Hot Features
Premium
Trade like a pro: Leverage real-time discussions and market-moving ideas to outperform.
JP Morgan CEO Jamie Dimon has been an outspoken critic of the US Congress’ attempts to more closely regulate Wall Street and the banking industry following the infamous bailouts of 2008. Apparently Dimon never learned the old axiom “You can’t fight City Hall.” Either that or he hasn’t thought about applying the principle at the federal level. But he’s learning.
A 300 page report released by the Senate Permanent Subcommittee on Investigations accuses JP Morgan of misleading investors and lying to investigators during official government inquiries into “the trading, risk management failures and subsequent disclosures” involving the now infamous “London Whale” dealings.
Despite his protests in April 2012 that the issue was ” tempest in a teapot,” the committee, led by Senator Carl Levin came down hard on Dimon and former CFO Doug Braunstein. The report alleges that Braunstein intentionally misled investors and that both “the written and verbal representations made by the bank were incomplete [and] contained numerous inaccuracies.”
The committee cited numerous examples of the bank’s mismanagement, including a number of behind-the-scenes clashes between regulators and Dimon himself. CIO Ina Drew reportedly yelled at examiners, calling them “stupid.” Ironically, one of the cover-ups that Levin’s committee noted was Drew’s redistribution of trades originating with the London Whale scandal to different parts of the company. In another scenario, wouldn’t that be called money-laundering? I’m just saying.
Not only did the mishandling of bad derivatives cost the bank more than $6.2 billion, management failed to take action to stop the bleeding, although pressed to do so by Bruno Iksil, the trader responsible for the bank’s position. He told higher-ups that the bank should “take the pain fast” and “let the book simply die.” When the losses continued to accumulate as traders added to the bank’s position, supervisors “were urging [traders] to mark the values at levels that portrayed them in the most positive light, even if it meant skirting the bank’s normal valuation practices.” By the way, despite the losses, CIO Drew “earned” $29 million in 2010 and 2011. It may be some comfort to readers that Dimon’s bonus was cut by 50% last year – to $11.5 million. Just think what a competent CEO would have been paid!
Senator, and former presidential candidate, John McCain said that the bank “increased risk by mislabeling the synthetic credit portfolio as a risk-reducing hedge.” On a similar note, the committee uncovered a memo from one of the bank’s analysts in which he proposed that he could “rearrange its modeling procedures to mask the ballooning risk.” Coincidence? You decided. The portfolio grew from $51 billion to $157 billion in three months.
“There’s a lot of evidence,” said Senator Levin, that the bank may have become “too big to manage [and] too big to regulate.” That certainly doesn’t bode well for a bank that has $2.4 trillion in total assets when Congress is considering imposing restructuring rules on the biggest players in the banking industry.
The committee has not filed any criminal charges as hearings continue today. However, Levin, did not rule out the possibility.
