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NEW YORK (
JPMorgan Chase(JPM - Get Report) executives mismarked a derivatives trading book "to hide hundreds of millions of dollars of losses; disregarded multiple internal indicators of increasing risk; manipulated models; dodged OCC oversight; and misinformed investors, regulators, and the public about the nature of its risky derivatives trading," according to a Senate subcommittee report released late Thursday.
The nearly 300-page report by the Senate Permanent Subcommittee on Investigations, entitled "JPMorgan Chase Whale Trades: A Case History of Derivatives Risks and Abuses," comes nearly a year after the trades first came to light.
The trades eventually resulted in at least $6.2 billion in losses for the bank. They were the subject of two Congressional hearings last year and led to the firing of high-level employees including Ina Drew, formerly the bank's chief investment officer. The subcommittee, headed by Senator Carl Levin (D., Mich.) will hold a third hearing Friday at which Drew will testify for the first time.
JPMorgan CEO and Chairman Jamie Dimon, who testified at last year's hearings and came away with his reputation largely unscathed, will not testify on Friday.
The report contains several recommendations, including increased documentation of trading derivatives activities and performance data. It also urges federal regulators to "immediately issue a final rule . . . to stop high risk proprietary trading activities and the build-up of high risk assets at federally insured banks and their affiliates." Widely known as the Volcker Rule, this provision of the 2010 Dodd Frank financial reform legislation has been a priority for Senator Levin and Senator Jeff Merkley (D., Ore.) in particular.
Analysts' initial reaction to the Senate report was muted. "While this is certain to receive widespread coverage and renew a push for a final Volcker Rule, we view this report and hearing as likely a final Congressional chapter in this story, with the downside risk to JP Morgan being minimal, as much of the impact of these losses is well known," wrote FBR Capital Markets analyst Ed Mills.
Written by Dan Freed in New York.