JPMorgan was warned risk management not up to task

The letter stated that a failed hedging strategy by the bank's Chief Investment Office in London could cost the firm more than $3 bn

CtW Investment Group, a labor-backed shareholder group, last year warned JPMorgan Chase & Co that its risk management committee was not up to the task and sought to remove one of its members, Ellen Futter, who had been a director at American International Group Inc (AIG) before its near-collapse in 2008.

"We are deeply concerned that the current three-person risk policy committee, without a single expert in banking or financial regulation, is simply not up to the task of overseeing risk management at one of the world's largest and most complex financial institutions," an April 1, 2011, letter from CtW said.

A failed hedging strategy by the bank's Chief Investment Office in London could cost the firm more than $3 billion.

CtW urged replacing Futter, one of the three members of the risk committee on JPMorgan's board, and increasing the committee's authority and oversight responsibilities.

"Without an overhaul of the committee's mandate and membership, we are profoundly concerned for the committee's ability to provide effective oversight of the risks being assumed across JPMorgan's larger and more complex post-crisis operations," the group said in a separate letter in March 2011.

A later letter indicated the group met with the head of JPMorgan's risk committee that April, but the meeting did not alleviate all of CtW's concerns.

CtW could not immediately be reached for comment.

JPMorgan declined to comment on the letters.

"If we find out that this is yet another example like AIG where information was not trickling up to the risk committee, that is one kind of risk management problem that frankly should have been addressed a long time ago," said Barbara Matthews, regulatory analyst at BCM Regulatory Analytics in Washington.

The Dodd-Frank financial regulatory overhaul requires major financial institutions to ensure boards are involved in the risk process and have a risk management committee that oversees activities within the bank. The Federal Reserve has proposed rules to implement the provision, which includes a requirement that at least one member of the committee be a risk management expert, but they have not been finished.

JPMorgan said in its 2012 proxy statement that Futter, president of the American Museum of Natural History and a former corporate lawyer who was chairman of the New York Federal Reserve Bank from 1992-1993, is well qualified for her role.

"Such work ... have given her experience with regulated industries, in particular the financial services industry, and with risk management, executive compensation, and audit and financial reporting," JPMorgan said.

Futter was unavailable for comment, the museum's press office said.