JPMorgan to pay $920m for ‘London Whale’ loss

THE “LONDON WHALE” trading scandal, once dismissed as a “tempest in a teapot” by JPMorgan Chase chief executive Jamie Dimon, is costing the largest US bank $920 million (R9 billion) in penalties and a rare admission of wrongdoing.

Settlements with four US and British regulators, made public yesterday, resolve the biggest civil probes of the bank’s $6.2 billion of derivatives trading losses last year. Citations against JPMorgan include poor risk controls and failure to inform regulators about deficiencies in risk management identified by bank management.

JPMorgan called the settlements “a major step in the firm's ongoing efforts to put these issues behind it”. But the deals leave unresolved other issues that have helped drive the bank's legal costs to $5bn a year and undermined Dimon’s hold on his job, as well as his influence on the banking industry and its regulation.

The company’s board recently changed its rules to give more power to directors other than Dimon after some shareholders cited the risk control problems to argue that Dimon should not be both board chairman and chief executive.

The company continues to face a criminal probe by US prosecutors into the derivatives debacle, despite Dimon’s public insistence that no bank executives intentionally misled investors.

Even as JPMorgan was hailing the settlements, it said it had received a legal notice that the staff of another regulator, the US Commodity Futures Trading Commission, intends to recommend an enforcement action against the bank for its derivatives trading. The state of Massachusetts was also investigating, the bank said.

“This certainly isn't a closure on the Whale,” said analyst Charles Peabody of Portales Partners.

Bruno Iksil, the trader whose big bets earned him the nickname “London Whale”, has signed a co-operation agreement with prosecutors and has not been charged with any wrongdoing. Two other traders who worked with Iksil in London, Javier Martin-Artajo and Julien Grout, have been criminally charged by US. prosecutors over their role in the scandal, accused of trying to hide the mounting losses.

The penalties announced yesterday include $300m to be paid to the US Office of the Comptroller of the Currency, $200m to the Federal Reserve, $200m to the US Securities and Exchange Commission and £137.6 million to the UK’s Financial Conduct Authority.

The total penalty is one of the highest ever paid by a bank, but is well short of the $1.92 bn that London-based HSBC agreed to pay last year to settle money laundering charges.

Fines are determined by laws governing the amount each agency can charge in penalties for each violation of a rule, then are fine-tuned through talks between the regulators and the bank. – Reuters Abdusalam Omer had been replaced as Somalia’s central bank governor after seven months in the job, he said yesterday, again denying graft allegations made by UN monitors. The Somali government has formally rejected allegations in a UN report linking him to irregularities regarding millions of dollars withdrawn from the bank. The UN Monitoring Group on Somalia and Eritrea said in July that Mogadishu’s central bank had become a slush fund for political leaders and that Omer had played a central role in unaccountable disbursements. Omer, who has labelled the allegations malicious, said he had been informed by President Hassan Sheikh Mohamud last Friday that changes would be made at the bank. He had submitted a resignation letter the same day, he said. – Reuters