Big Banks Bleed Best and Brightest to Hedge Funds
The major banks continue to battle regulators over the implementation of the Volcker Rule -- part of the Dodd Frank Wall Street Reform and Consumer Protection Act -- and its confusing ban on most proprietary trading, but the writing is on the wall.
On Sunday, the Financial Times reported that Mike Stewart, JPMorgan Chase's (JPM) global head of proprietary trading, was planning to leave the firm to start his own investment fund while taking several JPMorgan employees with him.
The Financial Times also said that Deepak Gulati, who was slated to move into JPMorgan's asset management division, was also considering exiting the company to start his own fund, based on Zurich. The FT cited unnamed sources.
Another new investment fund.
Douglas Ormond -- former JPMorgan Chase executive director and portfolio manager for proprietary trading -- and Michael Schwartz -- former star principal and head of research at Normandy Hill Capital -- plan to launch Otlet Capital Management , during the second quarter, according to people familiar with the situation.
The New York-based special situations and capital structure arbitrage fund is named after Paul Otlet, an early twentieth century researcher considered the "father" of information science, sources said.
Volcker Rule's affect is still uncertain, but there's hope.
According to a transcript provided by Thomson Reuters, JPMorgan CEO James Dimon expressed concerns that the Volcker Rule might overly curb banks' market-making activities, during the company's earnings conference call in January. "If you lose liquidity, you lose market makers, you are going to -- it is going to cost retirees, pensioners, firemen, retired military, more money to invest their money," adding that "we've got to be very careful we don't destroy that," along with the ban on proprietary trading.
In its 10-K report for 2011, JPMorgan said that until the Volcker Rule is finalized by the Federal Reserve, its effect on the firm's market making and risk-mitigation activities is uncertain, but the company also said in its 2011 10-K filing last Wednesday that "with respect to certain of the Firm's investments in illiquid private equity funds, should regulators not exercise their authority to permit the Firm to hold such investments beyond the minimum statutory divestment period, the Firm could incur substantial losses when it disposes of such investments."
JPMorgan Chase declined to comment for this article, but in its comment letter to the Federal Reseve, the company said that "banking entities are by far the largest providers of market-making services," which provide liquidity that is "essential to create secondary market support for investments like corporate and municipal bonds," adding that the Volcker Rule "has created considerable uncertainty about the market-making-related services that these entities can continue to provide."