JPMorgan Chase Could Face Enforcement Action Over Whale Loss

Updated on

JPMorgan Chase & Co. (NYSE:JPM) is expected to face enforcement actions filed by regulators in both the U.S. and the U.K. over the July incident involving the trader known as the “London Whale.” The Wall Street Journal cites an anonymous source who said regulators in the U.S. will serve the bank with two formal actions which target its controls for money laundering and risk management issues.

JPMorgan Chase Could Face Enforcement Action Over Whale Loss

One of the orders, which is expected to come from the Office of the Comptroller of the Currency, will likely demand that JPMorgan Chase & Co. (NYSE:JPM) take steps to fix the breakdowns which made it possible for certain traders in London to lose more than $6 billion in trades in July.

Gates Cap Management Reduces Risk After Rare Down Year

Gates Capital Management's ECF Value Funds have a fantastic track record. The funds (full-name Excess Cash Flow Value Funds), which invest in an event-driven equity and credit strategy Read More

The other action filed by the same office is similar to an action taken against Citigroup Inc. (NYSE:C) in April. Regulators are expected to require that JPMorgan Chase & Co. (NYSE:JPM) enhance its procedures to fight back against money laundering. In April Citigroup was required to upgrade its procedures for monitoring transactions and enhance internal audits.

Bloomberg reports that regulators with the Financial Services Authority in the U.K. are expected to open an official investigation into the botched trades. Thus far the agency’s investigation has been entirely informal and has focused on whether some traders purposely mismarked their positions and attempted to cover up some of their losses. If it does make its investigation official, it likely means that the agency found evidence that the bank violated financial rules.

At this point we don’t know if the enforcement actions that are expected against JPMorgan Chase & Co. (NYSE:JPM) will include any sanctions from either the U.S. or the U.K. governments. The actions from regulators are the first since the July incident, and they come before the bank’s internal report on the incident is released.

The report is expected to be more than 50 pages long and focus on the handling of the trading losses by senior executives at the bank. JPMorgan Chase & Co. (NYSE:JPM)’s board of directors is expected to review that report at a meeting tomorrow—the same meeting at which they will discuss the salaries and bonuses of the bank’s top officers, including those involved in the botched trades.

A presentation on changes the bank should make to avoid future incidents like the one in July is also expected at that meeting. JPMorgan Chase is expected to release its management and board reports along with its fourth-quarter earnings report on Wednesday.

Subscribe to ValueWalk!

Get updates on the latest posts and more from ValueWalk straight to your inbox.