Financial services house J.P. Morgan has confirmed that proprietary trading teams in its investment banking division worldwide will be incorporated into a new client-facing unit within its asset management business.
The move comes ahead of the enactment of the Volcker rule, part of the Dodd-Frank financial reform bill that prohibits deposit-holding banks from engaging in proprietary trading and investing more than 3% of their capital in hedge fund or private equity.
According to a memo from Jes Staley, CEO of the firm's investment banking division, and Mary Erdoes, CEO of J.P. Morgan Asset Management, the transition will be completed over the next few years.
The switch will involve transferring prop trading teams within the investment bank's equity, emerging markets and structured credit businesses to a new alternative investment management group for clients of J.P. Morgan Asset Management.
“The IB colleagues who will transition have delivered strong risk-adjusted returns for the firm, and we are confident that clients will benefit from their investment experience and insight,” read the memo.
The initiative will be led by Mike Stewart, currently co-head of J.P. Morgan's investment banking global emerging markets business. Stewart will remain in this role until the end of 2010, after which he will begin to shift his responsibilities to the new asset management entity.
Stewart will also work with Larry Unrein, head of the private equity and hedge fund groups at J.P. Morgan Asset Management, to establish the new division.
Following the accession of the Dodd-Frank Act, J.P. Morgan is also rumoured to be closing down its commodities prop trading business in the US while Goldman Sachs is reportedly shutting down its principal strategies desk.