A new U.S. Senate report is sharply condemning the country's biggest bank, JPMorgan Chase, for its risky trading practices and lack of controls that resulted in a $6 billion trading loss last year.
Democratic Senator Carl Levin of Michigan, the chairman of the Senate panel investigating the bank's actions, summarized the findings of the 300-page report at a hearing Friday. The bank lost the money in its London office while making trades on securities known as derivatives, financial instruments that get their value from other assets.
"It exposes a derivative trading culture at JPMorgan that piled on risk, that hid losses, that disregarded risk limits, that manipulated risk models, that dodged oversight, and that misinformed the public," Levin said.
The legislator also said the scope of the bank's deceptions in hiding losses on the complex trades would make it difficult for Americans to have confidence in big banks.
"It is difficult to imagine how the American people can trust major Wall Street banks to prudently manage derivatives' risks when bank personnel can readily game or ignore the risk controls that are meant to prevent financial disaster in taxpayer bailouts," he said.
The Senate panel questioned key JPMorgan executives, including Ina Drew, the official who had overseen the trading office where the loss occurred. Drew worked at JPMorgan for 30 years but quit last year after the loss was disclosed. She told the lawmakers that her subordinates had misled her.
"Some members of the London team failed to value positions properly and in good faith and minimized purported and projected losses, and hid from me important information regarding the true risk of the book," she said.
JPMorgan's highly acclaimed chief executive, Jamie Dimon, at first called reports of the trading losses a "tempest in a teapot."
But several officials were ousted in the aftermath of the $6 billion loss, and the company on Thursday said it has "repeatedly acknowledged mistakes." The bank said its senior management "acted in good faith and never had any intent to mislead anyone."