JPMorgan 'London whale' losses could double to $7 billion

May 22, 2012
Ben Raworth

US bank suspends share buyback as it struggles to deal with mounting trade losses

Justin Sullivan

JPMORGAN chief executive Jamie Dimon suspended the bank's share buyback programme yesterday following reports that their recent trading losses could top $7 billion.
The Daily Telegraph reports that Dimon tried to calm investor fears, saying he saw "no disaster scenario" for the bank arising from the trading controversy, and "was not worried about the ultimate size of the loss". JPMorgan was about to buy back $15bn worth of shares over the coming year, the BBC reports, but the cash is now needed to meet new international rules on the capital banks must hold.
The revised estimate of the bank's losses comes as new details emerge of bitter rows between the bank's London and New York trading offices which effectively crippled it as the losses unfolded.
Ina Drew, the head of the Chief Investment Office in London who resigned last week, was off work for long periods after contracting Lyme disease in 2010. The Evening Standard reports that this left her department "in chaos".
It has also emerged that the bank's head of risk, who oversaw the department that made the losses, had been fired previously from a rival bank over breaches of financial regulations.
Irvin Goldman was sacked from Cantor Fitzgerald for "gross mismanagement of risk" in 2007. He was taken on by JPMorgan in February this year. Although he is still working for JPMorgan, he is expected to leave the bank within days.
More than $20 billion has been wiped from the bank's value in the last ten days, and there have been calls in the US this week for stronger regulation.
The trades that backfired were placed by JPMorgan's chief investment office in London, which is tasked with investing the bank's excess deposits and helping to manage the company's overall risk exposure. Some of the bets made by one trader, Bruno Iksil, were so big that he earned the nickname 'the London Whale'.
Sheila Bair, former head of the Federal Deposit Insurance Federation, said that the pressure on banks to generate returns on their excess deposits is something that should also be on regulators' radars.
"I think it's a real issue," said the former FDIC head. "The Fed has been pumping all this liquidity into the system. You've got banks sitting on all this cheap money looking for returns."

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