WASHINGTON ' JPMorgan Chase CEO Jamie Dimon held back showing federal regulators reports in May that revealed the bank had accumulated billions of dollars in trading losses, according to congressional testimony Friday from the firm's former chief financial officer.
Douglas Braunstein, who is now a vice chairman at the bank, told the Senate Permanent Subcommittee on Investigations that Dimon did not submit the daily reports for two weeks because he was concerned about "confidentiality."
Dimon ultimately acknowledged later that month that the firm had lost $2 billion on risky trades out of its London office. The losses have since been revised to more than $6 billion.
The Senate hearing was held a day after the subcommittee issued a scathing report that ascribed widespread blame for losses to key executives at the firm. The report said that the executives ignored growing risks and hid losses from investors and federal regulators.
After reading the report and hearing executives testify that they didn't know who was responsible for informing regulators, members of the panel questioned whether the nation's biggest bank had become too large to manage.
The "trading culture at JPMorgan ... piled on risk, hid losses, disregarded risk limits, manipulated risk models, dodged oversight and misinformed the public," Sen. Carl Levin, D-Mich., the subcommittee's chairman, said Friday at the hearing.
On Thursday, JPMorgan acknowledged it made mistakes but rejected any assertions that it concealed losses or risks. A spokesman declined to comment directly on the accusation that Dimon knew of the trading loss in April.
Dimon was not a witness at Friday's hearing.
In April, news reports said a trader in JPMorgan's London office known as "the whale" had taken huge risks that were roiling the markets. Dimon immediately dismissed the reports as a "tempest in a teapot" during a conference call with analysts.
But Dimon acknowledged the losses a month later. And he told a separate Senate committee in June that the bank showed "bad judgment," was "stupid" and "took far too much risk." He also had his compensation last year reduced by 50 percent, as did Braunstein.
The hearing featured testimony from Braunstein and Ina Drew, who was the firm's chief investment officer overseeing trading strategy at the time of the losses.
Both were asked about information that bank executives gave to federal examiners in April that significantly understated losses for the first quarter of 2012. The numbers they gave the regulators were well below what was known inside the bank, said Levin.
"The number I reported (to the regulators) was the number that was given to me," Drew testified.
Drew blamed the losses on executives under her watch who failed to control risks out of the London office. She said that undermined her oversight and kept her from preventing the losses.
Braunstein acknowledged that risk models for the trading operation were changed in a way that was improper early last year. The changes made the bank's trading losses appear smaller than they were.
After the trading loss came to light, Drew resigned after 30 years with the firm and voluntarily paid back two years of salary.
She said Friday that while she doesn't believe she bore personal responsibility for the losses, she decided to step down to make it easier for JPMorgan "to move beyond these issues." Her comments were her first public remarks since leaving the firm.
The loss came less than four years after the 2008 financial crisis and hurt the reputation of a bank that had come through the crisis known for taking fewer risks than its competitors. Three employees in the London office were fired ' two senior managers and a trader. It also led to Drew's resignation.
Also on HuffPost:
London Whale
The bank's chief investment office gambled on credit derivatives, <a href="http://www.huffingtonpost.com/2012/07/13/jpmorgan-chase-q02-earnings-2012_n_1670629.html" target="_hplink">losing $5.8 billion</a> (so far), and its trading desk may have tried to hide the losses from the home office. The bank says it is being sued by shareholders over the losses and has gotten subpoenas and requests for information from "Congress, the OCC, Federal Reserve, DOJ, SEC, CFTC, UK Financial Services Authority, the State of Massachusetts and other government agencies, including in Japan, Singapore and Germany."
Milan Swap Deal
The bank has faced <a href="http://www.bloomberg.com/news/2012-07-18/milan-swaps-prosecutor-seeks-ban-on-4-banks-from-government-work.html" target="_hplink">lawsuits and criminal investigations</a> over an interest-rate swap deal it made with the city of Milan, Italy, back in 2005. The bank settled a civil suit, but criminal charges are still pending against the bank and several employees, with hearings in the trial "occurring on a weekly basis since May 2010."
Enron
The bank and some of its executives are still being sued over the bank's relationship with the failed, fraud-ridden energy giant, more than a decade after its failure.
Energy Manipulation
Speaking of Enron, the <a href="http://www.huffingtonpost.com/mark-gongloff/jpmorgan-chase-power-market_b_1647131.html" target="_hplink">Federal Energy Regulatory Commission is investigating</a> charges that JPMorgan manipulated power markets in California and the Midwest.
Credit Card Swipe Fees
The bank said in the filing that <a href="http://www.bloomberg.com/news/2012-08-09/jpmorgan-says-credit-card-swipe-case-cost-1-2-billion.html" target="_hplink">it will pay about $1.2 billion</a> to settle charges that it conspired with MasterCard and Visa to rig credit-card swipe fees.
Libor
The bank is being investigated by regulators all over the world for its <a href="http://www.huffingtonpost.com/2012/08/09/jpmorgan-chase-libor-subpoenas_n_1760015.html" target="_hplink">alleged involvement in manipulating Libor</a>, a short-term interest rate that affects borrowing costs for people, businesses and governments all over the world.
Madoff Ponzi Scheme
Several lawsuits have accused the bank of aiding and abetting Bernie Madoff's Ponzi scheme, the biggest in history. The Madoff bankruptcy trustee and others have also sued the bank to get back some Madoff clients' money.
MF Global
The bank is under investigation by regulators for its <a href="http://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&ved=0CFEQFjAA&url=http%3A%2F%2Fwww.forbes.com%2Fsites%2Fhalahtouryalai%2F2012%2F06%2F04%2Fjpmorgans-other-messy-problem-mf-globals-missing-money%2F&ei=Ui0lUNP7Eqe96QHP94CABA&usg=AFQjCNEJVDksnFTh3KP1uS3u73bLgoSfZQ" target="_hplink">relationship with the failed brokerage firm MF Global</a>. It is also being sued for allegedly aiding and abetting MF Global misuse of customer money.
Mortgage Backed Securities
The bank is being sued by hordes of investors for its bundling and selling of mortgage-backed securities packed with bad mortgage debt before the financial crisis. "There are currently pending and tolled investor claims involving approximately $130 billion of such securities," the bank says.
Mortgage Foreclosures
The bank was part of the big <a href="http://nationalmortgagesettlement.com/" target="_hplink">$25 billion settlement</a> with the government over mortgage-foreclosure abuses. But there are still several lawsuits and regulatory actions pending against the bank over its foreclosure practices.
Peregrine Financial
The bank didn't mention this in its regulatory filing, but it is also involved in the failure of the Iowa brokerage firm Peregrine Financial. JPMorgan <a href="http://www.huffingtonpost.com/2012/07/12/pfg-customer-account-jpmorgan-chase_n_1668386.html" target="_hplink">holds some customer money for the firm</a>, and recently <a href="http://www.foxbusiness.com/news/2012/08/06/jp-morgan-objects-to-terms-proposed-by-peregrine-trustee/" target="_hplink">tussled in court</a> with the PFG bankruptcy trustee.
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