Courtesy of Pam Martens.
Jamie Dimon Testifying at Senate Banking Hearing June 13, 2012
Yesterday, two of JPMorgan Chase’s regulators, the Office of the Comptroller of the Currency (OCC) and the Federal Reserve, released the details of their cease and desist consent orders with the mega bank over its lack of proper risk controls in its Chief Investment Office (CIO). The lapses have led to $6.2 billion in losses thus far. JPMorgan, for its part, made sure its golden parachutes – outsized payments to departing executives –would not be limited by the consent agreement.
The debacle, known on Wall Street as the London Whale trades, stem from traders in London, particularly Bruno Iksil who is no longer at the bank, engaging in high risk derivatives trading in a thinly traded corporate bond derivatives index. The nickname, “Whale,” derives from the bank making trades so large that it effectively became the market in that index and could not quickly exit the positions.
Congress held hearings on the matter in 2012 and investigations by the U.S. Justice Department, the Securities and Exchange Commission and U.K. authorities remain ongoing. The seriousness of the losses stem from the fact that the London traders were gambling with the insured deposits of the commercial banking unit of JPMorgan Chase – not using the bank’s own capital or engaging in proprietary trading at the investment bank. According to media reports, the Senate’s Permanent Subcommittee on Investigations, chaired by Carl Levin, is also investigating the matter. The subcommittee has jurisdiction to conduct investigations into areas that include fraud and corporate crime.
The OCC’s consent orders stridently criticized a long list of failings on the part of JPMorgan and its management. The OCC said its findings “establish that the Bank has deficiencies in its internal controls and has engaged in unsafe or unsound banking practices and violations of 12 C.F.R. Part 3, Appendix B (Market Risk Management Amendment) with respect to the credit derivatives trading strategies, activities and positions employed by the CIO on behalf of the Bank.”
The reference to 12 C.F.R., Part 3, Appendix B is especially noteworthy since the law is to “ensure that banks with significant exposure to market risk maintain adequate capital to support that exposure.” The OCC’s reference to JPMorgan violating that statute is a serious matter for the public and Congress.
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