JP Morgan boss hit by US regulator’s rules
JP Morgan Chase & Co was downgraded in a confidential government scorecard over concerns about the company’s management and its board, a blow to a firm that has long been considered one of the best-run on Wall Street.
The New York company’s management rating from the Office of the Comptroller of the Currency fell one notch last July to a level that signifies oversight “needs improvement,” following the revelation of what are known as the “London whale” trading losses, said people familiar with the regulatory assessment.
Grading is on a scale of 1 to 5, with 5 being worst. J.P. Morgan had been at level 2, indicating “satisfactory management.” The people said the downgrade to level 3 wasn’t solely related to a London employee’s large trades—in indexes tracking the health of a group of companies—that led to losses exceeding $6 billion.
The downgrade marks an unusual setback for a bank that last year reported record profit of $21.3 billion and bears a stock-market value of $187 billion, second only among U.S. financial companies to Wells Fargo & Co.’s $198 billion.
US regulators determine the strength of financial institutions using a confidential ratings yardstick that has several parts and is known by the acronym CAMELS. They rarely disclose the various scores that make up the measure because of concerns about how the public might react.
During the financial crisis in 2008 and 2009, Citigroup Inc. and Bank of America Corp. had their overall ratings cut to 3 on concerns about their exposure to the credit crisis and risks they took on in purchasing troubled companies, according to documents and people close to the companies.
A J.P. Morgan spokesman declined to comment on the rating change but said, “We are working hard to strengthen all of our processes and have already remediated many significant issues.” J.P. Morgan sidestepped many of the problems that bedeviled its rivals during the crisis and emerged as among the healthiest of the big banks. The regulators’ action last July ranks among the most serious steps taken against J.P. Morgan by regulators since Chief Executive James Dimon took the reins in late 2005. Last week, the Senate Permanent Subcommittee on Investigations held hearings where five current and former bank executives explained their actions in the London whale trading debacle. And the Federal Reserve said it found weaknesses in the capital-management plan the company submitted for this year’s “stress tests,” even as it allowed the company to raise its dividend by eight cents a share and buy back $6 billion of common stock.
The bank is taking corrective steps including forming a new board compliance committee to work through a number of fixes required by regulators.
The board also is looking for a new director with a strong compliance background, said people close to the board. Another person said that Mr. Dimon is always on the hunt for new board members and that no special search is under way.
The downgrade to a key component of the bank’s so-called CAMELS rating is one of many hits the bank has taken from regulators since the “whale” trades came to light last spring. Each letter in the acronym stands for a different aspect of a bank’s condition.