Ex-JPMorgan employees deny hiding trade trade losses
One of the biggest questions to emerge recently in the JPMorgan Chase "hedging" fiasco, which cost the banks $5.8 billion in the first and second quarters, is whether traders went rogue to cover the extent of the losses.
The bank said as much when it released its second quarter earnings, suggesting that some traders sought to hide their imploded trades in ways that reduces their impact on the bottom line. But former employees of JPMorgan are somewhat baffled by that contention, according to Bloomberg Businessweek.
"JPMorgan requires traders to mark their positions daily so the firm can track their profits, losses and risk (JPM). An internal control group double-checks the marks against market prices monthly and at the end of each quarter, said three former executives from the CIO and a senior executive in market risk. The firm uses the control group's prices, not what individual traders submit, to calculate earnings (JPM), making it difficult for one trader or trading desk to rig prices."
To be sure, the bank is not blowing this up as a huge scandal. It's more a case of the bank concluding that traders marked their deals aggressively but generally within the bid-ask spread. All this raises the stakes on the issue of internal controls. It will be interesting to see what regulators conclude about the bank's efforts in this regard.
- here's the article