After Leaving JPMorgan, Staley Sizes Up Banks for Hedge Fund

As the head of JPMorgan Chase’s investment bank, James E. Staley helped the company navigate the thicket of new regulations that emerged after the financial crisis.

Now, he is betting that those regulations present an investment opportunity. Mr. Staley, who left JPMorgan this year to join the hedge fund BlueMountain Capital Management as a managing partner, said on Tuesday that European banks would have to adapt as regulators remain concerned about the problem of too-big-to-fail.

On a panel at the Bloomberg Hedge Funds Summit in New York, Mr. Staley discussed what is known as resolution authority, in which regulators help wind down failing banks. The process of adapting to these new rules, he said, would give banks a “more clearly defined capital structure,” and thereby create opportunities for investors.

“There’s going to be tremendous mis-pricing between the different levels of the capital structure in these banks,” Mr. Staley, who is known as Jes, said on the panel.

European leaders are currently developing a system for dealing with failing banks, as part of a broader effort to unify the Continent’s financial oversight. This system may involve the creation of a new body, according to a news report this week.

While he did not discuss JPMorgan, which is the largest United States bank, Mr. Staley mused on the general issue of big banks that had to be rescued in the financial crisis.

“It’s inherently unstable to give liquidity to depositors and invest money for seven years,” he said. “But society thought it was important enough that to give stability they put the government behind the banks.”

But because banks have gotten so big, he said, “the government can’t stand behind banks anymore.”

BlueMountain, a firm that has done business with JPMorgan over the years, was one of the hedge funds on the other side of the London Whale trade, in which the bank lost billions of dollars. The chief executive of BlueMountain, Andrew Feldstein, previously worked at JPMorgan.

Some hedge funds have been lining up to buy assets that European banks are forced to sell to comply with new regulations. One participant of the panel on Tuesday, Victor Khosla, the chief investment officer of SVP Global, said Europe was like “El Dorado.”

“This is the opportunity of the moment,” Mr. Khosla said, discussing the prospect of long-term gains to be had from investing in European assets.

Mr. Staley also gave his thoughts on the economic situation in Europe, expressing cautious optimism.

“I personally think tremendous progress has been made both in Europe and the U.S.,” he said.

Later, he added, “It’s very hard to bet against a central bank.”