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Ina Drew Blames Flawed Risk Model, Trader Misconduct For London Whale Losses (Update 1)

(Updated with comments from the Senate hearing.)

NEW YORK ( TheStreet) -- The former head of the "London Whale" trading unit at JPMorgan Chase (JPM - Get Report) blamed a "flawed" risk model and "deceptive conduct" by traders at the London office for the massive $6 billion loss at the bank in 2012.

"Since my departure I have learned of the deceptive conduct by members of the London team, and I was, and remain, deeply disappointed and saddened to learn of such conduct and the extent to which the London team let me, and the Company, down," Ina Drew said, in prepared testimony before the Senate Permanent Subcommitee on Investigations.

Drew resigned from her position of Chief Investment Officer at JPMorgan Chase in May 2012, after the bank disclosed billions in losses at the firm's chief investment office, which it said stemmed from a failed hedging strategy.

The episode brought to an end the former executive's 30-year career at the bank. Drew served as bank's chief investment officer and head of the Chief Investment Office from February 2005, when it was spun off as a stand-alone office. Prior to that, Drew headed the bank's global treasury office.

In her testimony, Drew said that she did not believe that she was responsible for the losses and had reasonably relied on the CIO's traders to vet the trading strategy and on the firm's formal risk metrics to alert her to excessive risks.

"Ultimately, it appears that my oversight of the synthetic credit book during 2012 was undermined by two critical facts of which I was not aware at the time but have come to learn based on the Company's Task Force Report and other public statements: (i) the new VaR model was flawed and significantly understated the real risks in the book; and (ii) some members of the London team failed to value positions properly and in good faith, minimized reported and projected losses, and hid from me important information regarding the true risks of the book. I believe it goes without saying that it is extremely difficult, if not impossible, to oversee a portfolio under such circumstances," she said.

While Drew did not believe she was responsible for the losses, she said she stepped down "to make it easier for the company to move beyond these issues." She also gave up about $21 million in compensation in recognition of her unit's losses, she said.

Drew was replaced initially by Matthew Zames, from May to September 2012, and then by Craig Delaney.
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