UPDATE 3-Whale scandal costs JPMorgan $920 million in fines
Sept 19 (Reuters) - The "London Whale" trading scandal, once dismissed as a "tempest in a teapot" by JPMorgan Chase & Co CEO Jamie Dimon, is costing the largest U.S. bank $920 million in penalties and a rare admission of wrongdoing.
Settlements with four U.S. and British regulators, made public on Thursday, resolve the biggest civil probes of the bank's $6.2 billion of derivatives trading losses last year. Citations against JPMorgan include poor risk controls and failure to inform regulators about deficiencies in risk management identified by bank management.
JPMorgan called the settlements "a major step in the firm's ongoing efforts to put these issues behind it."
But the deals leave unresolved other issues that have helped drive the bank's legal costs to $5 billion a year and undermined Dimon's hold on his job, as well as his influence on the banking industry and its regulation.
The company's board recently changed its rules to give more power to directors other than Dimon after some shareholders cited the risk-control problems to argue that Dimon should not be both board chairman and chief executive.
The company continues to face a criminal probe by U.S. prosecutors into the derivatives debacle, despite Dimon's public insistence that no bank executives intentionally misled investors.
Even as JPMorgan was hailing the settlements, it said it had received a legal notice that the staff of another regulator, the U.S. Commodity Futures Trading Commission, intends to recommend an enforcement action against the bank for its derivatives trading.
The state of Massachusetts is also investigating, the bank said.
"This certainly isn't a closure on the Whale," said analyst Charles Peabody of Portales Partners.
THE WHALE BRUNO
Bruno Iksil, the trader whose big bets earned him the nickname London Whale, has signed a cooperation agreement with prosecutors and has not been charged with any wrongdoing. Two other traders who worked with Iksil in London, Javier Martin-Artajo and Julien Grout, have been criminally charged by U.S. prosecutors over their role in the scandal, accused of trying to hide the mounting losses.
The penalties announced Thursday include $300 million to be paid to the U.S. Office of the Comptroller of the Currency, $200 million to the Federal Reserve, $200 million to the U.S. Securities and Exchange Commission and 137.6 million pounds ($219.74 million) to the UK's Financial Conduct Authority.
The total penalty is one of the highest ever paid by a bank, but is well short of the $1.92 billion that London-based HSBC agreed to pay last year to settle money laundering charges.
Fines are determined by laws governing the amount each agency can charge in penalties for each violation of a rule, then are fine-tuned through negotiations between the regulators and the bank.
Dimon, in a statement issued by the company, said, "We have accepted responsibility and acknowledged our mistakes from the start, and we have learned from them and worked to fix them."
George Canellos, co-director of the SEC's enforcement division, said in statement, "At its core, today's case is about transparency and accountability, and JPMorgan's admissions are a key component in that message."
Canellos said the bank admitted that it "broke the law - because JPMorgan's egregious breakdowns in controls and governance put its millions of shareholders at risk and resulted in inaccurate public filings."
JPMorgan also faces other investigations into areas that include possible bribery in hiring practices in China and potentially fraudulent sales of mortgage securities.
"You are seeing the regulators ratchet up the heat on the banks," said Portales Partners' Peabody. "If you are too big to manage, they are going to make you pay."
The bank has been under intense scrutiny from the U.S. government since May 2012, when Dimon disclosed that the firm was losing billions of dollars on derivatives deals that had been questioned a month earlier in press reports.
Dimon initially criticized those reports as a "tempest in a teapot." He has repeatedly apologized for that remark and said the bank was "stupid" in handling the trades from a London desk of the bank's Chief Investment Office.
While Dimon is not cited by name in the SEC's administrative order, the regulatory filing notes that he is included in its references to "senior management." It does not, however, point blame at any single top executive.
The ongoing criminal investigations are focusing on whether people inside the bank had more detailed knowledge about the potential losses than the bank acknowledged in its early public statements on the matter, sources familiar with the probe have told Reuters.
Thursday's civil penalties follow orders in January from the Office of the Comptroller of the Currency and the Federal Reserve directing JPMorgan to improve its risk control systems.
In April, Dimon said in a letter to shareholders that fixing risk controls was the bank's top priority, and that some projects aimed at building the company's business would have to be put aside.
The settlement announcements reveal some new details about the scandal, which has been the subject of congressional hearings.
For example, the Chief Investment Office's own assessment of the value of its credit derivatives made other bank officials so uncomfortable that one unnamed senior investment banking executive consulted an outside lawyer before signing documents that would go in the company's public financial reports, according to the SEC's order.
But many of the settlement details have come out previously in a congressional report on the trading scandal or in the criminal indictments against Martin-Artajo and Grout.
Also on Thursday, bank regulators ordered JPMorgan to improve its consumer debt-collection practices. The order, from the Comptroller of the Currency, does not include financial penalties. Some of issues go back to allegations made public more than two years ago.
Despite the OCC order, JPMorgan still faces an investigation from a group of 13 states over debt-collection practices.