The US Department of Justice has opened a preliminary investigation into the $2bn trading loss at JPMorgan Chase, adding to the pressure on Jamie Dimon, the bank’s chief executive, as he faced shareholders for the first time since the scandal broke.
The DoJ review is preliminary, a person familiar with the matter said, and is being led by the Federal Bureau of Investigation’s New York field office. The Securities and Exchange Commission is already conducting a separate investigation into the bank’s losses.
Lawyers said regulators would look at what top executives, including Mr Dimon, knew when he dismissed concerns about trading activity at the bank’s chief investment office as “a tempest in a teapot” less than four weeks before disclosing “egregious” losses on credit derivatives trades.
The DoJ and JPMorgan declined to comment.
The trading debacle has already claimed the job of one executive on the bank’s operating committee, with Monday’s departure of chief investment officer Ina Drew. Achilles Macris, head of the London-based trading unit that incurred the losses on its hedging activity, is also leaving his role, according to an internal memo.
But JPMorgan’s top executives have rallied around Mr Dimon, who told shareholders at the bank’s annual meeting in Tampa, Florida on Tuesday: “I can’t justify it. Unfortunately these mistakes were self-inflicted.”
“What this hedge morphed into violates our own principles,” Mr Dimon added. Hedging activity is allowed under a draft of the Volcker rule, which otherwise bans banks from trading on their account. It is not clear if JP Morgan’s strategy would have violated the Volcker rule’s restrictions on proprietary trading, which have not yet been finalised.
Mr Dimon said bank staff implicated in the shock loss would be held accountable and could face retroactive “clawbacks” of their bonuses. “We will do the right thing,” he said. “That may very well include clawbacks.”
John Liu, New York City’s chief financial officer , said the company should “aggressively claw back every single dollar possible from the executives responsible for the $2bn loss…. Doing so will send a clear message to senior management that anyone who recklessly gambles with shareholder money is jeopardising long-term value and will be held accountable”.
A proposal to strip Mr Dimon of his dual role as chairman of the company received a strong 40.1 per cent of the vote, though many investors voted before last week’s revelation of the losses. A growing number of investors are pushing for chief executives to drop the role of chairman and give it to an independent board member.
The vote on executive compensation stood at 91.5 per cent in favour. Mr Dimon was paid $23m in salary and bonuses in the past year.
Mr Dimon’s reputation as one of the best managers in banking has been hit by the revelation of heavy losses in a supposedly safe division of the bank on trades that the chief executive had previously dismissed as insignificant.
Lisa Lindsley, an official from the AFSCME Employees Pension Plan, called at the meeting for Mr Dimon to give up his position as chairman, which she said was important “even before the losses disclosed last Thursday”.
“Mr Dimon is effectively in charge of monitoring his own performance,” said Ms Lindsley. “Shareholders have lost over $50bn of market cap since February of last year,” she said. Mr Dimon sat impassively through her speech.
A heavy presence of law enforcement officers and private security guards had prepared for significant protests, following on from big demonstrations at the Bank of America and Wells Fargo annual meetings.
But only a handful of demonstrators chose to stand in a pen opposite the meeting and, inside, shareholders gave support to Mr Dimon.
“I think he’s dropped the ball once,” said Eric Vlahov, a small shareholder for the best part of 10 years. “That happens.” Mr Vlahov, a professor at the University of Tampa, bemoaned the fact that “some of the [bank’s] investment strategies are so complicated”.
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