JPMorgan Chase Reports Billions Lost, Traders May Have Covered It Up
JPMorgan Chase announced on Friday that its losses from their London office could be as high as $7 billion and that traders may have deliberately tried to cover them up.
In what the bank is calling "the London whale trades," the Chief Investment Office is being investigated by the FBI, the UK's Financial Services Authority and the Securities Exchange Commission to determine whether the CIO lied about the size and valuations of the trades.
However, according to Reuters, the investigation may not be determined as fraudulent:
- "I see little doubt that someone is going to get charged with fraud," said Bill Singer, a lawyer at Herskovits in New York who provides legal counsel to securities industries firms, and publishes the BrokerandBroker website. Criminal charges are possible, he added.
- The trading losses and possible deception from traders are a black eye for JPMorgan Chief Executive Officer Jamie Dimon, who was respected for keeping his bank consistently profitable during the financial crisis.
- "(Dimon) has a lot of explaining to do about how this could happen," said Kim Forrest, senior equity research analyst at Fort Pitt Capital Group in Pittsburgh.
- The Chief Investment Office became infamous in May when JPMorgan said bad derivatives bets had triggered about $2 billion of paper losses, a figure that turned into $4.4 billion of actual losses in the second quarter.
Having re-released their first quarter results, the bank acknowledged revenue for the first quarter dropped by $660 million and net income dropped $459 million, according to The New York Times.
CEO Jamie Dimon also told analysts on a conference call that "the company had strengthened its risks controls to stave off further losses."
According to Businessweek, Dimon assured that JPMorgan would be looking ahead to avoid future botched-trades: "Importantly, we have put most of this problem behind us and we can now focus our full energy on what we do best -- serving our clients and communities around the world," he said.
To compensate for the loss, Dimon mentioned that Ina Drew— who oversaw the chief investment office and resigned in May— agreed to "give up a significant portion of her compensation," though the amount is unknown.
Additionally, JPMorgan also acknowledged in a statement that “the firm has recently discovered information that raises questions about the integrity of the trader marks and suggests that certain individuals may have been seeking to avoid showing the full amount of the losses in the portfolio during the first quarter.”
Businessweek reported that three bankers involved with the whale trades appeared to have left the company:
- People familiar with the company said Achilles Macris, Javier Martin-Artajo and Bruno Iksil are no longer listed in the company's internal database. Ina Drew, who headed the CIO, resigned in May.
- Macris, Martin-Artajo and Iksil were stripped of their trading duties after the losses became known but stayed on to complete an internal review of what happened, the newspaper said. Iksil was nicknamed the London whale because his trades were so large they moved markets.