J.P. Morgan Chase
JPM +0.25%
& Co. has been holding discussions with U.K. regulators about the
roughly $2 billion of trading losses incurred by the giant bank's
investment office, according to people familiar with the matter.
The
talks with the Financial Services Authority don't represent a formal
inquiry by the regulator, one person said, and it isn't clear whether
it will result in any action by the regulatory agency. The FSA has been
requesting information from J.P. Morgan about how the trading losses
occurred and what steps the bank is taking to avoid such situations in
the future, the people said.
J.P. Morgan late Thursday disclosed that it had suffered at least $2
billion in losses stemming from soured bets made by its chief
investment office. The New York-based unit has a large presence in
London, where more than a dozen traders place wagers using the bank's
own funds. Last month, The Wall Street Journal and other news
organizations reported that one of the office's traders, nicknamed "the
London whale," was roiling parts of the debt markets with his large
bets.
Since then, J.P. Morgan, which is the largest U.S. bank by assets,
has been providing regular updates about the office and its trading
positions to a number of regulators, including the FSA, according to
the people familiar with the matter. As the magnitude of the bank's
losses crystallized in recent weeks, J.P. Morgan has been keeping the
regulators apprised, these people said. It isn't clear exactly when the
regulators learned of the $2 billion losses.
J.P. Morgan has previously been in hot water with the FSA. In June
2010, the FSA slapped the bank with a £33 million fine for failing to
adequately protect client money by holding it in segregated accounts.
At the time, it was the largest penalty the FSA had ever imposed. Last
month, the FSA fined one of J.P. Morgan's top London bankers, Ian
Hannam, for alleged market abuse. Mr. Hannam resigned from J.P. Morgan
and vowed to fight the accusations.
J.P. Morgan's trading losses are likely to embolden regulators in
the U.S. as they implement rules designed to restrict so-called
"proprietary trading," in which a bank uses its own funds to make bets.
On a conference call with analysts Thursday night, J.P. Morgan Chief Executive James Dimon
said the trading in question didn't violate those pending restrictions,
known as the Volcker rule. But Mr. Dimon acknowledged that the loss
will make it harder for J.P. Morgan to lobby to soften the rules. It
"plays right into the hands of a whole bunch of pundits out there," he
said. "We will have to deal with that—that's life."