A US Senate probe into JP Morgan’s $6.2bn (£4.1bn) London Whale loss yesterday slammed senior management at the bank for passing off the risky money making trades as defensive strategies.
The report by the Permanent Subcommittee on Investigations claims top executives at the bank, including former finance chief Douglas Braunstein and former chief investment officer Ina Drew, knew the portfolio which led to the losses were not hedges but complex short-term derivatives positions.
Bosses at the bank, the biggest in the US, made numerous claims the synthetic credit portfolio, as it was known, functioned as a hedge when in reality it was set to lose money under certain financial conditions.
A presentation prepared for managers at the bank, including chief executive Jamie Dimon, showed bosses the portfolio would lose money if markets turned against the strategies – the opposite of what a hedge should do.
“JPMorgan’s chief investment office increased risk by mislabeling the synthetic portfolio as a risk-reducing hedge when it was really involved in proprietary trading,” said senator John McCain, who sits on the Senate panel that produced the report.
JP Morgan executives went on the record on 13 April 2012, the report says, to confirm in an earnings call that the positions were fully transparent to regulators and consistent with the Volcker Rule
“Contrary to Mr. Braunstein’s representation, the bank was not “fully transparent” with its regulators regarding the SCP,” the report says.
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 bad derivatives bets, which ended up costing the bank $6.2bn hit the headlines when they were linked to Bruno Iksil, who traded at JPMorgan's chief investment office in London.
The report also contains details of emails sent between the parties involved, which reveal the increasing panic of traders at the escalating losses and size of the positions.
Iksil commented on one document that there was “more bleeding” after a run of bad trades.