JPMorgan Chase & Co ignored risks, misled investors, fought with regulators and tried to work around rules as it dealt with mushrooming losses in a derivatives portfolio, a Senate report alleged in a damning review of the largest U.S. bank's management.
Senior managers at the bank were told for months about the bad derivatives bets that ended up costing the bank $6.2 billion, but did little to rein them in, according to the Permanent Subcommittee on Investigations report on Thursday.
Committee sources said the losses from the trades appeared to total more than $6.2 billion. But these sources said they could not determine how much because the trades originally made by the bank's Chief Investment Office were moved to other parts of the bank. They said JPMorgan declined to provide them more information about the values of the positions.
The Senate report came on the same day the U.S. Federal Reserve separately asked JPMorgan to improve its capital planning process as part of an annual "stress tests" of banks.
A JPMorgan spokeswoman said: "While we have repeatedly acknowledged mistakes, our senior management acted in good faith and never had any intent to mislead anyone."
The barrage of bad news for JPMorgan, long seen as the safest and best-managed U.S. bank, could taint the reputation of the bank, as well as Chief Executive Jamie Dimon. Dimon has been one of the most outspoken critics of Washington's attempts to tightly regulate Wall Street after the 2007-2009 financial crisis.
It could also strengthen advocates calling for stricter financial reform regulations. In particular, the 301-page Senate report will likely give ammunition to regulators crafting the Volcker rule, which proposes to put limits on banks betting with their own funds.
The Senate subcommittee will hear directly from senior JPMorgan executives - but not from Dimon - at a hearing on Friday morning on the derivatives bets that came to be known as the "London whale" trades.
Senator Carl Levin, who chairs the subcommittee, said he had not yet decided whether to refer the report to criminal or civil authorities. He said the panel could hold further hearings and left the door open to calling Dimon for the hearing.
CLASHES WITH REGULATORS
While Dimon publicly criticized lawmakers for putting on onerous rules on banks after the crisis, the report shows JPMorgan also frequently clashed with regulators behind the scenes as the losses mounted last year.
At one point, Dimon ordered the bank to stop sending daily trading profit and loss reports to the Office of the Comptroller of the Currency, one of its main regulators, Senate investigators said.
The Senate report also accused the bank of changing its risk models to work around capital rules. The report includes emails from a quantitative engineer for the bank in which he explained how he could rearrange its modeling procedures to mask the ballooning risk inside the chief investment office.
The bank "increased risk by mislabeling the synthetic credit portfolio as a risk-reducing hedge when it was really involved proprietary trading," the subcommittee's top Republican, John McCain, said in a briefing with reporters.
Senate investigators also faulted regulators at the OCC for missing red flags and failing to be aggressive in monitoring problems at the bank.
The agency was informed of JPMorgan's risk limit breaches and of changes to the model the bank was using to calculate its risk, yet raised no concerns at the time, the report said.
An OCC spokesman said the agency recognizes shortcomings in its supervision and has taken steps to improve its supervisory process. The spokesman also said the agency is continuing to investigate the matter and "will take additional action as appropriate."
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