JPMorgan (JPM) to Shift CIO Management, But Will Stay Risky Course

June 25, 2012 9:39 AM EDT
JPMorgan (NYSE: JPM) CEO Jamie Dimon has come under fire the last month or so following disclosure of shoddy workmanship leading to losses in its CIO unit.

With an update expected on July 13th, following its second-quarter operating results, Dimon is expected to issue new measures to improve risk management in the unit. However, this will not prevent the division from continuing to take on risky investments like asset-backed securities and distressed corporate debt, which are currently a minority in the holdings.

Despite the risk attached to said holdings, JPMorgan has realized substantial gains and may even bolster the amount of risk its taking to levels beyond that of its rivals.

The $370 billion unit will focus mainly on investing in high-quality securities as well as avoid private-equity investments and illiquid derivatives.

JPMorgan has said the debt in the CIO portfolio has an average AA+ rating and yield of around 2.6 percent.

With the economic downturn in 2008, JPMorgan's larger balance sheet allowed for the investment in certain areas, such as European asset-backed securities and collateralized debt-obligations, which have both gained markedly as markets rebounded.

Final capability of the CIO unit will rest on regulators' shoulders, though Dimon might make a case for the unit to stay its course, albeit with a shift of management and procedures.

Shares are 3 percent lower early Monday.

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