JPMorgan Chase Agrees to Pay $920 Million in Fines Over Trading Loss

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More than a year after a group of traders at JPMorgan Chase caused a multibillion-dollar loss, government authorities on Thursday imposed a $920 million fine on the bank and shifted scrutiny to its senior management.

Jamie Dimon is the chief executive of JPMorgan Chase. J. SCOTT APPLEWHITE/ASSOCIATED PRESS
Last Updated: 6:45 AM PDT

More than a year after a group of traders at JPMorgan Chase caused a multibillion-dollar loss, government authorities on Thursday imposed a $920 million fine on the bank and shifted scrutiny to its senior management.

Extracting the fines and a rare admission of wrongdoing from JPMorgan, the nation’s largest bank, regulators in Washington and London took aim at a pervasive breakdown in controls and leadership at the bank. The deal resolves investigations from four regulators: the Securities and Exchange Commission, the Office of the Comptroller of the Currency, the Federal Reserve and the Financial Conduct Authority in London.

But the bank has struggled to settle with another regulator, the Commodity Futures Trading Commission, which is investigating whether the bank’s trading manipulated the market for financial contracts known as derivatives. JPMorgan disclosed on Thursday that the agency’s enforcement staff has recommended the filing of an enforcement action.

The regulators who did settle with JPMorgan cited the bank for “deficiencies” in “oversight of the risks,” assessment of controls and development of “internal financial reporting.” The regulatory orders attributed significant blame to senior management, who failed to elevate concerns about the losses to the bank’s board.

JPMorgan Chase’s headquarters in New York.
SPENCER PLATT/GETTY IMAGES

“While grappling with how to fix its internal control breakdowns, JPMorgan’s senior management broke a cardinal rule of corporate governance and deprived its board of critical information,” George S. Canellos, co-director of the S.E.C.’s enforcement division, said in a statement.

Regulators were also kept in the dark, authorities said. The bank “failed” to turn over “significant” information to regulatory examiners inspecting the trades.

“Bank management must also ensure open and effective communication with supervisors so that we can effectively do our jobs,” Thomas Curry, the comptroller of the currency, said in a statement. “Anything less is unacceptable and will not be tolerated.”

Despite the assault on senior management, not one executive was named in the cases. Still, the actions could dent the reputation of Jamie Dimon, the bank’s chief executive. Mr. Dimon has won widespread acclaim for navigating the bank through the financial crisis in better shape than its rivals.

“We have accepted responsibility and acknowledged our mistakes from the start, and we have learned from them and worked to fix them,” Mr. Dimon said in a statement. “Since these losses occurred, we have made numerous changes that have made us a stronger, smarter, better company.”

Yet the cases exposed a weaker side of JPMorgan, long known for that skillful management of risk. The “severe breakdowns” detailed in the orders, authorities say, allowed the group of traders in London to go unchecked even as they amassed the risky position and later covered up their losses.

Two of those traders have since been charged criminally.

“JPMorgan failed to keep watch over its traders as they overvalued a very complex portfolio to hide massive losses,” said Mr. Canellos, the S.E.C. official. Under the deal with the S.E.C., the bank acknowledged that it violated federal securities laws.

The S.E.C. also cited JPMorgan for misstating its financial results. Last July, the bank restated its first-quarter 2012 earnings downward by $459 million, conceding errors in the traders’ valuations of losses.

JPMorgan agreed to pay $300 million to the comptroller’s office, and about $200 million to the S.E.C. and each of the other agencies.

The fines, while collectively steep, fall in between what other banks have paid when settling with multiple regulators. And the fines are reasonable tradeoff for a bank seeking to move past the trading losses.

“The settlements are a major step in the firm’s ongoing efforts to put these issues behind it,” JPMorgan said in a statement.

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