JPMorgan Chase & Co.’s chief investment office engaged in trading strategies that set it apart from other major U.S. banks, according to Thomas Curry, head of the Office of the Comptroller of the Currency.
OCC examiners probing JPMorgan’s $2 billion trading loss have concluded that other big banks the agency regulates haven’t followed similar practices with large, illiquid hedges, Curry said in a letter to Senator Sherrod Brown dated June 12. JPMorgan was more heavily involved in synthetic credit derivatives than other banks, he said.
“This event deserves our attention, not just because it is an unexpectedly large loss, but because of the broader questions it raises regarding risk management and reporting within the bank,” Curry said in the letter, responding to questions from the Ohio Democrat.
JPMorgan Chief Executive Officer Jamie Dimon said on May 10 his company suffered losses after making trades on credit derivatives that Bloomberg News first reported April 5. Trades involving the so-called IG9 index were involved, according to the OCC. The loss has spurred lawmakers and regulators to investigate trading behavior and regulatory interactions at the largest U.S. bank.
In early April, the bank gave regulators information on the positions that spurred meetings with bank management, Curry said. The agency’s examiners told the bank to provide more details on scope and risk, and they were evaluating the positions and the bank’s strategy when the positions started a steep decline, he said.
Dimon told senators at a hearing yesterday that the losses came from “a complex series of trades” that wasn’t “just one single thing.” He said that his company initially misinformed regulators on specifics because its management misunderstood the positions at the time.
“The second we found out, the first people we got on the phone with was our regulators to explain ‘We have a problem, we want to describe it to you’,” Dimon said in testimony. “And, of course, they’ve been deeply engaged since then.”
Eight OCC examiners at JPMorgan focused on capital markets activities, according to the letter, with one specifically watching the bank’s CIO.
“The CIO activities were not historically considered to be high-risk,” Curry said, describing its $350 billion investment portfolio as “high credit quality.”