Is The London Whale Beached?
Because his positions were large enough to move markets, JP Morgan Chase (NYSE:JPM) trader Bruno Iksil was nicknamed the London Whale; because they played out so badly, as much as $51 billion in shareholder value was erased at one point; and because they caused such a flurry of media attention, Chief Executive Officer Jamie Dimon was forced to admit that the losses were the result of “egregious” lapses. However, the response of federal regulators to the $6.2 billion derivative loss was much less exacting than it could have been; the Federal Reserve and the Office of the Comptroller of the Currency both issued cease-and-desist orders, but no fines were levied.
After a review of the chief investment office, the unit responsible for the losses, the Federal Reserve faulted the bank’s management. As a result, JPMorgan was ordered to strengthen its risk management and auditing controls as well as improve its anti-money-laundering systems, and given 60 days to submit a plan to resolve these issues. The plan was also required to outline changes for how executives are compensated.
JPMorgan’s board of directors may release an internal report blaming Dimon’s administration style when the bank’s fourth-quarter earnings are reported on January 16, according to Bloomberg. Sources familiar with the situation told the publication that the report was critical of Dimon, former Chief Financial Officer Doug Braunstein, and ex-Chief Investment Officer Ina Drew for “inadequately supervising traders.”
“We’ve been working hard to fully remediate the issues identified in the consent order,” a JPMorgan spokesman, Joe Evangelisti, said in a statement seen by Bloomberg. While the bank consented to the orders, it did not admit or deny any wrongdoing.
The U.K.’s Financial Services will also be conducting an investigation.
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