Amex hires risk watchdog to rein in losses

American Express Financial Advisors (AEFA), seeking to rebound from losses on its high-yield bond investments that forced it to take an $826 million pretax charge in July, has hired a head of investment risk management to oversee its investment operations.

The Minneapolis-based insurance company, a subsidiary of American Express, tapped Steve Lobo, formerly an interest rate risk manager in Minneapolis-based US Bancorp’s treasury department. Prior to that, Lobo was head of Northern Trust’s derivatives products group.

Lobo will be responsible for all AEFA’s risk management policies and procedures, and will oversee and recommend investment strategies.

AEFA had 11% of its roughly $32 billion portfolio invested in junk bonds and high-yield collateralised debt obligations when it discovered the extent of its losses. It has taken steps to reduce that to 7%, which it said is in line with industry averages. About $403 million of the charge reflected the effect of higher default assumptions on the value of its CDOs, $344 million reflected losses taken on bonds sold to rebalance its portfolio and the remainder represented losses on related investments.

The second-quarter loss came on the heels of a $182 million first-quarter pretax charge, also taken to cover the write-down and sale of high-yield investments.