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Last updated: September 19, 2013 3:24 pm
JPMorgan Chase on Thursday agreed to a $920m fine from US and UK regulators over last year’s “London whale” credit derivative trading fiasco that caused more than $6bn in losses and severely dented the bank’s reputation for savvy risk management.
Here are some of the most colourful quotes and facts revealed in the transatlantic regulators’ documents, which highlight “deficiencies in the bank holding company’s oversight, management and controls governing its Chief Investment Office”:
• The Financial Conduct Authority said that by April 20 2012, there were 14 collateral disputes where the SCP (structured credit portfolio, the derivative trades at the heart of the failed trading strategy) had marked its positions more favourably than its counterparties.
• The FCA states that in March 2012, management told traders on the SCP to ignore the losses arising on the portfolio through the underperformance of the trading strategy and only record those that could be explained by a particular market event.
• On the last trading day of March, SCP management instructed one of the traders to remain in the office, after the close of the London markets, in order to review the prices in the New York market in the hope of getting “any better numbers”.
• An investment banker’s response to hearing allegations that SCP traders believed that the investment bank had been leaking their positions to the market and deliberately “framing” prices against them: “What I see is an accusation that the Investment Bank, with someone leaking the position of CIO [Chief Investment Office], is acting against CIO [and] mismarking the books to damage CIO.”
• The FCA states: “In the first half of 2012 the firm failed to be open and co-operative with the authority about the extent of the losses as well as other serious and significant issues regarding the risk situation in the SCP, and on one occasion (by virtue of the conduct of CIO London Management) deliberately misled the authority.”
• The FCA also states that: “The firm’s conduct demonstrated flaws permeating all levels of the firm: from portfolio level right up to firm senior management.”
• George Canellos, co-director of the division of enforcement at the US Securities and Exchange Commission, said: “Today’s action makes clear that JPMorgan’s control breakdowns went far beyond the CIO trading book. In addition to failing to keep watch over how the traders valued a very complex portfolio, JPMorgan’s senior management broke a cardinal rule of corporate governance: inform your board of directors of matters that call into question the truth of what the company is disclosing to investors.”
• JPMorgan’s CIO risk management said in March 2012: “We got some CRM [comprehensive risk measure] numbers and they look like garbage as far as I can tell, 2-3x what we saw before. They came from the technology guy running the process, so probably [Quantitative Research] has not even reviewed the results.”
• Jamie Dimon, describing a meeting of senior management ahead of a regulatory filing in May 2012, said: “I sat in those meetings myself and said: believe that the Pope is over here and the [Chairwoman] of the Securities Commission is over here, what is the right thing to do?”
• The FCA also notes that “traders were unfamiliar with the relevant US GAAP provisions and the marking standards it imposed. The Firm never provided the traders on the SCP with any formal training, guidance or documented policy as to how the SCP should be marked”.
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