Risk Management

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It’s All JP Morgan’s Fault

A new Senate report on the bank's $6 billion loss finds that JP Morgan has some serious questions to answer.

Although the London Whale has come to be synonymous with a $6 billion trade gone wrong, the Senate has a rather different take on the matter: Stop blaming the Whale; just blame JP Morgan.

A new Senate report says the root problem lies with more senior levels of management than Bruno Iksil, the trader known as the Whale.

The report by the Senate Permanent Subcommittee on Investigations highlights loopholes in the bank’s public disclosures and blames several executives, including Douglas Braunstein, who was chief financial officer at the time of the losses, according to the New York Times, who spoke to people briefed on the inquiry.

The report, which will be released on March 15, places the blame squarely on JP Morgan executives who allowed Iksil and others to build bets without fully warning regulators and investors.

The Congressional inquiry is expected to look into how executives ignored warning signs and failed to alert investors about changes to its method for detecting risk, the Times reports.

Braunstein and other senior executives could be asked to testify at a hearing this month, the Times notes. The subcommittee does not currently intend to call the bank’s chief executive, Jamie Dimon.

JP Morgan of course is vying to put the whole unpleasant matter behind it.

Last year, Dimon noted that the “Whale has been harpooned.” But a federal investigation into four London JP Morgan employees is still looking into whether they hid problems from the bank. Further, investigators are investigating e-mails suggesting that Iksil had raised alarms about the bet.

The Times reports that in January 2012, in an e-mail to a more senior trader, Iksil himself advised against increasing the bet. The size of the trades, Iksil said, were becoming “scary.” He apparently advised that the investment office take the “full pain” now. The subcommittee’s report is expected to detail how senior executives failed to act on the warnings from London.

While JP Morgan is being scrutinized at the highest level, regulators are equally unlikely to come out of the investigation without blame. The bank reportedly warned some regulators about the changing risk model.

Um, regulators who failed to act on a warning that later led to a multi-billion dollar loss that could potentially cause havoc on the markets. Deja-vu, anyone?

Melanie Rodier has worked as a print and broadcast journalist for over 10 years, covering business and finance, general news, and film trade news. Prior to joining Wall Street & Technology in April 2007, Melanie lived in Paris, where she worked for the International Herald ... View Full Bio

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User Rank: Author
3/6/2013 | 8:17:50 PM
re: It’s All JP Morgan’s Fault
To see the same dismissive attitude coming from the JPM senior execs and the regulators is scary. Certainly sends the wrong message not only to JPM employees but to the whole industry to some extent. On the other hand I'm happy to see Capitol Hill taking an interest in this. If the regulators are going to act this way then someone in Washington needs to start regulating the regulators.
User Rank: Apprentice
3/5/2013 | 9:03:15 PM
re: It’s All JP Morgan’s Fault
Deja-vu. The Engineer tells Morton Thiocol of the risk to heat shield tiles from falling insolation. Inside Management Risk Management just refuses to see. The Shuttle burns; Astronauts die; NASA investigates. What do they find? Let us guess...

A) The Risk was not escalated properly.
B) Morton Thiocol management blew what they did know.

What is still missing in action?

A) NASA knew its subcontractor framework had a conflict of interest in its Risk Management regulation and still cannot bring itself to fix it.

B) There is something about present American style Risk Management infrastructure that is broken.
C) High end uses of it seem to be good, but the size of the risk impact in annual revenue or life at risk is no guarantee that good practices are in use.
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