that the bank had large losses in derivatives trading. He said executives were “completely wrong” in public statements they made in April after being challenged over the trades in news reports.

“We got very defensive. And people started justifying everything we did,” Dimon said. “We told you something that was completely wrong a mere four weeks ago.

The loss, and Dimon’s failure to heed the warnings, have become major embarrassments and have given regulators new arguments for tightening controls on big banks and requiring them to hold more capital to cushion possible losses.

JPMorgan lost $15 billion in stock market value the day after the announcement. Analysts were shocked that Dimon did not have as much control of the company’s derivatives book as they had thought. Before the loss, Dimon had been widely praised for successfully managing the company through the credit bubble and the financial crisis.

His strategy in dealing with the issue has been to apologize repeatedly and say straight-forwardly that he and the bank erred. He has not, however, been willing to describe the exact trading positions, for fear of giving traders in the market information with which to inflict deeper losses.

PAYING THE PRICE

Dimon did not explain in the NBC interview why the trades went wrong. He had declined on Thursday, too, to describe details of the trades when pressed by analysts. He said the positions were first designed to hedge risks in the bank’s investments. “The strategy we had was badly vetted,” Dimon said in the interview. “It was badly monitored. It should never have happened.”

The bank hasn’t said much publicly about the trades. But others in the market say they involved complex layers of credit default swaps, the same instruments that were central to the financial crisis. JPMorgan helped create the CDS market in the 1990s. But its trades have become ever more complex, involving indexes and derivatives based on corporate bonds. The instruments were known as “synthetic,” because they trade the risk of default without trading the underlying bonds.

Under Drew, JPMorgan’s CIO unit had layered these trades in ways that exposed the bank to moves in both directions in the value of the bonds, according to CDS traders not at JPMorgan who spoke on condition of anonymity. Because these markets are so thinly traded, and JPMorgan’s positions were so large, it was impossible for the bank to exit quickly when the positions soured.

Dimon said the bank could lose $3 billion or more as it unwinds the positions in the coming months.

The debacle provides ammunition to advocates already calling for tougher regulation of banks, Dimon said. “This is a very unfortunate and inopportune time to have had this kind of mistake,” he said.

Dimon has been the most outspoken bank executive in arguing that new regulations being finalized and implemented by the U.S. government go too far. “We hurt ourselves and our credibility,” he said in the NBC interview. “We got to fully expect and pay the price for that.” He said the huge trading loss was not “life threatening” to JPMorgan.

Dimon is scheduled to speak on Tuesday at the bank’s annual meeting in Tampa, Florida.

(Reporting by David Henry and Carrick Mollenkamp in New York and Rick Rothacker in Charlotte, North Carolina.; Editing by Alwyn Scott, Marguerita Choy and Ian Geoghegan)

(Reuters) – Three executives involved with the failed hedging strategy that has left JPMorgan Chase & Co with a $2 billion trading loss and a tarnished reputation are expected to leave the bank this week, sources close to the matter said on Sunday.

The company is expected to accept the resignation of Ina Drew, its chief investment officer and one of its highest-paid executives, in the next few days, the sources said. Two of Drew’s subordinates who were involved with the trades, Achilles Macris and Javier Martin-Artajo, are expected to be asked to leave, they said.

The unit Drew runs, known as the Chief Investment Office, mismanaged a portfolio of derivatives tied to the creditworthiness of bonds, according to bank executives. The portfolio was layered with hedging strategies that became too complicated to work and too big to unwind in the esoteric market.

Drew had repeatedly offered to resign after the magnitude of the debacle became clear, according to one of the sources. But the resignation was not immediately accepted because of Drew’s past performance at the bank.

Until the loss was disclosed on Thursday night, Drew was considered in the industry to be one of the best managers of balance-sheet risks. She earned more than $15 million in each of the last two years.

“Ina is an amazing investor,” said a money manager who knows Drew, but who declined to be quoted by name. “She’s done a really good job over a lot of years. But they only remember your last trade.”

‘SLOPPY’, ‘STUPID’

CEO Jamie Dimon said when he announced the loss on Thursday that the bank was continuing to investigate what went wrong and that disciplinary actions would be taken.

Dimon called the handling and oversight of the derivative portfolio “sloppy” and “stupid.”

Earlier on Sunday, Dimon said in a nationally televised interview that bank executives had reacted badly to warning flags last month that it had large losses in financial derivatives trading.

In the interview on NBC’s “Meet the Press” television program, Dimon said bank executives were “completely wrong” in public statements they made in April after being challenged over the trades in media reports.

“We got very defensive. And people started justifying everything we did,” Dimon said. “We told you something that was completely wrong a mere four weeks ago.

The loss, and Dimon’s failure to heed the warnings, have become major embarrassments and have given regulators new arguments for tightening controls on big banks and requiring them to hold more capital to cushion possible losses.

JPMorgan lost $15 billion in stock market value the day after the announcement. Analysts were shocked that Dimon did not have as much control of the company’s derivatives book as they had thought. Before the loss, Dimon had been widely praised for successfully managing the company through the credit bubble and the financial crisis.

His strategy in dealing with the issue has been to apologize repeatedly and say straight-forwardly that he and the bank erred.

He has not, however, been willing to describe the exact trading positions, for hear of giving traders in the market information with which to inflict deeper losses.

PAYING THE PRICE

Dimon did not explain in the NBC interview why the trades went wrong. He had declined on Thursday, too, to describe details of the trades when pressed by the analysts. He said the positions were first designed to hedge risks in the bank’s investments.

“The strategy we had was badly vetted,” Dimon said in the interview. “It was badly monitored. It should never have happened.”

The debacle provides ammunition to advocates already calling for tougher regulation of banks, Dimon said. “This is a very unfortunate and inopportune time to have had this kind of mistake,” he said.

Dimon has the been the most outspoken bank executive in arguing that new regulations being finalized and implemented by the U.S. government go too far.

“We hurt ourselves and our credibility,” Dimon said in the NBC interview. “We got to fully expect and pay the price for that.” He said the huge trading loss was not “life threatening” to JPMorgan.

The comments to NBC were Dimon’s first public statements since he spoke to analysts in a conference call on Thursday. He is scheduled to speak again on Tuesday at the company’s annual meeting in Tampa, Florida.

JPMorgan is the biggest bank in the United States by assets and has major investment banking and trading operations in Europe. The losses in Drew’s unit stemmed from trades largely made in London in credit default swaps, an instrument that institutions use to buy and sell insurance against defaults and declines in the market value of bonds.

Some of the trades attracted attention and gossip in the swaps earlier this year because of their size. One JPMorgan trader working the portfolio, Bruno Iksil, was dubbed the ‘London Whale.’

(Reporting by David Henry and Carrick Mollenkamp in New York and Rick Rothacker in Charlotte, North Carolina.; Editing by Marguerita Choy and Muralikumar Anantharaman)

(Reuters) – Three executives involved with the failed hedging strategy that has left JPMorgan Chase & Co with a $2 billion trading loss and a tarnished reputation are expected to leave the bank this week, sources close to the matter said on Sunday.

The company is expected to accept the resignation of Ina Drew, its chief investment officer and one of its highest-paid executives, in the next few days, the sources said. Two of Drew’s subordinates who were involved with the trades, Achilles Macris and Javier Martin-Artajo, are expected to be asked to leave, they said.

The unit Drew runs, known as the Chief Investment Office, mismanaged a portfolio of derivatives tied to the creditworthiness of bonds, according to bank executives. The portfolio was layered with hedging strategies that became too complicated to work and too big to unwind in the esoteric market.

Drew had repeatedly offered to resign after the magnitude of the debacle became clear, according to one of the sources. But the resignation was not immediately accepted because of Drew’s past performance at the bank.

Until the loss was disclosed on Thursday night, Drew was considered in the industry to be one of the best managers of balance-sheet risks. She earned more than $15 million in each of the last two years.

“Ina is an amazing investor,” said a money manager who knows Drew, but who declined to be quoted by name. “She’s done a really good job over a lot of years. But they only remember your last trade.”

‘SLOPPY’, ‘STUPID’

CEO Jamie Dimon said when he announced the loss on Thursday that the bank was continuing to investigate what went wrong and that disciplinary actions would be taken.

Dimon called the handling and oversight of the derivative portfolio “sloppy” and “stupid.”

Earlier on Sunday, Dimon said in a nationally televised interview that bank executives had reacted badly to warning flags last month that it had large losses in financial derivatives trading.

In the interview on NBC’s “Meet the Press” television program, Dimon said bank executives were “completely wrong” in public statements they made in April after being challenged over the trades in media reports.

“We got very defensive. And people started justifying everything we did,” Dimon said. “We told you something that was completely wrong a mere four weeks ago.

The loss, and Dimon’s failure to heed the warnings, have become major embarrassments and have given regulators new arguments for tightening controls on big banks and requiring them to hold more capital to cushion possible losses.

JPMorgan lost $15 billion in stock market value the day after the announcement. Analysts were shocked that Dimon did not have as much control of the company’s derivatives book as they had thought. Before the loss, Dimon had been widely praised for successfully managing the company through the credit bubble and the financial crisis.

His strategy in dealing with the issue has been to apologize repeatedly and say straight-forwardly that he and the bank erred.

He has not, however, been willing to describe the exact trading positions, for hear of giving traders in the market information with which to inflict deeper losses.

PAYING THE PRICE

Dimon did not explain in the NBC interview why the trades went wrong. He had declined on Thursday, too, to describe details of the trades when pressed by the analysts. He said the positions were first designed to hedge risks in the bank’s investments.

“The strategy we had was badly vetted,” Dimon said in the interview. “It was badly monitored. It should never have happened.”

The debacle provides ammunition to advocates already calling for tougher regulation of banks, Dimon said. “This is a very unfortunate and inopportune time to have had this kind of mistake,” he said.

Dimon has the been the most outspoken bank executive in arguing that new regulations being finalized and implemented by the U.S. government go too far.

“We hurt ourselves and our credibility,” Dimon said in the NBC interview. “We got to fully expect and pay the price for that.” He said the huge trading loss was not “life threatening” to JPMorgan.

The comments to NBC were Dimon’s first public statements since he spoke to analysts in a conference call on Thursday. He is scheduled to speak again on Tuesday at the company’s annual meeting in Tampa, Florida.

JPMorgan is the biggest bank in the United States by assets and has major investment banking and trading operations in Europe. The losses in Drew’s unit stemmed from trades largely made in London in credit default swaps, an instrument that institutions use to buy and sell insurance against defaults and declines in the market value of bonds.

Some of the trades attracted attention and gossip in the swaps earlier this year because of their size. One JPMorgan trader working the portfolio, Bruno Iksil, was dubbed the ‘London Whale.’

(Reporting by David Henry and Carrick Mollenkamp in New York and Rick Rothacker in Charlotte, North Carolina.; Editing by Marguerita Choy and Muralikumar Anantharaman)