Whale Of A Fine: JPMorgan Chase To Pay $920M In Penalties

Sep 19, 2013
Originally published on September 19, 2013 11:39 am

JPMorgan Chase has agreed to acknowledge that it violated federal securities laws and will pay $920 million in penalties assessed by regulators in the U.S. and U.K. to settle charges related to the huge trading losses racked up by its London traders last year, the Securities and Exchange Commission announced Thursday morning.

As we wrote earlier this week when word of the pending settlement first emerged, this all:

"revolves around an investigation from across the federal government and the globe over trading losses, first announced in May, that have ballooned to more than $6 billion. Regulators including the Securities and Exchange Commission and the Office of the Comptroller of the Currency allege that JPMorgan had inadequate risk controls in place when traders made complex derivative bets that ultimately led to the losses.

"Last month, two traders were charged with covering up the losses. The U.K. trader who placed the bad bets, Bruno Iksil, became known as the 'London Whale' because of the large size of the trades he made for the company's London office. Iksil is now cooperating with authorities and is likely to avoid prosecution."

Now, according to the SEC:

"JPMorgan has agreed to settle the SEC's charges by paying a $200 million penalty, admitting the facts underlying the SEC's charges, and publicly acknowledging that it violated the federal securities laws. ...

"As part of a coordinated global settlement, three other agencies also announced settlements with JPMorgan today: the U.K. Financial Conduct Authority, the Federal Reserve, and the Office of the Comptroller of the Currency. JPMorgan will pay a total of approximately $920 million in penalties in these actions by the SEC and the other agencies."

In a statement, JPMorgan says:

"The settlements are a major step in the firm's ongoing efforts to put these issues behind it. The Company cooperated extensively with each of these inquiries, and continues to cooperate with ongoing inquiries, including the prosecutions of the two former CIO employees.

"Jamie Dimon, Chairman and Chief Executive Officer, said: 'We have accepted responsibility and acknowledged our mistakes from the start, and we have learned from them and worked to fix them. We will continue to strive towards being considered the best bank - across all measures - not only by our shareholders and customers, but also by our regulators. Since these losses occurred, we have made numerous changes that have made us a stronger, smarter, better Company.' "

In the second quarter of 2013, JPMorgan reported net income of $6.5 billion.

Related: The New Yorker looks at "Why The JPMorgan Settlement Falls Short."

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JPMorgan Chase has agreed to pay U.S. regulators more than $900 million in fines over last year's trading fiasco, the London Whale, so-called because it was so huge. A handful of rogue traders at the bank lost more than $6 billion last year in derivatives trading and then concealed the losses from senior executives for weeks. In an unusual move, the bank also has now formally acknowledged wrongdoing. NPR's Jim Zarroli joins us from New York. Good morning.

JIM ZARROLI, BYLINE: Good morning.

MONTAGNE: Officials at JPMorgan Chase say they did not know about the losses that these traders were racking up in their London branch. So why is the bank itself being fined?

ZARROLI: Well, this is - the fine is being levied by regulators in the United States and Britain, and what they say is the bank basically failed to oversee its employees. It had ineffective internal controls. You know, these traders in the London office were racking up really big losses, and to conceal them they changed the valuation models that the bank used in a way that made them look smaller.

Now, the bank officials eventually found out, but the fact that it took so long suggests they were sort of asleep at the switch, according to the SEC. It says they weren't at least trying very hard to keep track of what their traders were doing.

MONTAGNE: Okay, so valuation models. That already is already starting to get(ph) away from me in terms of trying to define what happened here. But that may fit into my next question, which is does the settlement tell us anything new about how the traders were able to conceal such big losses?

ZARROLI: You know, it gives us a little more of the flavor, I think, of what was happening in 2012, how clueless a lot of people at the bank were. I mean the bank was grappling with these losses, and the SEC says that no one told the board's audit committee until too late. They're supposed to know about things like this. It also looks like, you know, there was more nervousness at the bank than we previously thought about what was going on. Under federal law, whenever a publically traded company issues an earnings report, the executives, the top executives have to sign a form that says, you know, we believe this is honest and accurate.

The SEC says some of the top executives didn't want to sign these certificates just because they thought something was going wrong.

MONTAGNE: So there was a suspicion obviously throughout this. As part of the settlement today, JPMorgan Chase did admit, as I just said, wrongdoing. You know, in a way, why is that news?

ZARROLI: Well, it's unusual in a legal sense. I mean in the past, whenever regulators have brought some kind of action against a big bank, you know, they would negotiate these settlements in which the bank would pay a fine but it wouldn't admit any wrongdoing legally. And that became very controversial after the financial crisis. I mean there was a lot of anger toward the banks and people were saying, you know, a fine of $900 to a bank like JPMorgan Chase is nothing, really. So if they're not admitting any wrongdoing, it looks like they're just kind of paying to make the problem go away.

There have been judges that have actually come out and rejected settlements because they say, you know, you're not admitting wrongdoing, I don't know what to make of this. So this year the SEC has said we're going to try to force banks to acknowledge wrongdoing. Now, Jamie Dimon and JPMorgan Chase have admitted from the beginning that they - the bank screwed up. That's not new. But here they're doing it in a legal sense, and that's different.

MONTAGNE: Okay, Jamie Dimon, who ran JPMorgan Chase.


MONTAGNE: I don't think we've heard the last of the London Whale though, right?

ZARROLI: No, no. There is more to come. These are civil charges. Not all federal regulators have signed on. The Commodities Futures Trading Commission, which regulates derivatives, has said it's not part of this settlement. They still have an investigation going on. There is still a criminal investigation. You know, so there's really more to come. The real significance here today, I think, is just the - not just the bank is paying a fine, but they have acknowledged wrongdoing legally. And that is something different.

MONTAGNE: Alright. NPR's Jim Zarroli speaking to us from New York. And this is NPR News. Transcript provided by NPR, Copyright NPR.