JPMorgan Tells SEC VaR Change Wasn’t Technically a Change

JPMorgan Chase & Co., facing criticism that it misled investors about a change to a risk model as trades backfired last year, told U.S. regulators that the bank wasn’t obligated to disclose the move since it wasn’t technically a “change” under U.S. securities laws.

While there was an “interim change” to the lender’s so-called value-at-risk model during the first three months of 2012, that adjustment had been reversed by the time the company filed its quarterly report in May, then-Chief Financial Officer Douglas Braunstein told the Securities and Exchange Commission in a Dec. 3 letter that was released yesterday.

“As a result, the firm believes there was no model change within the meaning of” securities-disclosure laws, he wrote.

JPMorgan fell 31 cents to close at $47.46 in New York. The shares have gained 7.9 percent this year, trailing the 9.8 percent advance of the 24-company KBW Bank Index.

The alteration to the model in January 2012 has been blamed by the company and U.S. Senate investigators for exacerbating trading losses that exceeded $6.2 billion last year. The bank disclosed the change and initial losses of about $2 billion in a May 10 regulatory filing, almost a month after reporting first-quarter results.

Braunstein, 52, was responding to a Nov. 7 letter from the SEC that asked the bank to explain why it didn’t think it was required to disclose the change sooner.

Chief Executive Officer Jamie Dimon, 57, said May 10 that the company had reviewed the effectiveness of the January VaR model, deemed it “inadequate” and decided to return to the previous version. Restoring the use of the earlier model meant the risk was twice what the bank told investors in April.

VaR measures the maximum possible trading losses on a position or trading unit with 95 percent probability.

The SEC told JPMorgan in a Feb. 27 letter that it had completed its review of the bank’s filings and that the commission’s comments “do not foreclose” the agency from taking action. Such correspondence is typically released after the review is finished.

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