(Updated with additional information.)
The Federal Reserve and the Office of the Comptroller of the Currency late Monday issued enforcement actions ordering the bank to remedy the breakdown in risk management that led to the "London Whale" trades - -outsized bets in credit derivatives by a London-based group of traders that caused the bank more than $6 billion in losses.
The bank's internal controls "failed to identify and prevent certain credit derivatives trading conducted by the CIO that resulted in substantial loss to the bank, which has exceeded $6 billion," the OCC said in its order. Investigations into the derivatives trading activities found deficiencies including "inadequate oversight and governance to protect the bank from material risk, inadequate risk management processes and procedures, inadequate control over trade valuation, inadequate development and implementation of models used by the bank, and inadequate internal audit processes."The Fed also highlighted the deficiency in the senior management's elevation of issues to board of directors, which did not allow for the board's meaningful consideration of such issue The consent order does not require the bank to pay any fine, but outlines steps for the bank to enhance its risk-management. Other regulatory agencies are also investigating the CIO debacle. The U.K. Financial Services Authority is continuing its investigation into the losses by the London office, according to the Wall Street Journal. The Senate Permanent Subcommittee on Investigations led by Senator Carl Levin (D- Mich.) is also conducting its investigation on how the bank handled the trades. It will also look into the role the OCC played as a regulator and its failure to detect the trades. "The Firm continues to respond to litigation, as well as investigations, relating to the losses in the synthetic credit portfolio that had been managed by the CIO," the bank said in its filing with the SEC. "The Firm is cooperating with these investigations." JPMorgan Chase, meanwhile, is expected to release a 50-page report of its internal probe on Wednesday, when the bank reports its result. The bank's board is also reportedly meeting Tuesday to weigh the compensation package for CEO Jamie Dimon and former CFO Doug Braunstein. JPMorgan has shuffled the management ranks in the wake of the trading scandal. Most recently, former investment banking CEO Jes Staley, who was once pegged to be succeed Dimon, left the bank to join Blue Mountain, a hedge fund that helped the bank unwind the positions. The OCC and Fed also issued a separate enforcement action ordering the bank to beef up its anti-money laundering procedures, similar to the enforcement action issued to Citigroup (C) last year. The OCC said that the bank's anti-money laundering controls had "critical deficiencies with respect to suspicious activity reporting, monitoring transactions, conducting customer due diligence and risk assessment, and implementing adequate systems of internal controls and independent testing." -- Written by Shanthi Bharatwaj in New York.
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV