Banking Law

Chase CEO Suggests 'Whale' Swallowed $2B in Profits, Admits 'Egregious Mistakes'; SEC Opens Probe

A trader working for JP Morgan Chase & Co. known as the “London Whale” is being publicly blamed for what the bank’s CEO, Jamie Dimon, describes as a potential $2 billion loss due to what news reports are calling a bet on corporate bonds.

Dimon, who had last month called concerns about such trading by the nation’s biggest bank a “tempest in a teapot” in a conference call with investors, as Bloomberg reported at the time, admitted Thursday that “egregious mistakes” had been made, according to another Bloomberg article and the Wall Street Journal’s MarketBeat.

Relying on unidentified sources, the New York Times’ DealBook blog reports that financial regulators in both the United States and the United Kingdom have been looking at the situation after last month’s media reports about the trading and says the Securities and Exchange Commission has opened a preliminary investigation to determine whether statements made by executives and in regulatory filings concerning the unit responsible for the trades were accurate.

The situation is calling into question the repeal, in 1999, of the Glass-Steagall Act of 1933, which for years after the Great Depression separated commercial and investment banking, according to a Fox News legal analysis and comments by a former Citigroup chairman reported last month by Bloomberg.

A so-called Volcker provision developed under the recent Dodd-Frank financial reform legislation would supposedly prevent banks from taking undue risks with their own—and taxpayer bailout—money, while at the same time allowing appropriate hedging. However, it isn’t clear exactly what conduct falls into which area, according to the articles.

Another Bloomberg story offers additional details about the Volcker provision.

It remains to be seen what, if any, action might result from the situation in Congress, Reuters reports.

However, “the argument that financial institutions do not need the new rules to help them avoid the irresponsible actions that led to the crisis of 2008 is at least $2 billion harder to make today,” said U.S. Rep. Barney Frank (D-Mass.). He was a co-author of the 2010 Dodd-Frank law

Additional coverage:

New York Magazine: Who Is the London Whale? Meet JPMorgan’s ‘Humble’ Trader Bruno Iksil”“

We welcome your comments, but please adhere to our comment policy and the ABA Code of Conduct.

Commenting is not available in this channel entry.