JPMorgan Nears Settlement With SEC on London Whale Loss
JPMorgan Chase & Co. (JPM) is negotiating final terms of a deal with U.S. securities regulators to end a yearlong probe of derivatives bets that led to the bank’s biggest trading loss ever, two people briefed on the talks said.
While JPMorgan is prepared to say it erred in how it oversaw a unit and London-based traders, executives probably won’t admit mistakes beyond what they already disclosed, one of the people said, requesting anonymity because the talks with the Securities and Exchange Commission aren’t public. How much the bank pays to settle is being debated, the people said.
JPMorgan, led by Chief Executive Officer Jamie Dimon, is seeking to resolve U.S. and U.K. probes after botched trades by its chief investment office caused more than $6.2 billion of losses last year. Senate investigators concluded in March that the bank dodged regulators and misled investors about souring bets by Bruno Iksil, a trader dubbed the London Whale because his positions were so big.
While the SEC may target some people involved in the trades, top executives at the New York-based company probably won’t face claims they lied or misled the public, the people said. Iksil won’t be charged, Reuters reported yesterday, citing a person familiar with the matter.
The U.K.’s Financial Conduct Authority is continuing its own investigation into whether JPMorgan provided the regulator with enough information about the risk the bank was taking, according to a person briefed on the matter. A decision probably won’t come until the end of the year, the person said.
John Nester, a spokesman for the SEC, declined to comment. Attorneys for Iksil and three other traders either didn’t immediately respond to messages seeking comment or declined to comment. The New York Times reported yesterday that JPMorgan may make some admissions in an SEC deal.
JPMorgan released a 129-page report in January that blamed managers and an “error-prone” risk-modeling system for failing to halt the loss. Many of those people were reassigned or left last year.
The SEC may accuse the firm of failing to enact proper controls, supervise workers, escalate concerns and share information internally, one person said.
The U.S. Senate Permanent Subcommittee on Investigations’ 301-page report accused JPMorgan of hiding losses, deceiving regulators and misinforming investors. The Senate panel, led by Michigan Democrat Carl Levin, referred its findings to the SEC and Justice Department in April.
“There is reasonable cause to believe a violation of the law may have occurred,” Levin said at the time.
The Federal Bureau of Investigation and the SEC have been scrutinizing public statements, calls with investors and an April 2012 earnings presentation by Dimon and then-Chief Financial Officer Douglas Braunstein, Bloomberg News reported in June, citing five people with knowledge of the probes.
The criminal investigation has looked at, among other issues, whether traders painted the tape, a form of market manipulation that allows them to inflate the value of their positions, three of the people said at the time.
JPMorgan’s board cut Dimon’s pay in half for 2012 after concluding that he bore some responsibility for the debacle. It also credited his leadership for the lender’s performance. JPMorgan, the largest bank in the U.S. with $2.44 trillion in assets, reported a third straight year of record profit in 2012 with $21.3 billion in net income.
The stock rose 48 percent in the past 12 months, making it the fifth-best performer in the 24-company KBW Bank Index.
The Federal Reserve and Office of the Comptroller of the Currency took the first regulatory actions against the bank for the credit-derivatives trade in January, ordering it to strengthen risk controls and enhance executive-pay practices. The board was directed to consider control weaknesses and “adverse risk outcomes” in compensation awards for Dimon, 57, and other top managers.
The trading loss also prompted calls from some investor advisory firms for Dimon to cede his chairmanship and for JPMorgan to oust board members. In May, shareholders voted to let him keep the chairman title. Two members of the board’s risk committee, Ellen V. Futter and David M. Cote, left the board last month.