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

The Senate Committee report released on Thursday found traders had misrepresented the size of the losses by using more favorable valuations. A spreadsheet maintained by a junior trader Julien Grout showed that by March 16, 2012, "the Synthetic Credit Portfolio had reported year-to-date losses of $161 million, but if midpoint prices had been used, those losses would have swelled by another $432 million to a total of $593 million," the report said. "CIO head Ina Drew told the Subcommittee that it was not until July 2012, after she had left the bank, that she became aware of this spreadsheet and said she had never before seen that type of 'shadow P&L document'."

The report did, however, fault Drew for misleading the Office of Comptroller Currency about the synthetic credit portfolio's size and pushing back on requests from the regulator. "Routine bank reports that might have drawn attention to the SCP were delayed, detailed data was omitted, blanket assurances were offered when they should not have been, and requested information was late or not provided at all. Dodging OCC oversight went to the head of the CIO, Ina Drew, a member of the bank's Operating Committee, who criticized the OCC for being overly intrusive," it stated.

In the hearing Friday, Senator Levin questioned Drew extensively on what disclosures were made to the Office of the Comptroller of the Currency(OCC) and whether the bank underplayed the losses. Drew said that she had been informed by her CFO John Wilmot that the OCC was given daily mark-to-market reports of the CIO's activities. Senator Levin seemed taken aback by that assertion.

Drew was also questioned on an email exchange between Drew and Javier Martin-Artajo who supervised the trades, where Drew suggested that he "tweak" the marks.

According to the report, on April 17, in a recorded phone conversation, Drew told Martin-Artajo"[S]tart getting a little bit of that mark back ... so, you know, an extra basis point you can tweak at whatever it is I'm trying to show."

Levin suggested that Drew was asking him to change the marks. Drew clarified that Martin-Artajo had been telling her that the marks were too conservative and she was asking him to correct it, using the word tweak.

But overall, Drew appeared to get through the hearing relatively unscathed. The same could not be said for former CFO and current Vice Chairman Doug Braunstein who had a prolonged, tense exchange with Senator Levin over statements he made to investors and analysts during the first-quarter conference call on April 13.

Levin said Braunstein made misleading statements, a "one-sided" presentation of the facts that were intended to quell press reports about the loss-making trades. Braunstein mostly maintained that his statements were made in good faith, based on information he had at that time.

-- Written by Shanthi Bharatwaj in New York.

>To contact the writer of this article, click here: Shanthi Bharatwaj.

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Disclosure: TheStreet's editorial policy prohibits staff editors and reporters from holding positions in any individual stocks.
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