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Cruse And Associates International Review

Cruse And Associates International Review

Communication, Community, Environment

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  • Cruse Associates News Article

    Communication, Communication Design

    Whale of a Trade Revealed at Biggest U.S. Bank With Best Control

    “We are dead I tell you,” Bruno Iksil, a London-based trader at JPMorgan Chase & Co. (JPM), messaged an associate on March 23, 2012. “It is hopeless now.”

    Iksil, a Frenchman who would soon become known as the London Whale because of the size of his trades, had lost $44 million on corporate-credit bets three days earlier and was down more than $500 million for the year, Bloomberg Markets will report in its July issue. He and junior trader Julien Grout, under pressure from their manager, had tried to hide the extent of losses that would swell to more than $6.2 billion, the bank’s biggest trading blunder ever.

    “They are going to destroy us,” Iksil wrote to Grout that Friday in one of hundreds of e-mails, instant messages, transcripts of recorded conversations and other documents released in March by the U.S. Senate’s Permanent Subcommittee on Investigations after a nine-month probe.

    In a 301-page report and at a hearing, the panel accused the largest and most profitable U.S. bank of hiding losses, deceiving regulators and misinforming investors.

    The report, the bank’s own 129-page account and interviews with traders and current and former executives offer evidence of a widening spiral of panic as the losses became known beyond a small circle of traders and the extent of the damage reached top management, including Chief Executive Officer Jamie Dimon.

    Dimon’s Reputation The saga of the London Whale provoked doubts about Dimon’s reputation as one of Wall Street’s savviest CEOs, even as JPMorgan reported a third consecutive year of record profit in January and Dimon survived a shareholder vote in May that could have forced him to give up his role as chairman.

    A brash critic of regulation who sailed through the 2008 financial crisis without a loss, Dimon was seen as a manager who scrutinized every aspect of the bank’s business. He’s considered indispensable by some of JPMorgan’s most influential shareholders, including billionaire investor Warren Buffett and Home Depot Inc. co-founder Kenneth Langone, who called him “probably the finest CEO across any business in America.”

    What the documents show is that Dimon presided over a company whose traders amassed growing positions in complex derivatives and whose executives offered rosy forecasts, withheld information from regulators and ignored risk limits that were breached 330 times in the first four months of 2012.

    The records reveal how little has changed to prevent even the best-managed banks from speculating their way into trouble five years after the collapse of Lehman Brothers Holdings Inc. and three years after passage of the Dodd-Frank Act.

    ‘Reasonable Cause’ The Senate panel, led by Michigan Democrat Carl Levin, referred its report to the U.S. Securities and Exchange Commission and the Justice Department on April 12.

    “There is reasonable cause to believe a violation of the law may have occurred,” Levin says. The Federal Bureau of Investigation and the SEC are scrutinizing public statements, calls with investors and the April 13, 2012, earnings presentation by Dimon and then-Chief Financial Officer Douglas Braunstein, according to five people with knowledge of the probes.

    The criminal investigation is focusing on, among other issues, whether traders painted the tape, a form of market manipulation that allows them to inflate the value of their positions, three of the people say.

    Spokesmen for the Justice Department, the SEC and the FBI’s New York field office declined to comment.

    ‘Misleading Disclosures’ “The Senate report arms the SEC and gives them a road map by which they could pursue the bank for failure to supervise its traders, maintaining inadequate risk controls and making misleading disclosures,” says John Coffee, a securities law professor at Columbia University Law School.

    Joe Evangelisti, head of communications at the New York-based bank, wrote in an e-mail response to questions that statements made by Dimon and Braunstein “reflected what they believed at the time and were based on fact finding and analysis by a number of people investigating the situation. In hindsight, the information they received was wrong.”

    After Bloomberg News first reported on April 5, 2012, that Iksil’s book had grown so large it was distorting markets, executives downplayed losses that by then had eclipsed $1 billion. Dimon, 57, dismissed the matter on an earnings call eight days later as “a complete tempest in a teapot.”

    Dimon apologized for that remark and what he called in a letter to shareholders “the stupidest and most-embarrassing situation I have ever been a part of.”

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