JPMorgan's former chief investment officer, the most senior bank executive to fall after the $6.2bn "London Whale" trading loss, will testify in front of US lawmakers Friday following emails that cast the trader linked to it in a more sympathetic light.
Bruno Iksil, the JPMorgan trader known as the "London Whale" who ran the group's Chief Investment Office in the UK, was seen to have tried to warn senior bank executives via email over the strategy that had chosen to employ when the massive trading positions began to show signs of financial stress. The emails, revealed as part of the US Senate Permanent Subcommitte on Investigations report and hearing into derivative markets abuses, show Iksil expressing concerns as early as January 2012 - several weeks before the CIO's $157bn was shut down by JPMorgan bosses. Senate lawmakers accused the bank of hiding the ballooning trading losses from investors and evading the efforts of regulators to assess its risk.
"The investigation sheds new light on this shameful example of an American financial institution operating with a 'too big to fail' mentality," said Arizona Senator and former Republican Presidential candidate John McCain. "JPMorgan's actions reveal how even a bank boasting a 'fortress balance sheet' can be easily seduced by the promise of huge profits through high-risk trading. JPMorgan gambled away billions of dollars through risky and exotic trades, then intentionally hid its losses from investors and the public, showing complete disregard for risk management procedures and regulatory oversight."
Drew, 56, will testify to the panel later Friday and make her first public comments on the issue since she her resignation in May of last year, just four days after the bank first disclosed the London Whale loss. Drew was paid nearly $29m between 2010 and 2011, the Senate report said, while Achilles Macris, the most senior executive at the CIO in London, was paid nearly $32m.
A new risk-marking model, which was later abandoned, was put into place on 30 January to limit the losses.
Iksil, the report said, grew frustrated with Macris' efforts to "re-mark" the prices of certain securities in a swelling $80bn portfolio run by Iksil as losses began to climb, calling the tactic "idiotic". Iksil wanted to "stay as we are and let the book simply die" rather than try to re-mark the complex derivatives under a new model.
"The new model not only ended the SCP's breach, but also freed the CIO traders to add tens of billions of dollars in new credit derivatives to the SCP which, despite the supposedly lowered risk, led to additional massive losses," the report said.
On 23 March, he told his supervisors that estimated losses in the portfolio could be as high as $600m, even though the reported loss was only officially listed at $23m. Drew then ordered the cessation of derivatives trading at the CIO.
Prior to that, however, Iskil's trading activities breached the bank's risk-taking rules on 330 occasions, the Senate report said, and showed that a CIO report emailed to chief executive Jamie Dimon on 11 April, which warned of deeper losses during a financial crisis, was not made known to shareholders during a 13 April earnings presentation - the same day Dimon infamously dismissed concerns over the CIO's tactics as a tempest in a teapot."
"None of those statements made on April 13 to the public, to investors, to analysts were true," said Michigan Senator and panel chairman Carl Levin. "The bank also neglected to disclose on that day that the portfolio had massive positions that were hard to exit, that they were violating in massive numbers key risk limits."
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