A Senate panel has issued a scathing assessment of JPMorgan's US$6.2 billion ($7.5 billion) trading loss last year. The investigation found that bank executives ignored growing risks and hid losses from investors and federal regulators.
Executives at JPMorgan understated the trading losses to federal examiners by hundreds of millions of dollars and dismissed questions raised about the trading risks, according to the report from the Senate Permanent Subcommittee on Investigations.
The report suggests that key executives, including chief executive Jamie Dimon, were aware of huge losses at the bank, even while they were downplaying the risks publicly.
The report also blames federal regulators for lax oversight.
JPMorgan yesterday acknowledged it made mistakes but denied it concealed losses or risks.
"While we have repeatedly acknowledged mistakes, our senior management acted in good faith and never had any intent to mislead anyone," JPMorgan said.
Senator Carl Levin, the subcommittee's chairman, said the probe showed "many, many failures" at the bank, some "serious and indeed egregious".
The committee will question bank executives and regulators today at a hearing on the trading loss.
In April, news reports said a trader in JPMorgan's London office known as "the whale" had taken huge risks that were roiling the markets. Dimon immediately dismissed the reports as a "tempest in a teapot" during a conference call with analysts.
But in May, Dimon acknowledged the bank had lost roughly US$2 billon. During testimony to a separate Senate panel in June, Dimon said the bank showed "bad judgment" and "took far too much risk".
The figure was later revised to more than US$6 billion.
An internal report at the bank blamed traders in the London unit for trying to hide the size of the loss and not keeping executives informed.
But the Senate report says executives inaccurately said the trading decisions were based on a long-term strategy and the trading positions were fully transparent to regulators.
The bank "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", said Senator John McCain, the subcommittee's senior Republican.
Three employees in the London office were fired - two senior managers and a trader. And Ina Drew, the chief investment officer overseeing the bank's trading strategy, resigned.
The Senate report criticised the oversight of JPMorgan's trading operation by the Office of the Comptroller of the Currency, a Treasury Department agency.
It said the agency failed to investigate the trading even when the London operation several times blew through pre-set risk limits, failed to notice when the unit didn't submit required monthly reports, and accepted reports that omitted key data.
"The OCC takes this matter very seriously. ... We are very disappointed that the bank misinformed the OCC, which hampered our supervisory efforts," said agency spokesman Bryan Hubbard.