JPMorgan fined $920 m in'London whale' case

PHOTO: JPMorgan fined $920 m in'London whale' case

NEW YORK CITY - Banking giant JPMorgan Chase agreed on Thursday to pay $920 million in fines to US and British regulators over actions involved in last year's "London whale" trading debacle.

"JPMorgan failed to keep watch over its traders as they overvalued a very complex portfolio to hide massive losses," the US Securities and Exchange Commission said in announcing the settlement.

JPMorgan, the largest US bank by assets, lost about $6.2 billion in 2012 on the soured trading bets.

JPMorgan will pay a combined $700 million in fines to US agencies: $200 million to the SEC, $200 million to the Federal Reserve and $300 million to the Office of the Comptroller of the Currency.

It will pay a $220 million penalty to Britain's Financial Conduct Authority, (FCA).

Under the global settlement, the SEC required JPMorgan to admit publicly that it had violated US securities laws.

The SEC slammed JPMorgan for "woefully deficient accounting controls" and faulted the bank's senior management for failing to alert the firm's audit committee at key moments as they learned of the trading losses. As a result, the auditors could not verify the accuracy of financial statements.

The FCA faulted weak internal controls throughout the operation and said the bank "failed to be open and cooperative with the FCA in that it concealed the extent of the losses as well as numerous serious and significant issues" in the matter.

JPMorgan chief executive Jamie Dimon, who initially dismissed the London whale losses as a "tempest in a teapot," reiterated a pledge to improve compliance.

"We have accepted responsibility and acknowledged our mistakes from the start, and we have learned from them and worked to fix them," Dimon said in a statement.

"Since these losses occurred, we have made numerous changes that have made us a stronger, smarter, better company."

Senator Carl Levin, who oversaw a nine-month investigation into the London whale trades, said the size of the penalty is testimony to "the great damage risky derivatives bets can do."

But Levin said the SEC did not address a "series of inaccurate statements" by senior bank executives that misled investors and the public.

"Other civil and criminal proceedings apart from this settlement are continuing, so there is still time to determine any accountability on that matter," Levin said.

The bank still faces London Whale investigations by the US Commodity Futures Trading Commission, the US Department of Justice and the Massachusetts Securities Division, JPMorgan said in a securities filing.

JPMorgan said in the filing that it had been notified Monday by the CFTC that the agency intends to recommend an enforcement action in the "London whale" case.

Also this week, the US Attorneys Office in New York indicted two former JPMorgan employees involved in the trades, Julien Grout and Javier Martin-Artajo. An attorney for Grout said his client was a "pawn" in the government's "highly politicized case against JPMorgan Chase."

JPMorgan has said it is cooperating with the investigations.

The SEC's Canellos said that while the settlement ends the matter for JPMorgan, the agency's investigation is continuing with respect to individuals involved in the case.

Besides the London whale, JPMorgan faces several other high-profile investigations, including criminal probes into its electricity trading in the US and its sale of mortgage-backed securities ahead of the 2008 housing bust.

The probes come amid a political debate in Washington on whether additional rules are needed to protect the economy from distress in banks considered "too big to fail."

Senior bank managers and regulators remain slow to understand how to oversee complex financial products, said Joe Rundle, head of trading at ETX Capital in London.

"Despite public and political outcry, banks still engage in high levels of risk, management at banks fail to grasp the risk profile of innovative structured products and regulators are slow off the mark to chase down banks with fines," Rundle said.

"Expect these scandal breakouts to repeat, again and again."

Dimon has vowed to beef up compliance at the bank, hiring some 4,000 employees to work on financial controls, boosting spending in this area by about $1 billion and providing about 750,000 hours of regulatory and compliance training.

Shares in JPMorgan, a member of the blue-chip Dow Jones Industrial Average, were down 1.2 per cent to $52.75 in late trade.