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WASHINGTON — Jamie Dimon’s JPMorgan Chase saw its reputation further sullied yesterday as executives involved in the $6.2 billion London Whale trading fiasco were forced to admit they tweaked valuation formulas and misled regulators in an attempt to play down the size of a derivatives bet gone wrong.
High-ranking bank officials told lawmakers at a Senate hearing that colleagues misled them while CEO Dimon was shown to be less than candid as news of the Whale trade exploded in the media last April.
In all, it was a terrible day for one of Wall Street’s most respected banks and CEOs — and it all played out on national TV.
“Our findings open a window into the hidden world of high stakes derivatives-trading by big banks,” said Sen. Carl Levin (D-Mich.), chair of the Permanent Subcommittee on Investigations, which held the hearing.
Perhaps the most anticipated witness was Ina Drew, the bank’s former chief investment officer, who oversaw Bruno Iksil, the so-called London Whale trader, known for his outsize bets.
“Things went terribly wrong,” Drew, 56, a 30-year banking veteran, testified in her first comments on the affair.
Drew, along with JPMorgan Vice Chairman Doug Braunstein and Mike Cavanagh, co-CEO of the bank’s corporate and investment bank, were grilled for more than two hours by Levin’s panel.
Wearing a powder blue suit and speaking in an airy voice that cracked at times with emotion, Drew blamed underling traders Iksil, Achilles Macris and Javier Martin-Artajo for misleading her and intentionally misvaluing trades.
“I naturally relied heavily (and I thought appropriately) on their views and judgments concerning the synthetic credit books,” she lamented. “I believed that such reliance was reasonable.”
Drew’s effort to deflect blame blew back in her face when Levin stunned much of the packed hearing room as he read the transcript of an incriminating phone call between Drew and Martin-Artajo.
During the call, Drew appears to suggest to him that he “tweak” the numbers in order to make the bank appear in better shape than it was from the Whale trade.
“If appropriate, so you know, an extra basis point you can tweak at whatever it is I’m trying to show, you know,” she said on the call.
Dimon was not at the hearing, but his reputation was front and center throughout the four-hour affair.
At one point, Braunstein, who along with the CEO was named in the Senate report as having misled investors, was asked under what authority Dimon ordered the bank to stop sending required reports to its regulator.
“Do we live in a world, Mr. Braunstein, that government regulators of our businesses and our lives, we just decide, well, because we’re concerned about something, we’re not going to comply with the regulations?” asked Sen. John McCain (R-Ariz.). “Is that how JPMorgan works?”
“No sir, it does not,” replied Braunstein.
Levin pressed the former bank CFO on why, with greater frequency as the Whale trade losses piled up in the first quarter of 2012, the bank changed its formula for pricing the derivatives.
“Is it common to [change risk models] inside JPMorgan when the losses start piling up?” Levin asked Braunstein.