“In contrast to JPMorgan Chase’s reputation for best-in- class risk management, the whale trades exposed a bank culture in which risk limit breaches were routinely disregarded, risk metrics were frequently criticized or downplayed, and risk evaluation models were targeted by bank personnel seeking to produce artificially lower capital requirements,” according to the report.
Dimon and Drew were among bank managers who spoke with the panel’s investigators. Several ex-employees refused to be interviewed, including Achilles Macris and Iksil. The panel said it couldn’t require them to cooperate because they live outside the U.S.
‘Voodoo Magic’
Senate investigators said they found little evidence showing what the bets would have protected against. Dimon told senators last year that the wagers were intended to cushion losses on other holdings in the event of a credit crisis.
Drew said the credit derivatives were intended to hedge JPMorgan’s entire balance sheet, while others said they protected against losses on investments held by the CIO, according to the report.
Patrick Hagan, at one point the CIO’s senior quantitative analyst, told investigators that he was never asked to analyze the bank’s other assets, which would have been necessary to use the bets as a hedge, according to the report.
The credit bets were called a “make believe voodoo magic ‘composite hedge,’” by an examiner at the OCC, according to the report.
The CIO group e-mailed a presentation to Dimon and other executives on April 11 that showed the credit bets were no longer working to protect against losses, the Senate investigators said. It included a chart that showed the portfolio would lose money in a financial crisis.
Days later, Braunstein told investors and analysts on a call to discuss earnings that the credit bets were a hedge that lowered risk. Dimon that day dismissed accounts of the loss as a “tempest in a teapot.”
Levin’s Response