JP Morgan Chase will pay $800 million in fines to settle charges stemming from a massive trading loss that violated rules about how banks manage risk. The settlement reportedly includes a rare admission of wrongdoing in the so-called “London Whale” affair that resulted in $6 billion in losses for the bank.
The losses were initially announced in May 2012, when the company believed the total was just $2 billion. The bank has maintained that the trades, which were initiated by a man called Bruno Iksil and known as the “London Whale” but concealed from regulators by JP Morgan management, were a legitimate form of “hedging” or risk management. Yet a Senate probe showed that in fact Iksil’s escalating bets on credit default swaps were not a hedge on other JP Morgan trading activity, but a standalone investment pattern intended to bring the bank profit that therefore violated a rule against banks making such bets with its own capital.
The scope of any potential admission of guilt over the Whale losses remains to be seen. JP Morgan officials have insisted that senior management was misled by junior employees including Iksil and two other men who face criminal charges, and investigators have not disputed that claim. The firm is more likely to admit responsibility for being too slow to uncover the problems Iksil created, New York Times sources say.
An admission of guilt in the high-profile case would likely be seen as a coup for Securities and Exchange Commission (SEC) director Mary Jo White, who has pledged to end the SEC’s habit of allowing firms to settle cases without acknowledging wrongdoing. The SEC won its first admission of guilt in years earlier this summer in a case involving embezzlement by a hedge fund manager. The regulator was reportedly pressing for a guilty admission in the London Whale settlement throughout negotiations with JP Morgan earlier this summer.