* JPM says Ina Drew to retire after 30 years
* Departure follows losses on derivatives trades
* Matt Zames to take Drew's position
* Mike Cavanagh to oversee response to losses
* CEO Dimon says loss could reach $3 bln or more (Adds background on Zames, early share trading)
By Matt Scuffham and David Henry
LONDON/NEW YORK, May 14 (Reuters) - JPMorgan Chase & Co Chief Investment Officer Ina Drew retired on Monday, the first casualty after the bank suffered trading losses that could reach $3 billion or more and that have tarnished the reputation of high-profile Chief Executive Jamie Dimon.
In Drew's place, the bank named Matt Zames, a trader by background who is well versed in risky financial bets. He was at one time employed at Long-Term Capital Management, whose 1998 collapse nearly caused a global crisis.
The biggest U.S. bank by assets said Drew, its New York-based CIO and one of its highest-paid executives, will retire. Mike Cavanagh, CEO of the Treasury & Securities Services (TSS) group, will lead a team of executives overseeing its response to the recent losses.
The bank's statement made no mention of two of Drew's subordinates who were involved with the costly trades -- London-based Achilles Macris and Javier Martin-Artajo -- who sources had said were expected to leave. Neither could be reached for comment.
The departure of Drew after 30 years at JPMorgan comes after the unit she ran, known as the Chief Investment Office (CIO), mismanaged a portfolio of derivatives tied to the creditworthiness of bonds, according to bank executives.
The portfolio included layers of instruments used in hedging that became too complicated to work and too big to quickly unwind in the esoteric, thinly traded market.
Shares in JPMorgan fell 2.1 percent to $36.18 in morning trading. The stock has shed nearly 12 percent in value since the losses were first disclosed, representing some $18.12 billion in total.
One hedge fund manager who previously ran a proprietary (or prop) trading book at JPMorgan said the bank's public commitments to trim balance sheet risk were at odds with its network of trading silos, who were making bets independently -- with only a handful of the bank's most senior executives notified of their vast, complex exposures.
"This (CIO) group was completely separate, completely distinct from the prop trading unit. We had no clue about their prop book and they would have no clue about ours for that matter," the manager said.
Drew had repeatedly offered to resign in recent weeks after the magnitude of the debacle became clear, according to one source, but the resignation was not immediately accepted because of her past performance at the bank.
Until the loss was disclosed late Thursday, Drew was considered by some market participants as one of the best managers of balance sheet risks. She earned more than $15 million in each of the last two years.
"Ina is an amazing investor," said a money manager who knows her but declined to be identified. "She's done a really good job over a lot of years. But they only remember your last trade."
JPMorgan described her replacement, Zames, as a "world-class risk manager and executive."
Before joining JPMorgan in 2004 he ran prop trading in the interest rate group at Credit Suisse First Boston, having joined CSFB from a trading job at Morgan Stanley.
Zames was seen as one of the winners in 2009, when Jes Staley reorganized JPMorgan's investment bank, taking on the fixed income co-head role.
Last summer, the Wall Street Journal listed Zames among a coterie of senior JPMorgan executives in their mid-40s who were thought to be potential successors to Dimon.
Zames also made a cameo appearance in the Bernard Madoff case. When the trustee in the bankruptcy case sued JPMorgan, he quoted John Hogan, chief risk officer at the bank, as saying Zames had warned of speculation Madoff was a fraud.
The mammoth losses have marred JPMorgan's reputation for risk management, prompted a downgrade in its credit ratings and has thrown an unflattering spotlight on Dimon, a critic of increased regulation who has become one of America's best-known bankers.
STOP THE CYCLE
Dimon is a board member of the Federal Reserve Bank of New York, and Elizabeth Warren, a Massachusetts candidate for U.S. Senate, called for him to resign that post on Sunday.
Warren, who chaired a congressional panel that oversaw the bank bailout program known as TARP, said he should not be on the panel advising the Fed on bank management and oversight.
Dimon has taken a contrite tone since revealing the losses. In an interview that aired on Sunday, he told NBC's "Meet the Press" that executives were "completely wrong" in public statements they made in April after being challenged over the trades in news reports.
"We got very defensive. And people started justifying everything we did," Dimon said. "We told you something that was completely wrong a mere four weeks ago."
The loss, and Dimon's failure to heed the warnings, have become a major embarrassment and given regulators new arguments for tightening controls on big banks and requiring them to hold more capital to cushion possible losses.
Dimon is scheduled to speak on Tuesday at the bank's annual meeting in Tampa, Florida. (Additional reporting by Carrick Mollenkamp in New York, Rick Rothacker in Charlotte, North Carolina and Drazen Jorgic, Sinead Cruise, Kylie MacLellan and Anjuli Davies in London, writing by Ben Berkowitz in Boston; editing by David Holmes and Jeffrey Benkoe)
On May 10th, the U.S.'s largest bank JPMorgan Chase announced one of its London trading desks had lost <a href="http://www.huffingtonpost.com/2012/05/10/jpmorgan-chase-london-whale_n_1507662.html?ref=business" target="_hplink">$2 billion on bad bets on credit derivatives</a>.
Kweku Adoboli, a trader for Swiss bank UBS, lost <a href="http://www.huffingtonpost.com/2011/09/15/ubs-traders_n_963715.html" target="_hplink">$2 billion on unauthorized trades in September 2011</a>.
Brokerage firm <a href="http://www.huffingtonpost.com/2011/10/31/mf-global-to-file-for-bankruptcy_n_1066902.html" target="_hplink">MF Global filed for Chapter 11 bankruptcy</a> in October 2011 after a failed $6 billion bet on European debt.
Hailed as "history's biggest rogue trading scandal" at the time, French trader Jerome Kerviel was convicted in October 2010 of <a href="http://www.huffingtonpost.com/2010/10/05/jerome-kerviel-rogue-fren_n_750464.html" target="_hplink">losing French bank Societe General around $6 billion</a> due to unauthorized trades.
After a run on investment bank Bear Sterns nearly caused its collapse in 2007, JPMorgan bought the firm for $2 a share the following March, <a href="http://www.businessweek.com/bwdaily/dnflash/content/mar2008/db20080316_356646.htm" target="_hplink">Businessweek</a> reports.
Insurance company AIG became the recipient of the <a href="http://www.huffingtonpost.com/2012/05/08/aig-bailout-realize-15-billion-profit-taxpaers-gao_n_1498645.html" target="_hplink">largest ever government bailout for a single corporation</a> when a $182 billion rescue package saved it from a liquidity crisis following a <a href="http://www.huffingtonpost.com/2012/05/08/aig-bailout-realize-15-billion-profit-taxpaers-gao_n_1498645.html" target="_hplink">downgrade of its credit rating</a> in 2008.
One of the biggest players in retail banking and mortgages during the housing crisis, Washington Mutual filed for Chapter 11 in September 2008, after sustaining losses on billions of dollars worth of mortgage and home loans, <a href="http://www.cnbc.com/id/46793926/WaMu_Emerges_From_Bankruptcy_Protection" target="_hplink">CNBC</a> reports.
Citigroup came to the brink of collapse after it reported losses around $10 billion in 2007, in part due to failed mortgage investments, <a href="http://money.cnn.com/2008/01/15/news/companies/citigroup_earnings/index.htm" target="_hplink">CNNMoney</a> reported. To keep the bank afloat the government issued <a href="http://www.huffingtonpost.com/2008/11/23/feds-consider-plan-to-res_n_145856.html" target="_hplink">a $20 billion bailout in November of that year</a>.
After projecting a $4.5 billion loss during the third quarter of 2007, Merrill Lynch shocked investors by reporting a $7.9 billion deficit from trading mortgage-backed securities and other structured products, <a href="http://money.cnn.com/magazines/fortune/fortune_archive/2007/11/26/101232838/" target="_hplink">according to CNNMoney</a>.
One time star trader Nick Leeson was responsible for sinking British bank Barings after losing $1 billion when an an earthquake struck Kobe, Japan in 1995, causing his investments in the Nikkei to fail as the Japanese stock exchange crashed, <a href="http://www.time.com/time/specials/packages/article/0,28804,1937349_1937350_1937488,00.html" target="_hplink">TIME reported</a>.