Blythe Masters, Head of Global Commodities at JPMorgan Chase, has been given the additional assignment to lead regulatory affairs for the corporate and investment bank.
While continuing to report to James Staley, Head of JPMorgan's Investment Bank, Masters will also report to Barry Zubrow in her regulatory role. Zubrow has been head of the bank's corporate and regulatory affairs office since January.
"Having her in this role will be critical to helping us drive the business's strategy in light of changing regulations," Mike Cavanagh and Daniel Pinto wrote in the memo obtained by Bloomberg and confirmed by JPMorgan's Jennifer Zuccarelli.
Additional changes at JPMorgan included Carlos Hernandez moving to Head of Investor Services, and James Kenny heading emerging markets and the special opportunities group.
Blythe Masters, Head of Global Commodities at JPMorgan, was interviewed in April 2012 by CNBC at the Center for Commodities at University of Colorado at Denver, the recent recipient of a $5.5 million gift from JP Morgan.
The interview covers a variety of topics, from the sustainability of the growth in commodities to addressing how JP Morgan's position works in the silver market. We've reproduced the full transcript below.
CNBC: Hi Sue. You know its been a volatile week in commodities and this sector is often extremely volatile. It really underscores the essential need to better educate students about all facets of this sector. I'm joined now by Blthye Masters who is the Head of Global Commodities at JPMorgan. JPMorgan today just made a 5.5 million dollar gift to create this comprehensive center for commodities here at the University of Colorado, Denver. It is the largest gift that the school has ever received. And Blythe, why is JP Morgan making such an important investment at this time?
Blythe Masters: Thanks Sharon. The answer is that commodities are increasingly at the center of the public eye. Their influence on growth, on economies, on disposable income is something we all individually feel everyday. And of course corporations and governments feel it too. And the challenge is to ensure we have the right talent in this particular area so that public understanding and policy decisions as well as the operations of companies can be successful. So the decision to fund the commodities center here at C.U. Denver was really driven by the belief that we need to increase and expand talent in the commodity markets because commodities play such an important role in economic growth.
CNBC: And JPMorgan has been investing heavily in commodities for some time, definitely under your leadership. We've seen - as Sue mentioned - a tripling of your revenues in 2011 topping $2.8 billion. Tremendous growth many see it as part of your vision, your strategy for the reason that that is happened. Is that really sustainable?
Blythe Masters: Well, we've been investing in the commodities business and its important to realize that our commodities business is not about betting on commodity prices. It's about assisting clients in executing, managing their risks and ensuring access to capital so they can make the kind of large long-term investments that are needed in the long run to expand the supply of commodities. And that is an area which we anticipate will continue to grow very, very rapidly over the next couple of decades in fact. So, yes, we are very excited about the prospects for growth in this particular area.
CNBC: And you're looking at growth not only in agriculture and in metals and in oil, but across the board in all facets. That's what you're investing in. A lot of concern has been placed though about JPMorgan particularly its positions in the metals space. And looking at your positions in silver, we talked earlier about the volatility in the silver market. Can you talk about JPMorgan's positions and price volatility and how are they related?
Blythe Masters: Yeah. that's a great question. And you're right, there's been a tremendous amount of speculation particularly in the blogosphere about this topic. I think the challenge is that that speculation represents a misunderstanding as to the nature of our business. As I mentioned earlier, our business is a client-driven business where we execute on behalf of clients to achieve their financial and risk management objectives. The challenge is that commentators don't see all of that activity simultaneously. So, just to give you a specific example, we store significant amounts of commodities - for example, silver - on behalf of customers. We operate vaults in New York City, in Singapore and in London. And often when customers have that metal stored in our facilities, they hedge it on a forward basis through JPMorgan who in turn hedges itself in the commodity markets. If you see only the hedges and our activity in the futures market, but you aren't aware of the underlying client position that we're hedging, then it would suggest inaccurately that we're running a large directional position. In fact that's not the case at all. We have offsetting positions. We have no stake in whether prices rise or decline. Rather we're running a flat, or a relatively match book.
CNBC: So it's not - because what is commonly out there is that JPMorgan is manipulating the metals market. From what you're outlining that is not possible because of the different sides of the business that you're in part of.
Blythe Masters: That's right. it's not part of our business model. It would be wrong and we don't do it.
CNBC: You've had such a long history at JPMorgan in the derivatives market now heading commodities. One of the other things that is really struggling for many traders is trying to figure out what regulation is going to look like and how that's going to impact their business. What is your view and how concerned are you about regulations that are coming down for the OTC derivatives market and for commodities?
Blythe Masters: Again, another great question. I think I want to say first that JPMorgan strongly supports the need for improved regulation in financial markets and financial institutions broadly. The key is to ensure that that regulation is good regulation. And with this type of topic, the devil is almost always in the details. So in the interest of greater transparency, less systemic risk in the system, less connectivity between major players, all of those things we feel great strides have been made in advancing regulation to promote those objectives. having said that, we have to be aware of unintended consequences. and there's a real risk of those unintended consequences. for example, if you make it difficult for institutions to transact in commodity markets by excessively exposing their options to the public too quickly, that would drain liquidity and make it harder.
CNBC: So there is a concern about liquidity longer term?
Blythe Masters: Yes.
CNBC: I want to thank you so much for joining us here. Blythe Masters, thank you for your perspective on the commodities sector.
Blythe Masters was quoted in this 2010 MarketWatch article, "Commodities Business Done, JPMorgan Will Expand Elsewhere":
"For J.P. Morgan Chase & Co., buying the global component of RBS Sempra Commodities amounts to taking one task off its to-do list.
The bank's historic strength in investment banking had long been the fixed-income business--but several years ago, its managers started to beef up equities and commodities products and trading world wide to improve the standing of J.P. Morgan with large business clients.
With capital at hand, J.P. Morgan will continue to expand, particularly in the cash equities business along the lines of Tuesday's deal."
"This is the last piece of the commodities business that was missing" in a three-year process that basically started from scratch, said Blythe Masters, J.P. Morgan's head of Global Commodities, in an interview with Dow Jones Newswires en route to Connecticut, where the operations J.P. Morgan is acquiring are based."
"What we now have is a business that is complete globally, complete around asset classes" like power, gas, oil, and metals, "and complete in terms of both financial and physical services and products," Masters said.
The Group of 20 Nations commissioned IOSCO to produce guidelines for commodity supervision last year. The use of derivatives to manipulate the price of foodstuffs and other raw materials is of “notable concern,” according to a European Union impact study on possible rules, as it can lead to “distorted” prices that harm the real economy.
Strict position limits would be overkill, Blythe Masters, head of global commodities at JPMorgan Chase & Co., wrote in an article distributed at the Eurofi financial forum in Wroclaw, Poland, today. She called instead for position “management” as a more effective solution.
Limits “would be a move in the wrong direction,” Masters said. “Position limits fundamentally undermine the flexibility needed to ensure that commodity markets function effectively.”
In addition to her role at JP Morgan Chase as Head of Global Commodities, Blythe Masters is Chair Emeritus of SIFMA, the Securities Industry and Financial Markets Association. SIFMA's mission is to bring together the shared interests of hundreds of securities firms, banks and asset managers in order to develop policies and practices which strengthen financial markets and encourage capital availability, job creation and economic growth while building trust and confidence in the financial industry. The IOSCO (International Organization of Securities Commissions) is an association of organizations that regulate the world's securities and futures markets.
Blythe Masters was mentioned in this recent Financial News article, "JPMorgan's Emea Operations Shine". The article deals primarily with JPMorgan's investment bank in Europe, the Middle East and Africa, a second quarter standout, contributing a greater proportion of the bank's revenues than at any time in almost two years. Blythe Masters' commodities unit was also singled out as a standout performer:
"Daniel Pinto, JP Morgan’s chief executive of Emea and co-head of global fixed income... ...also singled out the commodities business as a stand-out performer within the fixed-income franchise, in a quarter in which several banks, including Goldman Sachs and Barclays Capital, reported disappointing results for the business.
Pinto said: “The second-quarter results show that the full franchise is running on all cylinders. The commodities business has performed strongly this year, and we are starting to monetize the fantastic global client platform that Blythe Masters [JP Morgan’s head of global commodities] has built.The units we’ve acquired have settled in, and we now have a great offering across physical and derivatives products.”
This January 2010 Business Daily Africa article detailing the purchase of RBS Sempra Commodities for an estimated $4 billion by JPMorgan Chase Commodities Business headed by Blythe Masters:
"For decades, two names have dominated the $4 trillion world of commodity and energy derivatives trading: Goldman Sachs and Morgan Stanley. If Wall Street power woman Blythe Masters has her way, a third will soon be making it a troika: JP Morgan."
"The former credit derivatives wunderkind who has built JP Morgan’s commodities business into a true global powerhouse in just three years is on the cusp of buying RBS Sempra Commodities for an estimated $4 billion, bringing an unusual but highly successful hybrid trading operation —one that carefully mixes customer-flow business with prop-trading risk — under the well-capitalised JP Morgan umbrella."
The article continues on to describe the full ramifications of the purchase, potential hurdles, and the like.
"It would be a career-crowning coup for British-born Masters, at 40 one of the most successful women on Wall Street"
"Masters, a Cambridge-educated derivatives expert and avid amateur horse rider, was drafted into commodities from the Chief Financial Officer role in early 2007 after JP Morgan’s first major foray into energy markets went awry."
Blythe Masters was interviewed in this Reuters article about JPMorgan's purchase of EcoSecurities in 2009. She stated that the purchase "was based on its large pre-2012 portfolio of carbon offsets (estimated in August at around 100 million tonnes), its post-2012 portfolio (around 125 million) and any upside associated with a surge in carbon prices."
"Even if only the first source of value inherent in our valuation of the company, i.e. its pre-2012 portfolio, were the only thing to come forth we would end up being very happy with our acquisition," Masters said in an interview late on Monday....
Commenting on managing risk:
Masters said the acquisition would help JP Morgan clients better manage risks in fluctuating commodity prices.
"The reason for our expanding in the carbon space is consistent with our overall thesis that commodity markets as a whole will continue to be extremely active and volatile ... as a function of economic activity and other policies," she said.
"Carbon is just a part (of JP Morgan's business model), and an important component because of its linkages to the rest of the energy complex and to various regulatory changes going on."
Masters said a new EcoSecurities CEO will be named soon, "and from there we will review the overall structure of the company to make sure we don't have any overlapping activities that are confusing to clients".
