JPMorgan Chase & Co (JPM). Chief Executive Officer Jamie Dimon sought to hide escalating trading losses that surpassed $6.2 billion, misled investors and dodged regulators as the bank’s position deteriorated last year, a Senate probe found.http://www.bloomberg.com/...
The largest U.S. bank “mischaracterized high-risk trading as hedging,” and withheld key information from its primary regulator, sometimes at Dimon’s behest, according to a report today by the Senate Permanent Subcommittee on Investigations. The 301-page document also shows how managers manipulated internal risk models and pressured traders to overvalue their positions in an effort to hide growing losses in a “monstrous” credit derivatives portfolio in London.
“We found a trading operation that piled on risk, ignored limits on risk taking, hid losses, dodged oversight and misinformed the public,” Chairman Carl Levin, a Michigan Democrat, told reporters today after his investigators spent nine months combing through 90,000 documents and interviewing current and former executives.
Will post more as it comes in. It's at the tippy-top of the nytimes.com website, too. Here's an excerpt from their coverage:
Mr. Dimon, whose reputation as an astute manager of risk has so far been only dented by the trading losses, comes under much harsher criticism from the Senate investigators. The chief executive blessed changes to an internal alarm system that underestimated losses, seemingly contradicting his earlier statements to lawmakers, according to the report. Mr. Dimon is also accused of withholding from regulators details about the investment bank’s daily losses — and then raising “his voice in anger” at a deputy who later turned over the information.http://dealbook.nytimes.com/...
While some people briefed on the matter question whether the outburst actually happened, the alleged incident illustrates a broader problem at JPMorgan: after emerging from the financial crisis in far better shape than rivals, the bank considered itself as being above its regulators. The bank was so filled with hubris, Senate investigators said, that an executive once screamed at its examiners and called them “stupid.”
The subcommittee’s report provides further detail about what Mr. Dimon knew about the changed alarm system. The chief executive told the subcommittee that he couldn’t “recall any details in connection with approving the VaR limit increase,” the report said. But Mr. Dimon personally authorized JPMorgan to temporarily increase the metric, known as value at risk, writing in a January 2012 e-mail: “I approve.”
Reuters has more:
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.http://www.reuters.com/...
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.
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 entire 332-page Senate Report can now be read at nytimes.com. Here's a brutal bit from p.329:
On May 10, 2012, the day the 10-Q report was filed, JPMorgan Chase also held ahttps://www.documentcloud.org/...
"business update call" with analysts, investors, the media, and others. At the outset of the call, Mr. Dimon explained orally what wasn't explained in the 10-Q filing: "In the first quarter, we implemented a new VAR model, which we now deemed inadequate. And we went back to the old one, which had been used for the prior several years, which we deemed to be more adequate." In addition, when asked why the bank had made the VaR model change "in the first place," Mr. Dimon responded: "There are constant changes and updates to models, always trying to get them better than they were before. That is an ongoing procedure." 1641 In both explanations, Mr. Dimon omitted any mention of the fact that the CIO VaR model adopted in January 2012 was not just "inadequate," but had been determined by the bank to have understated the risk of loss by the SCP. The January VaR model had indicated, for example, that the most money the CIO could lose in a day was $67 million, yet on March 30, 2012, the SCP reported internally a daily loss of $319 million, four times greater than the VaR had predicted. On April 10, 2012, the SCP reported internally a daily loss of $415 million, a nonpublic figure five times larger than the original VaR. The developer of the new CIO VaR model told the Subcommittee that the loss of $415 million meant that the CIO VaR "model [wa]s wrong."
Mr. Dimon stated during the May 10 call: "You should assume that we try to keep our
readers update[d] about what we know and when we know it and it's just a constant practice of the company." 1643 When making this statement, Mr. Dimon did not disclose that bank management had been aware of the significant impact of CIO's VaR model change in January, but did not tell investors about the change. That information could and should have been, but was not, included in the bank's April 8-K report, which was issued after word first broke about the whale trades.
Ultimately, both Mr. Braunstein and Mr. Dimon claimed to the Subcommittee to have been personally unaware of the CIO's VaR model change in January 2012, even though both executives received multiple email communications about the proposed new CIO VaR model, and the 44% reduction it would have on the CIO's VaR, later received a CIO presentation on how the model change had dramatically lowered the CIO's VaR results, and, in at least one case, had the model change explained to them in person by the CIO's Chief Risk Officer, Irvin Goldman, in February 2012. In the case of Mr. Dimon, he was informed about the new VaR model as part of his responsibility as CEO to approve breaches of Level 1 risk limits as well as a temporary increase in the bank's VaR limit, a responsibility that the bank created as part of its risk management system and informed investors was in place.
From the comments, cotterperson has all the important info about tomorrow's Senate grilling of JPMorgan Chase executives:
c-span-3 will carry the hearing:
9:30am (ET)(Link to livestream: http://www.c-span.org/...)
LIVE: Senate Hearing on Derivative Trades
Here's the witness list. It will be interesting to see if Ina Drew takes it on the chin. I sure hope not, but she resigned pretty easily after doing Dimon's foul deeds as instructed.
Here's the subcommittee's press release.
Rolling Stone reporter Matt Taibbi, whose coverage of Wall Street criminality has been among the best, appears psyched about these latest developments. From taibblog:
Beginning at 9:30 a.m. tomorrow, I'm going to be live-blogging a hearing held by Senator Carl Levin's Permanent Subcommittee on Investigations – the best crew of high-end detectives this side of The Wire, in my opinion – who will be grilling J.P. Morgan Chase executives and high-ranking federal regulators in a get-together entitled, "J.P. Morgan Chase "Whale" Trades: A Case History Of Derivatives Risks And Abuses." This follows this afternoon's release of a brutal 301-page report commissioned by Levin and Republican John McCain by the same name.http://www.rollingstone.com/...
... What the report describes is an epic breakdown in the supervision of so-called "Too Big to Fail" banks. The report confirms everyone's worst fears about what goes on behind closed doors at such companies, in the various financial sausage-factories that comprise their profit-making operations.
If the information in the report is correct, Chase followed the behavioral model of every corrupt/failing hedge fund this side of Bernie Madoff and Sam Israel, only it did it on a much more enormous scale and did it with federally-insured deposits. The fund used (in part) federally-insured money to create, in essence, a kind of super high-risk hedge fund that gambled on credit derivatives, and just like Sam Israel did with his Bayou fund, when it got in trouble, it resorted to fudging its numbers in order to disguise the fact that it was losing money hand over fist.
Sounds like prosecutable FRAUD to this diarist. And if Taibbi is fired up, then I am too.
Matt Taibbi's coverage of today's Senate hearings is about as satisfying and entertaining as a live blog can get. Here's a taste:
11:41 a.m. Shit is heating up.http://www.rollingstone.com/...
First, Levin points out that on Aptil 13, 2012, Chase had an internal report showing $1.2 billion in losses in the fund in question. Former Chief Investment Officer Ina Drew was privy to that report. April 13 was a Friday. On the following Monday, Drew met with the OCC and told them the losses were at $580 million. When Levin grills her about why she did that, Drew non-replies, saying, "The OCC to the best of my knowledge was given daily profit and loss reports" for the time period in question.
In other words, never mind that I lied -- the OCC should have been able to figure this out on their own, because we were sending them reports with all the raw data. Of course, they didn't send data all the way throughout...
12:16 p.m. Levin catches Cavanaugh in a bad slip-up. At one point Cavanaugh described the practice of shifting pricing methods in order to hide losses as coincidental. Minutes later, Levin re-asks the question: did Chase change its methodology specifically to hide losses? And Cavanaugh, looking like he's sitting on a chair full of tacks, grits his teeth and says that, "It seems... to our conclusion, that, yes." In other words, he agrees that that's what Chase did.
"But just a minute ago you described it as a coincidence," Levin says.
Cavanaugh then tries to explain that he misspoke before, but it's a bad moment. Chase is now admitting in this hearing that it changed its pricing methodology to hide losses.
No word yet on whether Levin will be passing the report on to the Department of Justice for a criminal investigation, but that decision is expected some time today, I think. Oh please oh please oh please oh please oh please...