JPMorgan fined $920 million in 'London Whale' trading loss

Thursday, September 19, 2013 - 8:44am

JPMorgan Chase agreed Thursday to pay about $920 million fines to U.S. and U.K. regulators to settle charges related to the "London Whale" trading debacle.

With the penalty, the bank is acknowledging that it violated banking rules by not properly overseeing its trading operations. In legal language, regulators said that the bank and engaged in "unsafe and unsound practices."

As a result of those inadequate risk controls, a team of traders made a complex derivatives bet last year that ultimately generated about $6 billion in losses. The trader thought to be responsible for the bet was nicknamed the "London Whale" due to his team's massive trading position, and the fact that he was based in London.

The fine money will be split among regulators, with $300 million going to the Office of the Comptroller of the Currency, $200 million going to the Securities and Exchange Commission, $200 million to the Federal Reserve and $220 million to the U.K. Financial Conduct Authority.

The charges JP Morgan settled were civil, not criminal, and none of its current officers were penalized by the authorities. The bank said it has changed its practices to make sure this kind of loss can not be repeated.

"We have accepted responsibility and acknowledged our mistakes from the start, and we have learned from them and worked to fix them," said JPMorgan Chase Chairman and CEO Jamie Dimon.

The fine is modest one for the bank, which is the nation's largest with $2.4 trillion in assets. It earned net income of $13 billion in the first half of this year alone on revenue of $51.8 billion. And shares of JPMorgan Chas were down about 1% in early trading Thursday after the fine was announced.

But the trading loss has been a black eye to the reputation of JPMorgan Chase, which had weathered the financial crisis five years ago better than many of the nation's other major banks.

When he revealed the loss in May 2012, Dimon admitted that the bank had been "stupid." Still, Dimon kept both his jobs despite a shareholder effort to separate the positions following the loss. However, his bonus was slashed in the wake of the trading loss, and Ina Drew, the firm's chief investment officer, left the bank.

JPMorgan has previously said it has recordings, e-mails and other documents that suggest its traders may have been hiding the losses as they ballooned.

But in March, the Senate's Permanent Subcommittee on Investigations said its probe of the loss revealed that JPMorgan "disregarded multiple internal indicators of increasing risk; manipulated models; dodged [federal] oversight; and misinformed investors, regulators and the public about the nature of its risky derivatives trading."

Two former employees from the team that made the bets were charged in U.S. District Court in New York last month with conspiring to conceal losses on the trade. One was arrested in Spain, the other is living in France, which generally does not extradite defendants charged with these kinds of crimes. A third trader has avoided prosecution by cooperating with authorities.


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