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JPMorgan trade on regulators’ radar in April

By Reuters 16 May 2012

Regulators first raised concerns in April about trading positions that led to a $2 billion-plus loss at JPMorgan Chase & Co, and they posed questions to senior management at the bank, a source familiar with the situation said on Tuesday. By Jonathan Spicer.

The U.S. Federal Reserve – JPMorgan’s primary regulator – as well as the Office of the Comptroller of the Currency and the UK Financial Services Authority were all involved in monitoring the bank’s portfolio that suffered the big derivatives trading loss, the source said.

The shocking loss at one of Wall Street’s most respected banks has raised questions over how aware regulators were of the risky trading, and how well they understood it, given that the Fed and the OCC have supervisors physically embedded at JPMorgan offices.

Though JPMorgan Chief Executive Jamie Dimon revealed the loss last week, media reports in early April said that a UK-based trader at the bank, dubbed the “London Whale,” was playing a dominant role in certain markets.

“It was on regulators’ radar from April,” when they began asking questions of the bank’s senior managers and risk managers, said the source, who requested anonymity.

Representatives of JPMorgan, the Fed, and the FSA declined to comment. An OCC representative was not immediately available for comment.

The Federal Reserve Bank of New York has up to 40 supervisors “embedded” at JPMorgan, as well as teams at the other primary dealers it oversees. The OCC has teams of similar size at the banks it regulates, while the FSA, which is responsible for UK-based banking, does on-site supervision but not embedding.

The Fed, whose reputation was tarnished by the financial crisis, last year ramped up the number of supervisors embedded at banks and assigned more senior officials to lead the on-site teams.

“I think it’s good to have them on-site. It does enhance their understanding of what is going on,” Sheila Bair, former chairman of the Federal Deposit Insurance Corp, told Reuters in Washington.

“But I do think that regulatory understanding of these complex trading and derivatives strategies is lagging,” she added. “If JPMorgan Chase can’t understand the risks they were taking, how can you expect examiners to do it?”

Last week, Dimon said JPMorgan kept regulators as informed as possible.

“You should assume that we keep our regulators up to date,” the CEO said in a conference call with analysts and reporters. “Sometimes we don’t give them great information because we didn’t have great information.”

The Fed is examining whether JPMorgan is taking similar risks elsewhere in the sprawling bank, while the OCC is also examining the losses, the two agencies said on Monday.


Photo: Jamie Dimon, chairman and chief executive of JP Morgan Chase and Co, speaks at the 2012 Simon Graduate School of Business’ New York City Conference in New York May 3, 2012. REUTERS/Keith Bedford.

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