June 05, 2012

U.S. bank regulators will review whether JPMorgan Chase & Co executives should have to give back compensation due to the bank's failed hedging strategy that has produced at least $2 billion in losses, the head of the Office of the Comptroller of the Currency said.

OCC chief Thomas Curry said his agency will evaluate the compensation of the Chief Investment Office responsible for the trading loss, and will assess JPMorgan's determination on clawbacks as part of that evaluation.

In written testimony prepared for a Senate Banking Committee hearing on Wednesday and obtained by Reuters, Curry also said JPMorgan's trading loss will affect its earnings but does not present a solvency issue and does not threaten the broader financial system.

JPMorgan announced the losses last month, rattling Wall Street and Washington and raising questions about whether banks are still taking too many risks following the 2007-2009 financial crisis.

Among the areas being examined is whether the bank provided the OCC with enough information about the trades and whether the JPMorgan board of director's risk committee is "appropriately informed and engaged," Curry said.

JPMorgan used a kind of derivative known as credit default swaps to make bets on whether companies would become more or less creditworthy.

The positions were originally designed to be disaster insurance against the corporate credit market tanking in response to global economic stress, but over time the trades morphed into a bet on credit markets improving.

Outside experts have estimated the loss could go as high as $5 billion. When JPMorgan disclosed the loss had reached $2 billion, CEO Jamie Dimon said it could grow to $3 billion "or more."

Dimon mentioned the possibility of clawing back pay from executives responsible for the trades at an annual shareholder meeting last month.

"We will do the right thing. That may well include claw-backs," he told reporters after the annual meeting.

Ina Drew, the former head of the Chief Investment Office, was one of the highest paid executives at the bank before she resigned after the losses were announced. Drew was paid more than $15 million in each of the last two years, according to company reports to shareholders.

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