Senate report increases pressure on JP Morgan Chase chief Jamie Dimon
Damning report outlining US bank's efforts to hide losses reopens 'too big to fail' argument
JP Morgan Chase's efforts to hide trading losses, outlined in a Senate report, will probably ignite debate over whether the largest US bank is too big to manage and increase pressure on chief executive Jamie Dimon to surrender his role as chairman.
Dimon misled investors and dodged regulators as losses escalated on a "monstrous" derivatives bet, according to a 301-page report by the Senate Permanent Subcommittee on Investigations.
The bank "mischaracterised high-risk trading as hedging" and withheld key information from its primary regulator, sometimes at Dimon's behest, investigators found. Managers manipulated risk models and pressured traders to overvalue their positions to hide growing losses.
"Too big to fail has been put back on the table - not providing risk data, misleading shareholders - this suggests that breaking up the banks is a viable idea," said Mark Williams, a former Federal Reserve bank examiner who teaches risk management at Boston University.
"This big trading loss reinforces the need for independence. It's kind of hard to argue at this point that JPM would've been worse if they had a separate chairman."
After nine months of investigation, the panel concluded on Thursday that JP Morgan had "a trading operation that piled on risk, ignored limits on risk taking, hid losses, dodged oversight and misinformed the public", panel chairman Carl Levin said.
His team combed through 90,000 documents and interviewed dozens of current and former executives.
Former chief investment officer Ina Drew - among Wall Street's most powerful women until she resigned in May four days after the bank disclosed the initial trading losses - will testify at Levin's hearing in her first public appearance since leaving the bank.
"Since my departure, I have learned of the deceptive conduct by members of the London team, and I was, and remain, deeply disappointed and saddened to learn of such conduct and the extent to which the London team let me, and the company, down," she said in prepared remarks.
US lawmakers have pushed banks to halt so-called proprietary trading, and a panel of British lawmakers yesterday urged regulators to renew the case for an outright ban within three years.
JP Morgan, regarded on Wall Street as one of the best-managed banks in the world, lost more than US$6.2 billion over nine months last year in a derivatives bet on companies' creditworthiness.
Mark Kornblau, a spokesman for the bank, said the bank had co-operated with the investigation and had "already identified many of the issues cited in the report". "We have taken significant steps to remediate these issues and to learn from them."