Bloomberg News

JPMorgan’s Trades Probed by U.S. National Bank Agency After Loss

May 14, 2012

The Securities and Exchange Commission and the Commodity Futures Trading Commission, which regulates derivatives trading, are also examining JPMorgan’s trading activities. Photographer: Peter Foley/Bloomberg

The Securities and Exchange Commission and the Commodity Futures Trading Commission, which regulates derivatives trading, are also examining JPMorgan’s trading activities. Photographer: Peter Foley/Bloomberg

The Office of Comptroller of the Currency said yesterday that it is examining JPMorgan Chase & Co. (JPM:US)’s activities and evaluating their transactions following a $2 billion loss that shook up bank leadership.

“The OCC is examining the bank’s activities and is in continuous dialogue with bank personnel and other regulatory colleagues as we evaluate details related to the specific transactions as well as the surrounding risk management processes that resulted in this unexpected loss,” Bryan Hubbard, an OCC spokesman, said in an e-mail.

The regulator, which oversees national banks including JPMorgan Chase Bank N.A., also is evaluating risk management strategies and practices at other large banks to validate their understanding of risk levels and controls. The OCC said JPMorgan’s losses affect its earnings while not presenting a threat to the safety and soundness of the bank.

The “vast majority” of the bank’s chief investment office that suffered the loss was part of the national bank, Hubbard said. JPMorgan Chase Bank N.A.’s deposits are insured by the Federal Deposit Insurance Corp.

The bank used a new model for calculating its trading risk in the first quarter that Chief Executive Officer Jamie Dimon, 56, said was inadequate. Former FDIC Chairman Sheila Bair said yesterday that the change to the so-called value-at-risk calculation “is something I can only assume the regulators were aware of and briefed on.”

Federal Reserve spokeswoman Barbara Hagenbaugh said the central bank, which supervises JPMorgan’s holding company, is studying organizational issues around the trading loss to assure that they aren’t repeated in other areas of the bank. The loss underscores the importance of capital buffers, Hagenbaugh said.

Other Probes

The Securities and Exchange Commission and the Commodity Futures Trading Commission, which regulates derivatives trading, are also examining JPMorgan’s trading activities, according to people familiar with the probes.

Hubbard said it is “premature to conclude” the trades would either have been permitted or banned by a forthcoming regulation restricting banks’ proprietary trading. The regulation, known as the Volcker rule, is still being revised.

“The transactions at issue are complex and whether they would qualify for exceptions under the statute or proposed rule requires careful analysis,” Hubbard said. “The OCC and other regulators are gathering additional details regarding the transactions to determine the full regulatory implications of these activities and the proposed rules currently being considered.”

To contact the reporter on this story: Cheyenne Hopkins in Washington at chopkins19@bloomberg.net

To contact the editors responsible for this story: Maura Reynolds at mreynolds34@bloomberg.net; Chris Wellisz at cwellisz@bloomberg.net


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