Monday, March 18, 2013 8:34:05 AM
Former JP Morgan CIO Refuses to Take Responsibility for Whale Losses
Ina Drew described her oversight as “diligent,” and instead blamed the $6.2 billion in losses on certain “deceptive” London traders and flaws in her unit’s risk management operations.
(March 18, 2013) - JP Morgan's former chief investment officer told a Senate panel today that she was not responsible for her office's $6.2 billion "London Whale" losses.
Ina Drew, who resigned in May after a 30-year career at JP Morgan, instead blamed members of her London team, the value at risk model used, and her unit's risk management and finance divisions.
"I did not (and do not) believe I bore personal responsibility for the losses in the synthetic credit book," Drew asserted in her statement to congressional investigators. "My management of the CIO [chief investment office] and oversight of the synthetic credit book was reasonable and diligent."
Her testimony instead blamed "deceptive conduct by members of the London team" who, she said, "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." Furthermore, Drew contended that "control failures by CIO risk management and CIO finance" undermined her management and oversight of the portfolio.
Four of Drew's former colleagues also served as witnesses at the four-hour hearing: Ashley Bacon, acting chief risk officer; Peter Weiland, former head of market risk for the CIO; Michael Cavanagh, co- corporate and investment bank CEO; and Current Vice Chairman Douglas Braunstein.
The hearing came the day after the Senate Permanent Subcommittee on Investigations released the findings of its nine-month inquiry into the dramatic losses. The 300-page report, titled "JPMorgan Chase Whale Trades: A Case History of Derivatives Risks and Abuses," did not characterize the oversight of JP Morgan's chief investment office as "diligent."
"Over the course of the first quarter of 2012," the committee wrote, "JPMorgan Chase's chief investment office used its synthetic credit portfolio (SCP) to engage in high risk derivatives trading; mismarked the SCP book to hide hundreds of millions of dollars of losses; disregarded multiple internal indicators of increasing risk; manipulated models; dodged OCC [Office of the Comptroller of the Currency] oversight; and misinformed investors, regulators, and the public about the nature of its risky derivatives trading."
The investigation turned up not only "high risk activities and troubling misconduct" at JP Morgan, but also "broader, systematic problems" in US financial institutions' handling of synthetic credit derivatives.
All the current and former JP Morgan employees agreed to testify under oath, and were not compelled to do so by subpoenas. After much aggressive questioning, Committee Chairman Carl Levin closed the hearing by pointing this out, and praised the bank for its cooperation. "We're highly critical of these [loss-related] activities—appropriately so," Levin said. "But at least the bank has been cooperative with our investigation, and for that we're grateful."
For further background: Pensions Allege JP Morgan Transformed CIO Unit Into Risky Prop-Trading Desk