Senior executives at JPMorgan Chase could have their bonuses clawed back for overseeing a weak system that resulted in the bank’s traders losing at least $2 billion.
Thomas Curry, the US Comptroller of the Currency, told politicians yesterday that he was pursuing all measures against the bank, including action against the individuals responsible for its botched hedging strategy.
Mr Curry, who has oversight of the American banking system, was giving evidence to the Senate Banking Committee amid growing tension in Washington over the need for tougher regulation of the financial sector.
JPMorgan Chase revealed last month that a series of trades designed to protect the bank had backfired and would cost it at least $2 billion. The trades were carried out by an employee of the bank’s chief investment office in London and were so big that Bruno Iksil, the trader, became known in the market as the “London whale”.
Ina Drew, who was paid about $15 million last year, has retired as chief investment officer. Mr Iksil is also expected to leave the bank.
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“We are evaluating the compensation process of the chief investment office and will assess the bank’s determination on ‘clawbacks’ as part of that analysis,” Mr Curry said. “If corrective action is warranted, we will pursue appropriate informal or formal remedial measures.”
He was asked by Senator Bob Menendez during the hearing whether the Comptroller’s Office had “screwed up” in its monitoring of the bank. “We’re going to critically look at that question,” he replied. “We are looking at whether there were gaps in our assessment or risk controls.”
Mr Curry added that JP Morgan had “inadequate risk management” procedures to prevent such trading losses and his agency was focusing on how the failures had occurred.
“It’s a very complicated investment strategy,” he said. “We are looking to determine what the strategy behind that investment scheme was and also if there were any other factors driving that strategy, other than attempting to mitigate known risks in that portfolio.”
The Comptroller’s Office, a branch of the US Treasury, regulates more than 2,000 banks and has officers permanently based at the largest banks. It has 65 staff overseeing JP Morgan.
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The hearing comes as Democrats and Republicans clash over the extent of banking regulation. Of particular concern to the banks is a proposed law — the Volcker rule — that would prevent them trading their own assets. If it is enforced as written, Wall Street banks would alter how they operate and potentially abandon areas such as commodities and derivative trading.