Lehman Seeks to Question Ex-JPMorgan ‘London Whale’Linda Sandler
Lehman Brothers Holdings Inc. wants Bruno Iksil, the former JPMorgan Chase & Co. trader known as the London Whale, to answer questions about losses Lehman says spurred unnecessary collateral calls that helped force it into bankruptcy.
JPMorgan in May disclosed billions of dollars in losses by London-based Iksil, who got his nickname because his positions were so big. Lehman, which has been fighting JPMorgan over $8.6 billion since 2008, said in a filing Feb. 13 in U.S. Bankruptcy Court in Manhattan that Iksil may have knowledge of the role JPMorgan’s chief investment office played in managing exposure to Lehman.
Lehman, which is gathering money to pay creditors an average of 18 cents on the dollar, said that it realized Iksil could help it after JPMorgan disclosed “risk management failures.” Iksil was “central” to a dispute with JPMorgan over valuing derivatives, New York-based Lehman said.
JPMorgan, a key lender to Lehman during the 2008 credit crisis, “largely” agreed that Lehman can conduct interviews on the alleged link between its failure and Iksil’s losses, although the trader, a French national, doesn’t want to talk, Lehman said in the filing. Lehman said in the filing that it wants to seek international judicial assistance in forcing Iksil to answer questions.
Joe Evangelisti, a spokesman for New York-based JPMorgan, declined to comment on Lehman’s request. Dow Jones earlier reported the filing about Iksil.
Lehman filed the biggest bankruptcy in U.S. history in 2008, after piling on debt and making high-risk bets, according to an examiner’s report. Technically out of bankruptcy since March, the company has said it will continue to liquidate through about 2016.
A year ago, Lehman sued U.S. Treasury Secretary Timothy Geithner to get him to testify in its legal fight with JPMorgan. He ultimately agreed to answer questions in writing.
JPMorgan last month detailed lapses behind its biggest-ever trading loss in a 129-page report, saying employees were overwhelmed by the complexity of their bets, risk managers were ill-equipped and leaders including Chief Executive Officer Jamie Dimon weren’t aggressive enough in responding.
The loss at JPMorgan, considered one of the industry’s best-managed firms after remaining profitable during the credit crisis, has prompted lawsuits and probes in the U.S. and abroad. Last month, it led to regulatory sanctions, as banking watchdogs found internal-control “deficiencies.” The loss also has pushed lawmakers to tighten trading curbs.
London traders initially tried to hide losses that ballooned beyond $6.2 billion in last year’s first nine months, the bank said in its report. Dimon’s pay for last year was cut in half to $11.5 million following the debacle, which helped reduce shareholder value by as much as $51 billion last year.
The pay decision was announced as the firm reported a 53 percent jump in fourth-quarter profit to $5.69 billion, driven by earnings on mortgages.
Dimon ousted three London traders involved in the loss, shuffled senior managers and accepted resignations from executives. The report highlighted blunders tied to measuring risk.
In the years before the trading losses, Dimon had pushed the chief investment office to generate more profit by boosting the size and risk of its bets to include higher-yielding assets, Bloomberg News reported in April, citing former executives. The shift had made the unit an increasingly important customer to Wall Street’s trading desks, with bets that could move markets.
The Federal Reserve and Office of the Comptroller of the Currency on Jan. 14 took the first regulatory actions stemming from the trade, ordering the bank to strengthen risk and auditing controls. The board of directors also was told to consider control weaknesses and “adverse risk outcomes” while awarding compensation for Dimon and other top managers.
Lehman hasn’t so far succeeded with its two biggest lawsuits against banks. It got none of the $11 billion it demanded from London-based Barclays Plc, which bought the defunct firm’s North American business in 2008. Lehman also failed last year to get a bankruptcy judge to restore key claims against JPMorgan.
Lehman’s lawsuit against JPMorgan alleges that the New York-based lender helped cause its collapse by demanding $8.6 billion in collateral. JPMorgan said a year ago it would give Lehman almost $700 million to settle part of the suit. It continues to fight most of Lehman’s claims.
The two parties also are fighting over a demand by JPMorgan for $6.3 billion it says it is owed.
The liquidation case is In re Lehman Brothers Holdings Inc., 08-13555, U.S. Bankruptcy Court, Southern District of New York (Manhattan). Lehman’s lawsuit against JPMorgan is Lehman Brothers Holdings Inc. v. JPMorgan Chase Bank NA, 10-03266, U.S. Bankruptcy Court, Southern District of New York (Manhattan).