The board of J.P. Morgan Chase & Co. is expected to shake up its risk-policy committee in the wake of more than $2 billion in trading losses, people familiar with the matter said.
Directors Timothy Flynn and James Bell, who joined the New York company's board over the past year and have backgrounds in risk and finance, are considered candidates to join the committee, these people said. Either Mr. Flynn or Mr. Bell is expected to join the risk panel, a person familiar with the bank said.
The change was in the works before the company on May 10 disclosed losses tied to wagers on corporate-credit indexes placed by a unit called the Chief Investment Office, which includes a trader who has been called the "London whale" for his market-moving bets, the person said.
The blowup at the nation's largest bank by assets has raised questions among shareholders about the strength of risk controls and the level of oversight at the board, and tarnished the risk-management reputation of Chairman and Chief Executive James Dimon. Shares of J.P. Morgan have dropped 18% since the losses were disclosed, wiping $27 billion off the company's market value. They closed down 47 cents, or 1.4%, at $33.50 on Friday.
The risk-policy committee is responsible for "oversight of the CEO's and senior management's responsibilities to assess and manage the firm's credit risk, market rate risk, interest rate risk, investment risk, liquidity risk and reputational risk," according to regulatory filings.None of the directors could be reached for comment. It isn't clear whether any of the current risk-committee members will leave the panel.
Board members view the trading miscues as the responsibility of top executives, said one person familiar with the board's deliberations. The risk committee of the board "doesn't get into specific management issues," this person said.
Approving higher risk limits on trades, for instance, "is not something [committee members] would approve,'' this person explained. A risk committee typically deals "with broad-brush issues like, 'What are our policies? What are our controls? Do they work?'"
The New York bank is investigating the losses, in an inquiry led by its auditing and legal departments in cooperation with outside auditors and ex-Securities and Exchange Commission enforcement chief William McLucas, now a partner at Wilmer Hale in Washington. The board's audit and risk committees will likely meet every week for the next three months to get updates on the probe. The in-house inquiry is focusing on several areas, including whether the bank set risk limits too high for the Chief Investment Office. Last year, the audit committee met 15 times and the risk panel seven times.
CtW Investment Group, which represents pension funds that hold about six million J.P. Morgan shares, this month called for Mr. Crown to give up his committee chairmanship and for Ms. Futter to step down, according to a letter the group sent to the board's presiding director Lee R. Raymond. Ms. Futter was a director at American International Group Inc. before the insurer ran into problems during the financial crisis. She resigned from AIG's board in July 2008.
CtW Investment first outlined its concerns in a separate 2011 letter that said "the current three-person risk policy committee, without a single expert in banking or financial regulation, is simply not up the task of overseeing risk management at one of the world's largest and most complex financial institutions." Mr. Crown made $300,000 in compensation as a J.P. Morgan director last year, according to a bank filing, while Mr. Cote and Ms. Futter each made $245,000.
The investor group also is asking the bank's risk committee to independently examine how the bank's trading loss occurred, and to determine whether J.P. Morgan's compensation programs "inadvertently incentivize excessive risk-taking," according to the letter sent May 14.
Mr. Flynn and Mr. Bell would be well suited to the new role, said another person familiar with the board's deliberations, because of their work histories, the person said.
Mr. Flynn, who joined the board this month, is former chairman for accounting firm KPMG International and former CEO of its U.S. unit. Mr. Bell retired April 1 as chief financial officer for aerospace giant Boeing Co. Mr. Bell, who joined the board last November, could leave the audit committee as part of the changes, one of these people said.
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