WASHINGTON (Reuters) - Ina Drew, the former JPMorgan Chase & Co executive who earned millions while in charge of the unit that made the disastrous “London whale” trades, refused on Friday to accept responsibility for the $6.2 billion in losses revealed last year.
Testifying before a Senate panel, the former chief investment officer instead pointed a finger at the traders and managers below her. They did not appear at the hearing because they are in London and outside the Senate’s jurisdiction.
Blame-shifting proved to be a theme of the hearing held by the Senate Permanent Subcommittee on Investigations, even as Chairman Carl Levin hit Drew and other current and former JPMorgan executives hard over past statements he believed to be inaccurate.
The litany of accusations by the powerful panel raises the prospect that the trading debacle will continue to legally dog the Wall Street bank, long considered one of the best managed.
Friday’s hearing and a subcommittee report released on Thursday paint a damning picture of a bank and high-level employees raking in huge payouts while ignoring risks, deceiving investors, fighting with regulators and trying to work around rules as losses mushroomed in a derivatives portfolio.
Drew made $29 million in 2010 and 2011, and Achilles Macris, who supervised the trading book at issue and reported to Drew, made $32 million during the same time frame. They were among the highest paid JPMorgan employees in those years.
Drew, who resigned last May and was long a trusted lieutenant of Chief Executive Jamie Dimon, lamented the loss of her 30-year-career at JPMorgan and defended herself as a “reasonable and diligent” manager.
“Some members of the London team failed to value positions properly and in good faith, minimized reported and projected losses, and hid from me important information regarding the true risks of the book,” Drew said.
“I did not (and do not) believe I bore personal responsibility for the losses in the synthetic credit book,” she said in her prepared remarks.
Senator John McCain from Arizona, the top Republican on the panel, questioned why Drew and others were transferring blame, saying it was hard to explain. “It seemed that the traders seemed to have more responsibility and authority than the higher-up executives,” McCain said.
Dimon was not invited to testify. He has already testified twice before other congressional panels.
In a statement, the bank said: “We have made regrettable errors and overhauled our risk policies to correct these mistakes, but senior JPM executives always provided information to regulators and the public that they believed to be accurate.”
JPMorgan shares closed down 1.9 percent on Friday, underperforming the KBW Bank Index of bank stocks which closed up 0.4 percent.
The trading debacle has been a legal and reputational black eye for the largest U.S. bank. JPMorgan’s losses stemmed from bets by London-based Chief Investment Office trader Bruno Iksil on an index for credit default swaps. His outsized positions earned him the nickname “London Whale” from hedge fund traders taking the other sides of his trades.
CEO Dimon was criticized for initially dismissing rumors of a troubled trading position as a “tempest in a teapot” during an April conference call. Less than a month later, the bank disclosed problems with the trading strategy, and later said it lost $6.2 billion from the trades.
The Senate panel based its findings on 9 months of investigation, 90,000 documents and 50 interviews and briefings.
Experts said disclosures from the hearing and the Senate report could provide ammunition to securities regulators and investors pursuing the bank for misconduct over the trades.
“Clearly this report digs up a lot of evidence that can be used in various legal proceedings,” said James Angel, a visiting associate professor of finance at the Wharton School of the University of Pennsylvania. “I‘m sure the plaintiffs bar is looking at this very carefully and rubbing their hands with glee.”
The report could also assist the various investigations being conducted by the Justice Department, the Federal Bureau of Investigation and the Securities and Exchange Commission.
Speaking to reporters after the hearing, Levin said he planned to review the testimony and decide whether to make a formal referral to the SEC or to the Commodity Futures Trading Commission.
A person familiar with the SEC’s inquiry said investigators are focused on how quickly and accurately the bank disclosed the problems in SEC filings, shareholder calls and press releases. The Senate report suggests they were not getting full disclosure.
The SEC and Jennifer Zuccarelli, a spokeswoman for JPMorgan, declined to comment on any pending litigation.
The report also gives ammunition to advocates calling for stricter financial reforms, including to regulators crafting the Volcker rule, which proposes to put limits on banks betting with their own funds.
“If derivatives books can be cooked as blatantly as they are in this case without breaking the rules, then the rules need to be revamped,” said Levin, a Democrat.
Regulators appearing before the Senate panel agreed on the need to strengthen rules, and took blame for failing to spot the losses. Comptroller of the Currency Thomas Curry said the agency had improved its supervisory procedures as a result of the failures, and was working to adopt the Volcker rule “as quickly as possible.”
JPMorgan in January released a report by the bank’s management task force that primarily assigns blame for the trading debacle to three executives beneath Dimon: Ina Drew, Barry Zubrow, the former chief risk officer; and Douglas Braunstein, the former chief financial officer.
On Friday, Drew and Braunstein said blame should be assigned elsewhere. Zubrow was not at the hearing.
Douglas Braunstein, who is now the bank’s vice chairman, criticized outside counsel and auditors at PricewaterhouseCoopers for signing off on a shift from valuing trade positions at the middle of the range to an extreme that made the positions look better.
Levin told reporters after the hearing that his committee may seek more information from PSC. The firm did not respond to a request by Reuters for comment.
Levin repeatedly confronted Drew, Braunstein and the bank’s investment bank co-head, Michael Cavanagh, with statements they made during the course of the scandal which Levin said were inaccurate or damning.
He read to Drew from a transcript of a phone call in which she advised a London manager to “tweak” daily valuation reports to put them in the best possible light.
He asked Braunstein why he did not tell investors the portfolio containing the whale trades had breached multiple risk limits.
And he took issue with Cavanagh’s characterizations that the trading losses were under control in public statements he made while the losses were still growing.
The executives struggled at times to respond, but largely stuck to their past statements, at times frustrating Levin’s efforts to elicit direct answers. “So much for accuracy,” Levin said at one point.
Reporting by Aruna Viswanatha, Emily Flitter, Karen Freifeld and Sarah N. Lynch; Editing by Karey Van Hall, Phil Berlowitz and Tim Dobbyn