JPMorgan Chase & Co. ignored internal controls and manipulated documents, while its influential chief executive, Jamie Dimon, withheld some information from regulators as the nation’s biggest bank racked up trading losses last year, a new Senate report says.
The findings by Senate investigators shed new light on the multibillion-dollar trading blunder, which has claimed the jobs of some top executives and prompted investigations by authorities. The 300-page report, released a day before a Senate subcommittee plans to question bank executives and regulators in a hearing, will escalate the debate in Washington over regulating Wall Street.
Dimon, whose reputation as an astute manger of risk has so far been only dented by the trading losses, comes under much harsher criticism from the Senate investigators. The chief executive blessed changes to an internal alarm system that underestimated losses, seemingly contradicting his earlier statements to lawmakers, according to the report.
Dimon is also accused of withholding from regulators details about the bank’s daily losses, then raising his voice in anger at a deputy who later turned over the information.
While some people briefed on the matter question whether the outburst actually happened, the alleged incident illustrates a broader problem at JPMorgan: After emerging from the financial crisis in far better shape than rivals, the bank saw itself as being above its regulators. The bank was so filled with hubris, Senate investigators say in the report, that an executive once screamed at its examiners and called them ‘‘stupid.’’
The report, citing some of the same private documents that FBI agents are now poring over, highlights how JPMorgan managers pressured traders to lowball losses by $660 million, a previously undisclosed figure, and then played down the problems to authorities.
The trader known as the London Whale, who carried out the derivatives trades at the center of the bank’s losses, told a colleague last year that the bank’s estimated losses were ‘‘getting idiotic,’’ according to a transcript of their phone conversation cited by the subcommittee. The trader, Bruno Iksil, added that ‘‘I can’t keep this going’’ and that he didn’t know where his boss ‘‘wants to stop.’’
Federal investigators, seeking Iksil’s side of the story, now expect to visit the trader in his native France, according to people briefed on the investigation.
The breakdowns — at both the bank and at its regulators like the Office of the Comptroller of the Currency — could galvanize support for new curbs on Wall Street trading.
Using its investigation to take a broad swipe at financial risk-taking, the report depicts JPMorgan’s losses as emblematic of a dark market desperate for sunlight.
“Our investigation opens a window into the hidden world of high stakes derivatives trading by a major bank,’’ said Senator Carl Levin, the Michigan Democrat who runs the subcommittee. Calling the bank’s trading strategy a ‘‘runaway train that barreled through every risk warning,’’ he said the bank ‘‘exposed daunting vulnerabilities’’ in the financial system.
A spokeswoman for the bank said on Thursday: ‘‘While we have repeatedly acknowledged significant mistakes, our senior management acted in good faith and never had any intent to mislead anyone.’’
In outlining possible policy fixes to prevent another blowup, Levin on Thursday called for new rules that would force banks to strengthen their methods for valuing their trades. He also urged regulators to finalize the so-called Volcker rule, which would prevent banks from making such bets with their own money.
JPMorgan, the subcommittee noted, ‘‘mischaracterized high-risk trading as hedging,’’ or mitigating risk, a strategy that is allowed under the Volcker rule. The bank’s chief financial officer, Douglas Braunstein, told analysts in April that the position is consistent with a proposed version of the Volcker rule, a conclusion that the subcommittee dismissed as false.
One regulator wrote in a May 2012 internal e-mail that the position was a ‘‘make believe voodoo magic ‘composite hedge.’ ’’