JPMorgan: There may have been a ‘London Whale’ cover-up

July 13, 2012

JPMorgan revealed Friday morning that its traders may have lied about the value of their positions to hide the losses incurred by its Chief Investment Office. The bank now estimates that the so-called "London Whale" trades dealt the bank a $5.8 billion loss in the year to date — nearly three times the amount the firm had originally estimated.

JPMorgan CEO Jamie Dimon (J. Scott Applewhite -- Associated Press)

"Recently discovered information raises questions about the integrity of the trader marks, and suggests that certain individuals may have been seeking to avoid showing the full amount of the losses being incurred in the portfolio during the first quarter," JPMorgan said in its most recent filing to the Securities and Exchange Commission.

JPMorgan explained that it came to the conclusion after reviewing "emails, voice tapes and other documents, supplemented by interviews" that suggested that the traders did not report their positions honestly. "The Firm is no longer confident that the trader marks used to prepare the Firm’s reported first quarter results...reflect good faith estimates of fair value at quarter end," the bank said.

The results of JPMorgan internal investigation have led the firm to revise its estimate of the "London Whale" up from its original $2 billion estimate to $5.8 billion, with $4.4 billion of that total hit coming in the second quarter.

JPMorgan's CEO Jamie Dimon, who once described the controversy over the London Whale as a "tempest in a teapot," said that the incident had "shaken our company to the core." But Dimon also stressed the disastrous trade was an "isolated" incident and that JPMorgan had already cleaned house by replacing the senior executives in charge of the unit and transferring the assets at the heart of the trade to its better-equipped investment banking unit. And he ultimately put a positive spin on the entire debacle. "Hopefully after this is over, we will be a stronger business because of it," he said.

The Wall Street Journal reported Thursday evening that three London-based traders at the heart of the trading debacle — Achilles Macris, Javier Martin-Artajo, and Bruno Iksil — have left the bank. Former CIO chief Ina Drew, who left JPMorgan in May, has offered to give back two years of pay, Dimon noted.

To prevent traders from hiding potential losses in the future, JPMorgan said it would use an external benchmark to improve internal controls over financial reporting. The bank assured that the gap in oversight had been "substantially remediated" by June 30. "We have put most of this problem behind us and we can now focus our full energy on what we do best," Dimon said in a statement.

"We completely disclosed the mistake," Dimon added. "We denuded ourselves in front of you."

In other words: Nothing more to see here, folks, move along. And the market seems to agree: in early trading, JPMorgan's stocks are up 3.6 percent.

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Sarah Kliff · July 13, 2012