Some top JP Morgan Chase executives and directors were alerted to risky practices by a team of London-based traders two years before that group’s botched bets cost the bank more than $2 billion, according to people familiar with the situation.
Interviews with more than a dozen current and former members of the bank’s Chief Investment Office, the unit responsible for the losses, indicate that discussions about reining in London traders started as early as 2010.
Certain directors were briefed then on a foreign-exchange-options bet that went bad, and were told that the trader responsible would not be allowed to go overboard in the future, one of these people said.
Last year, top CIO executives set a plan to roll back a separate set of large London trades — only to learn later that the plan had not been followed correctly.
The concerns dating back to 2010 show that JP Morgan had an opportunity to avoid the bungled trades, which over time could cost the bank as much as $5 billion.
JP Morgan’s battle to bring the London office to heel culminated last month in the disclosure of trading losses. The episode has tarnished the image of chairman and chief executive James Dimon, who has already said he was “dead wrong” when he dismissed concerns about the trades on an April 13 conference call with analysts. It also has raised questions about the strength of oversight at JP Morgan, long considered one of the best-managed US banks.
Dimon is expected to testify before the Senate Banking Committee on Wednesday. He is prepared to give committee members a detailed review of what went wrong.
The company’s investigation is expected to reveal a series of miscues. They include trading-risk limits that were too broad, a new trading model adopted this January that masked mounting dangers, and the failure of top executives to sufficiently probe the huge positions at the CIO, according to the people familiar with the matter.
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