September 18, 2013 11:27 pm

JPMorgan braced for action over ‘whale’

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JPMorgan Chase is expected to be accused of failing to provide accurate and timely information on the “London whale” trading fiasco to regulators, investors and its board, in a transatlantic enforcement action due to hit the bank on Thursday.

People familiar with the situation said the actions of a London-based executive were likely to receive the most serious scrutiny, with an accusation from the UK’s Financial Conduct Authority that he did not act in good faith in dealing with officials’ inquiries.

JPMorgan lost more than $6bn last year in a London division of its chief investment office when traders placed a botched position on credit derivatives. Jamie Dimon, chief executive, initially referred to the position as a “tempest in a teapot” in an April 2012 earnings call before revealing large losses.

In the same call, Doug Braunstein, then chief financial officer, said the positions in question were “fully transparent to the regulators [who] . . . get information on those positions on a regular and recurring basis as part of our normalised reporting”.

But an investigation by a powerful US Senate committee found that the Office of Comptroller of the Currency, the bank’s primary regulator, was not aware of the specific positions. John McCain, the committee’s leading Republican, accused bank executives of “deception”.

The regulatory action is expected to penalise the bank for a variety of failures to provide accurate information about its trading positions, according to people familiar with the case. But it is not expected to single out the top layer of JPMorgan executives on the bank’s operating committee.

The action on Thursday, in which the bank will pay more than $800m, is expected to involve the Federal Reserve and Securities and Exchange Commission in addition to the UK regulator. But the biggest penalty, according to two people familiar with the case, could be demanded by the OCC, which has often been considered in Washington as a relative lightweight to other banking supervisors.

The OCC has become more aggressive against the banks it regulates and in December obtained a record $500m fine from HSBC for failing to correct shortcomings in its anti-money laundering compliance programme.

As previously reported by the FT, Thursday’s settlement will not resolve the matter completely for the bank as the Commodity Futures Trading Commission and US attorney’s office in Manhattan continue to investigate the trading blunder. The CFTC is pushing the bank to admit it manipulated a credit derivatives index called IG9. The agency can bring a case alleging the bank was reckless in manipulating the market or did it intentionally.

Last month, when prosecutors charged two former London-based traders with hiding hundreds of millions of dollars in losses, US attorney Preet Bharara said the criminal investigation was continuing. Authorities specifically highlighted shortcomings in the bank’s compliance department, with a senior FBI official saying it was “little more than a rubber stamp.”

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