JPMorgan Traders May Have Hidden Derivatives Losses
JPMorgan Chase & Co said its traders may have deliberately hidden losses that have since climbed to $5.8 billion for the year, in a development that may result in criminal charges against traders at the bank.
The bank’s Chief Investment Office made big bets now known as “the London Whale trades” on corporate debt using derivatives. JPMorgan said in the worst-case scenario those trades will lose another $1.7 billion, and it has fixed the problems in the CIO’s office.
Even with the bank’s trading losses, it earned nearly $5 billion overall in the second quarter, thanks to strong performance in areas like mortgage lending.
But JPMorgan’s disclosure that CIO traders may have lied about their positions could bring even more intense regulatory scrutiny to the bank, analysts said. It is already under investigation by agencies ranging from the FBI to the UK’s Financial Services Authority.
An internal review found that some of the CIO traders appear to have deliberately ignored the massive size of their trades — and the difficulty in liquidating them — when valuing their positions. The result was not reporting the full declines in the value of positions.