Winnipeg Free Press - PRINT EDITION

JPMorgan's $5.8-B loss more than first reported

CEO says 'buck stops with me'

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NEW YORK -- JPMorgan Chase said its traders may have tried to conceal losses from a soured bet that has embarrassed the bank and cost it almost $6 billion -- far more than its CEO first suggested.

The bank said an internal investigation uncovered evidence that led executives to "question the integrity" of the values, or marks, traders assigned to their trades.

JPMorgan said it planned to revoke two years worth of pay from some senior managers involved in the bad bet, and had closed the division of the bank responsible for the mistake.

"This has shaken our company to the core," CEO Jamie Dimon said Friday.

The bank said the loss, which Dimon estimated at $2 billion when he disclosed it in May, had grown to $5.8 billion and could grow larger than $7 billion if financial markets deteriorate severely.

Dimon said the worst appeared to be behind the bank, and investors seemed to agree, sending JPMorgan stock up six per cent Friday.

For his part, Dimon concluded: "We are not proud of this moment, but we are proud of our company."

The investigation, which covered more than a million emails and tens of thousands of voice messages, suggested traders tried to make losses look smaller, the bank said.

The revelation could expose JPMorgan to civil fraud charges. If regulators decide employee deceptions caused JPMorgan to report inaccurate financial details, they could pursue charges against the employees, the bank or both. Regulators could decide its oversight or risk management contributed to the problematic statements.

JPMorgan lowered its first-quarter reported net income by $459 million. Even after the adjustment, it made $4.9 billion for the quarter.

JPMorgan also reported net income for the second quarter, which ended June 30, of $5 billion, higher than the $3.2 billion Wall Street analysts were expecting. The bank credited stronger mortgage lending and credit card business.

Speaking about the trading loss, Dimon told analysts: "We're not making light of this error, but we do think it's an isolated event."

Dimon said Ina Drew, the bank's former chief investment officer who left after the loss came to light, had volunteered to return as much pay as was allowed under the so-called clawback provision in her contract.

Drew made over $30 million combined in 2010 and 2011, according to an Associated Press analysis of regulatory filings. It was not clear how much Drew was voluntarily paying back to the bank. When she resigned under pressure in May after over 30 years at the bank, she left unvested stock and stock options worth nearly $14 million from the last two years.

The bank also said it would revoke two years worth of pay from three other senior managers. Those senior managers have left the bank, and four others are expected to leave soon. The Wall Street Journal reported Friday the trader known as the "London whale," for the size of the bets he placed, was among those who left.

Just three months ago, JPMorgan was viewed as the top American bank, guided by Dimon's steady hand. Since the disclosure of the trading loss, that reputation has been eroded.

Under questioning by lawmakers about his role setting up the investment division responsible for the mess, Dimon declared: "We made a mistake. I'm absolutely responsible. The buck stops with me."

 

-- The Associated Press

Republished from the Winnipeg Free Press print edition July 14, 2012 B5

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