FSA Probes JPMogran Over London Whale Trading Losses

An investigation of JPMorgan Chase & Co. (JPM) was opened by the U.K.’s finance regulator as to whether traders in London broke any rules related to wrong-way bets on credit derivatives that lost their unit $6.2 billion.

The Financial Services Authority said yesterday in an e- mailed statement that it’s probing the losses suffered by JPMorgan in the chief investment office, or CIO, at the firm’s London offices. Other agencies already investigating the matter include the U.S. Justice Department and Securities and Exchange Commission.

Bruno Iksil, the U.K. trader nicknamed the London Whale because he was responsible for a trading book large enough to move the market, made a wrong-way bet on credit derivatives that led to the company’s biggest trading loss. At one point, as much as $51 billion in shareholder value was erased by the trades.

“The FSA is continuing to conduct a formal enforcement investigation into the trading losses,” the regulator said in the statement. “Conclusions will be reached in the enforcement investigation in due course and any further appropriate action determined at that time.”

New York-based JPMorgan was ordered by U.S. regulators to strengthen risk and auditing controls. The firm also promised to bolster systems to prevent money laundering. After reviewing the unit that suffered the losses, the Federal Reserve faulted JPMorgan’s management and modeling of risks, as well as its auditing functions and the process for communicating problems to the board of directors.

Central Bank

The central bank and the Office of the Comptroller of the Currency both issued cease-and-desist orders focusing on the CIO as well as broader anti-money-laundering controls.

At the FSA, a move to a formal enforcement proceeding typically indicates the agency found sufficient evidence of financial rule violations.

The bank’s board is considering releasing this week an internal report that faults Chief Executive Officer Jamie Dimon’s oversight of the division, two people familiar with the matter have said.

The final report, which builds on a preliminary analysis released in July, is critical of senior managers including Dimon, 56, former Chief Financial Officer Doug Braunstein, 51, and ex-Chief Investment Officer Ina Drew, 56, for inadequately supervising traders in a U.K. unit that amassed an illiquid position in credit derivatives last year, the people said.

The lender’s analysis in July said that London traders may have intentionally mismarked some of their positions and sought to hide the full amount of their losses.

JPMorgan didn’t admit or deny wrongdoing in consenting to regulatory orders issued yesterday, and no fines were imposed.

To contact the reporters on this story: Lindsay Fortado in London at lfortado@bloomberg.net; Dawn Kopecki in New York at dkopecki@bloomberg.net

To contact the editors responsible for this story: Anthony Aarons at aaarons@bloomberg.net

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