JPMorgan Seen Facing U.S., U.K. Actions on Whale Trades
JPMorgan Chase & Co. (JPM) is set to face new actions from U.S. and U.K. bank regulators as early as today for botched trades that cost the company more than $6.2 billion last year, according to two people familiar with the matter.
The U.S. Office of the Comptroller of the Currency and Federal Reserve, which have been investigating the loss, may release some of their findings today, three people familiar with the matter said. The U.K.’s Financial Services Authority, which has also been informally looking into whether traders intentionally mismarked some of their positions and tried to cover up their losses, may open an official investigation, according to one of the people.
Regulators have yet to punish New York-based JPMorgan, the biggest U.S. bank, for lapses in risk oversight that Chief Executive Officer Jamie Dimon, 56, has called “egregious.” It isn’t clear whether the Fed and OCC’s announcement will also include sanctions, according to the people, who asked not to be named because the matter hasn’t been made public.
The OCC is preparing a cease-and-desist order requiring New York-based JPMorgan to fix internal controls that contributed to its wrong-way bet on credit derivatives, a person familiar with the matter said last month.
The chief investment office within JPMorgan’s national bank suffered from “inadequate risk management,” Comptroller of the Currency Thomas Curry said during U.S. Senate testimony in June.
“We have been focusing on potential gaps or deviations from accepted standards of risk management within that particular office and looking to see whether similar gaps exist in any other area,” Curry said.
The move to a formal enforcement proceeding by the FSA typically indicates the agency found sufficient evidence of financial rule violations.
The bank’s board of directors is also considering releasing an internal report that faults Dimon’s oversight of the division when the company announces fourth-quarter earnings on Jan. 16, two people with direct knowledge of the matter have said.
The final report, which builds on a preliminary analysis released in July, is critical of senior managers including Dimon, former Chief Financial Officer Doug Braunstein, 51, and ex-Chief Investment Officer Ina Drew, 56, for inadequately supervising traders in the U.K. unit.
The report will be presented to the board when it meets tomorrow. The directors will then vote on whether to disclose it when the bank announces fourth-quarter results the following day, said the people, who asked not to be named because the report isn’t yet public.
Bruno Iksil, the U.K. trader nicknamed the London Whale because his trading book was big 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.
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