Top JP Morgan executives will testify tomorrow before a Senate hearing on the controversial London Whale trade that cost the bank $6 billion in losses.
The Senate Permanent Subcommittee on Investigations, led by Senator Carl Levin of Michigan, plans to release a report on the trading disaster before the hearing, according to a story i But will this hearing shed any new light on bank management’s handling of the trading losses from its chief investment office, a sleepy backwater known for investing in bonds that suddenly went into turbo-charged credit default swaps. Although the risky trade was blamed on Bruno Iksil, nicknamed the London Whale, the blame appears to have shifted to a colossal failure in risk management and oversight.
In an interview with Bloomberg TV interview, Jesse Eisenger, Propublic senior reporter, said he is not done with London Whale trading incident and here’s why:
I think these banks are utterly opaque, and I think they are still engaged in prop trading, this is a great opportunity to illuminate whey they are still opaque and to get on with the Volcker Rule. What happened to the Volcker Rule? It’s tied up in turf battles between different regulators over the language.
Senator Levin will no doubt grill the bank’s executives on how they managed the risky trade.
From yesterday’s New York Times:
In June, Mr. Dimon told lawmakers at the Senate Banking Committee that he was aware that the trades were losing money, but the executives he relied on said the emerging troubles were under control and that losses would taper off.While Jamie Dimon, the bank’s CEO was not asked to testify, Doug Braunstein, the bank’s CFO at the time of the losses, was summoned. Ina Drew, who had led the chief investment office. Ms. Drew, the most notable casualty of the trading losses, resigned from the bank last May.
The committee has also called Ashley Bacon, the bank’s acting chief risk officer; Michael Cavanagh, co-head of the corporate and investment bank; and Peter Weiland, who was in charge of risk management for the chief investment office, the unit at the center of flawed trade. Ina Drew, who led the chief investment office and who resigned after the loss became a eyesore for Dimon, will testify. Drew resigned last May.
According to Eisenger in the Bloomberg TV interview, Levin is trying to put pressure on the regulators to finalize the Volcker Rule, which would ban proprietary trading by banks, which is what went on in this case. The regulators wrote the Volcker Rule but it was complex and is tied up in Levin is furious that it’s taking so long,’ Eisenger told Bloomberg TV.
But don’t expect there to be any fraud or criminal charges. “What Levin is doing is he is bringing attention to the problems of the bank’s risk management, of the bank’s internal controls, and of the opacity and the inability of management to understand this,” commented Jesse Eisenger, senior reporter of ProPublica. Eisenger said “Jamie Dimon didn’t understand this and it’s astonishing.”
Asked about an article that he wrote for the Atlantic on Wells Fargo, Eisenger said that professionals don’t understand what’s going and they don’t trust off- balance sheets and OTC derivatives. He noted that JPM is much bigger than Wells Fargo and has $70 trillion of derivatives vehicles on its balance sheet.
But is this hearing a good use of time and taxpayer’s money? “In this case, are we really gong to get intentional wrongdoing. Did they commit fraud?,” asked Bloomberg’s reporter. There were two previous hearings on the JPMorgan Chase derivatives losses and the bank released a comprehensive report last month.
Also, Wall Street insiders seem to want to move past this episode, noting that Washington lawmakers have plenty of work ahead with the Sequestration and balancing the federal budget.
In a cutaway to a different video clip, Sallie Krawcheck, a former Citigroup executive, commented to Bloomberg, “It looks like we’re beating a dead horse, but I should say it looks like we’re beating a dead Whale.” “There are already extensive reviews done on this and why don’t we get Dodd Frank finished,” commented Krawcheck. Regardless of what the hearing uncovers about risk management and the London Whale trade, it could turn up the heat on regulators to finish writing Dodd Frank and the Volcker Rule.
“This is going to put pressure on regulators to finish Dodd-Frank. Dodd Frank is not completed, “ said Eisenger. Eisenger blames the banks, which lobbied against Dodd Frank, for slowing the regulators down. “The takeaway is that we need a simple strong Volcker Rule and this hearing is gong to help put that forward,” said Eisenger in the Bloomberg interview.
Here is the Bloomberg TV video clip: