Blythe Masters, the well-known commodities chief at JPMorgan Chase (NYSE:JPM), has announced her resignation from the firm as her division has stopped earning as expected.
The timing of her departure comes as JPMorgan finalizes the sale of critical segments of that business. Commodities trading desks, which buy and sell things such as metals, electricity and oil, have lost their edge at producing profits at several large investment banks.
However, JPMorgan's exit from certain elements of the commodities business is significant, because the bank made determined efforts to enhance its strength in that market after the financial crisis. Ms. Masters was to lead that effort; however, increased competition and generally steady commodities prices have led to declining profits for the investment banks.
Selling To A Firm In Switzerland
JPMorgan has sold its physical commodities trading operation, which deals in hard assets instead of derivatives tied to those assets, to Mercuria Energy Group of Switzerland. Two former Goldman Sachs traders established Mercuria, and they agreed to pay JPMorgan $3.5 billion for its commodities operations. Switzerland has less restrictive regulations in commodities than the United States.
Ms. Master's resignation comes soon after another top executive, Michael Cavanagh, announced that he was leaving JPMorgan to go to the Carlyle Group, a private asset manager.
A Closely Watched Career
The loss of Ms. Masters ends a crucial period in a closely watched career on Wall Street. She went to work for JPMorgan nearly 30 years ago as an intern, and rose to become the youngest managing director in the bank's history. In addition, she worked as the chief financial officer of the firm.
With the support of James Dimon, chief executive, Ms. Masters moved over to commodities in 2007. However, she drew government scrutiny in that placement, and early last spring, the Federal Energy Regulatory Commission announced an investigation into alleged illegal trading within the electricity markets in Michigan and California. The Commission mentioned Ms. Masters name in its investigation.
Investigators for the government agency found that J.P.Morgan had created trading platforms that transformed unprofitable power plants into money makers. In addition, the investigators claimed that Ms. Masters had made false and misleading statements while under oath.
However, even in the face of these serious allegations, J.P.Morgan stood by Ms. Masters and insisted that she did not act inappropriately or lie. J.P.Morgan paid a huge $410 million settlement to the Energy Commission, although the agency did not file any specific action against Ms. Masters.
Current Management Gaps at JPM
With the departures of both Mr. Cavanagh and Ms. Masters, J.P.Morgan faces significant reshuffling of its management. Daniel Pinto assumed the role vacated by Mr. Cavanagh as the sole CEO of the bank subsidiary. Currently, he is reducing the number of direct reports from 24 to a much smaller number. With J.P.Morgan set to announce its first quarter earnings on April 11, the management change will most likely be announced just before that date.
The departures of Ms. Masters and Mr. Cavanagh represent only two in a long list of highly publicized resignations from the investment bank. Within the last two years, several other high-ranking executives have left as well, including Jes Staley who managed the bank prior to Mr. Cavanagh and Mr. Pinto. Mr. Staley left in 2013. In addition, Ina Drew, the J.P.Morgan chief investment officer who was in charge during the "London Whale" crisis, resigned, and Frank Bisignano, co-chief operating officer, joined First Data Corp.
Ms. Masters will stay on at J.P.Morgan to complete the sale of the commodities operations to Mercuria. The investment bank will continue to trade financial instruments tied to commodities even though that business tends to be less profitable than straight commodities.
With JPM Leadership In Flux, Shareholders Should Consider Taking Profits
We continue to recommend that JPM shareholders take some profits in 2014.
The latest shakeup in leadership follows international scandal with the retirement of top Chinese investment banker Mr. Fang, and possible violation of the Foreign Corrupt Practices Act, as well as a slew of domestic issues.
It should be of concern to any shareholder that top executives are leaving the firm on a rolling basis-whether pressured or, more often now, by choice-leaving CEO Jamie Dimon alone with a seemingly endless barrage of problems and lawsuits that need to be finalized with the Obama Administration.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.