[Vision2020] Big Whores Collect Big Fees

[Art Deco]

 [image: DealBook - A Financial News Service of The New York
Times]<http://dealbook.nytimes.com/>
  March 4, 2013, 9:03 pm Senate Report Said to Fault JPMorgan By BEN
PROTESS<http://dealbook.nytimes.com/author/ben-protess/>
and JESSICA SILVER-GREENBERG<http://dealbook.nytimes.com/author/jessica-silver-greenberg/>

While a trader known as the “London whale” has come to represent a
multibillion-dollar blowup at JPMorgan
Chase<http://dealbook.on.nytimes.com/public/overview?symbol=JPM&inline=nyt-org>,
Congressional investigators have discovered that the problems involved more
senior levels of the nation’s largest bank.

A report by the Senate Permanent Subcommittee on Investigations highlights
flaws in the bank’s public disclosures and takes aim at several executives,
including Douglas Braunstein, who was chief financial officer at the time
of the losses, according to people briefed on the inquiry. The report’s
findings — scheduled to be released on March 15 — are expected to fault the
executives for allowing JPMorgan to build the bets without fully warning
regulators and investors, these people said.

The subcommittee, led by Senator Carl Levin, could ask Mr. Braunstein and
other senior executives to testify at a hearing this month, according to
the people. The subcommittee does not currently intend to call the bank’s
chief executive, Jamie
Dimon<http://topics.nytimes.com/top/reference/timestopics/people/d/james_dimon/index.html?inline=nyt-per>,
but Congressional investigators interviewed Mr. Dimon last year.

JPMorgan, which has been cooperating with the investigation and discussed
the findings with the subcommittee, declined to comment. Mr. Braunstein and
other bank executives have not been accused of any wrongdoing, and he is
not the focus of a separate law enforcement investigation into the trading
loss.

Congressional officials have yet to set the final details of the hearing
and plans may change, the people cautioned. Politico earlier reported the
scheduled date for the release of the report.

The Congressional investigation could revive questions about the role of
senior executives in the $6 billion trading loss at a time when the bank
has started to put the blunder behind it.

Mr. Dimon declared last year that the “Whale has been harpooned.” The bank
reported record earnings in January and has forced out the architects of
the bet.

The Senate report, however, shifts the focus from lower-level traders in
London who placed the bet to senior executives and regulators who failed to
stop it. Expanding on a sweeping report the bank released in January, the
Congressional inquiry is expected to open a window into how executives
ignored warning signs and failed to alert investors about changes to its
method for detecting risk.

Because a large majority of the executives involved in the trade have since
departed the bank, the hearing could increase scrutiny of Mr. Braunstein
and Mr. Dimon, the remaining senior executives. Within JPMorgan, people
close to the bank say, executives have expressed dismay about the lingering
questions.

The report, a reminder that Wall Street blowups continue even four years
after the financial crisis, could galvanize support for regulations like
the Volcker Rule<http://topics.nytimes.com/top/reference/timestopics/subjects/v/volcker_rule/index.html?inline=nyt-classifier>that
aim to rein in risky trading. Mr. Levin, a Democrat of Michigan who
champions the Volcker Rule, is expected to use the report to endorse policy
changes, including stricter public disclosures.

But Mr. Levin’s staff is still negotiating with the committee’s Republicans
over the recommendations. John
McCain<http://topics.nytimes.com/top/reference/timestopics/people/m/john_mccain/index.html?inline=nyt-per>,
the ranking Republican, has largely approved the report’s findings but
continues to examine the policy ideas, the people said.

A spokesman for Mr. McCain declined to comment.

The subcommittee’s report coincides with a federal investigation into four
employees in London, including Bruno Iksil, the so-called Whale, who
carried out the trades at the bank’s chief investment office. The Federal
Bureau of Investigation<http://topics.nytimes.com/top/reference/timestopics/organizations/f/federal_bureau_of_investigation/index.html?inline=nyt-org>is
conducting inquiries into some of the traders, according to officials,
suspecting they hid problems from the bank.

But the subcommittee’s investigators seized on e-mails suggesting that Mr.
Iksil had raised alarms about the bet. In an e-mail to a more senior trader
in January 2012, he advised against increasing the bet, according to people
who reviewed the message. The size of the trades, Mr. Iksil said, were
becoming “scary” and advised that the investment office take the “full
pain” now, according to a person briefed on the e-mails. JPMorgan released
the e-mails without naming the traders.

By February, Mr. Iksil grew worried as he struggled to understand why
losses were escalating. Later that month, he instructed a junior trader to
temporarily halt trading. Their boss later reversed that decision.

The subcommittee’s report is expected to detail how senior executives
failed to heed warnings from London. Some of those findings echo JPMorgan’s
report, released this January, which examined the role of Mr. Braunstein;
Ina Drew, who led the chief investment office; and Barry L. Zubrow, a
former chief risk officer. Ms. Drew and Mr. Zubrow have since left the bank.

Scrutiny around Mr. Braunstein, who is now a vice chairman at the bank,
partly focused on his reliance on other people’s assurances about the
safety of the trades. In its own analysis of the trade, JPMorgan said Mr.
Braunstein incorrectly assumed that the positions in the chief investment
office were “manageable.”

The focus on Mr. Braunstein also stems from the bank’s inconsistent
statements. He dismissed concerns about the positions in April 2012,
assuring analysts in a conference call that the bank was “very comfortable
with our positions.” The subcommittee has examined whether those
disclosures were misleading.

The subcommittee further examined whether the bank failed to alert
investors about a change in its internal alarm system. The bank in January
2012 introduced a new value-at-risk model that underestimated the losses in
the investment office. The bank did not inform investors about the model
change until May.

In the lead-up to the subcommittee’s reports, the bank faced questions
about similar disclosures to regulators. In some instances, the people
briefed on the report said, bank employees initially resisted requests from
regulators at the Office of the Comptroller of the
Currency<http://topics.nytimes.com/top/reference/timestopics/organizations/c/comptroller_of_the_currency/index.html?inline=nyt-org>who
sought deeper details.

But regulators will not escape criticism in the report.

The bank warned some regulators about the changing risk model, a person
briefed on the matter said. In an e-mail to an official in the
comptroller’s office, the bank disclosed that the new model could cut its
risk in half, something that might have been viewed as a startling
revelation.


-- 
Art Deco (Wayne A. Fox)
art.deco.studios at gmail.com
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