JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon and other managers sought to hide escalating trading losses by misleading investors and dodging regulators after the cost climbed for three straight months, a Senate probe found.
The largest U.S. bank “mischaracterized high-risk trading as hedging,” and withheld key information from its primary overseer, sometimes at Dimon’s behest, according to a report today by the Senate Permanent Subcommittee on Investigations. The 301-page document also shows how managers manipulated internal risk models and pressured traders to overvalue their positions in an effort to hide growing losses in a “monstrous” credit derivatives portfolio in London.
“We found a trading operation that piled on risk, ignored limits on risk taking, hid losses, dodged oversight and misinformed the public,” Chairman Carl Levin, a Michigan Democrat, told reporters today after his investigators spent nine months combing through 90,000 documents and interviewing current and former executives.
Former Chief Investment Officer Ina Drew, 56, among Wall Street’s most powerful women until she resigned in May four days after the bank disclosed the initial trading losses, will testify tomorrow at a subcommittee hearing in her first public appearance since leaving the New York-based bank. Lawmakers have pushed banks to halt so-called proprietary trading, and regulators are weighing tightening exemptions for hedging.
‘High Risk’
“Mr. Dimon has not acknowledged that what the SCP morphed into was a high-risk proprietary trading operation,” according to the report, referring to the synthetic credit portfolio.
JPMorgan has “repeatedly acknowledged mistakes” in handling the loss, Mark Kornblau, a spokesman for the bank, said in an e-mail.
“Our senior management acted in good faith and never had any intent to mislead anyone,” Kornblau said. The bank cooperated with the investigation and has “already identified many of the issues cited in the report,” he said. “We have taken significant steps to remediate these issues and to learn from them.”
JPMorgan, regarded on Wall Street as one of the best- managed banks in the world, lost more than $6.2 billion over nine months last year in a bet using derivatives, in which the bank wagered on the creditworthiness of companies. The portfolio became “huge” and “monstrous,” according to excerpts of e-mails and recorded conversations from trader Bruno Iksil, nicknamed the London Whale because his portfolio was so large it moved markets.
Synthetic Credit