Business World

Saturday 21 April 2018

JP Morgan warned on unit that racked up $2bn loss

JP Morgan. Photo: Getty Images
JP Morgan. Photo: Getty Images

Harry Wilson in London

Dimon told investment office an 'accident waiting to happen'

SENIOR executives at JP Morgan were given repeated warnings about the controversial unit responsible for a shock $2bn (€1.55bn) trading loss at the bank, it emerged last night.

Staff from the bank's investment banking arm privately told the management -- including chief executive Jamie Dimon -- that the bank's Chief Investment Office (CIO) was an "accident waiting to happen".

Bill Winters, former co-chief executive of JP Morgan's investment banking division, is understood to have been among senior staff at the bank who made clear their concerns about the risks being taken by the CIO.

Mr Winters and other staff from the investment bank raised their concerns, saying the unit did not fully understand the risks it was taking and was not properly managing its positions.

JP Morgan shocked the market on Thursday evening with its disclosure that it had made a net loss in the past six weeks of $800m as a result of $2bn of trading losses from the CIO. Mr Dimon apologised for what he described as a "grievous mistake" and said it was the result of "errors, sloppiness, and bad judgment". Shares in the bank dropped 7pc yesterday in the wake of the revelations.

London-based staff working the CIO business have been singled out as directly responsible for much of the loss, including French-born trader Bruno Iksil, who is known among City fund managers and peers as "Voldemort" after the villain in the Harry Potter books, as well as "the London Whale".

Mr Iksil's nickname is due to the size of the trades he is reputed to have placed. Since 2007, the value of the assets held by the CIO had tripled in value to more than $350bn at the end of 2011.

Ina Drew, the New York-based chief investment officer of the bank who was responsible overall for the division, received $14m in salary and bonuses last year. She is now under scrutiny, as is Achilles Macris, the London-based head of the CIO business and Mr Iksil's direct manager.

Risks

It is understood that, as early as 2007, staff in JP Morgan raised queries with managers about the positions being taken by the CIO, which, they thought, showed the business was taking unnecessary risks.

Managers were also told of concerns about the quality of risk management in the unit, which was regarded as relatively unsophisticated compared with the systems used by JP Morgan investment banking division. Analysts at CreditSights said many of the trades placed by the CIO "could be difficult to exit", raising the prospect of new losses for the bank.

JP Morgan admitted it expected the losses to increase and Mr Dimon said up to a further $1bn of trading losses was likely. He added the bank would "deserve any criticism we get".

"These were grievous mistakes, they were self inflicted, we were accountable and we happened to violate our own standards and principles by how we want to operate the company," he said. (©Daily Telegraph, London)

Irish Independent

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