Last year, JPMorgan Chase (NYSE:JPM) CEO Jamie Dimon wasn't the only one biting his nails over the London Whale's outsize derivatives positions, massive bets that would eventually cost the bank more than $6 billion. A recent article in The Wall Street Journal reveals that Bruno Iksil, the London Whale himself, was also quite worried about how big his bets were getting.
This latest bit of news is from yet another investigation into the affair. Almost one year on from the costly trading scandal, the botched trades continues to plague the superbank. How much longer can London Whale investigations and revelations go on? What other related mayhem exists that could potentially damage the bank? And maybe most importantly, what should you do with your shares?
The never-ending stories
The current investigation is being conducted by the Senate Permanent Subcommittee on Investigations. According to The Journal, as early as January of last year Iksil emailed a fellow trader, worrying that "the size of his bets was getting 'scary'". That email was sent months before Dimon made his now infamous "tempest in a teapot" remark , as he tried to downplay the then-nascent situation.
There's also some questions as to whether or not fellow JPMorgan traders leaked Iksil's derivatives positions to the market and then took positions against them. If there's any truth in it, that would be a particularly nasty revelation, and constitute a real black mark against the bank and its culture, which Dimon has worked so hard to shape and rightly prides himself on.
The primary purpose of the Senate investigation is to determine whether or not the bank properly informed the Office of the Comptroller of the Currency regarding what it knew about the London Whale. The Senate is also looking into whether the OCC pressed JPMorgan hard enough in return for details. These new questions are unlikely to be the last to come out of this event.
Aside from this Senate inquiry, this past October, The New York Times reported that the FBI was listening to audio tapes turned over to them by the bank, containing phone conversations in which employees "openly discussed how to value the troubled [London Whale] bets in a favorable way." The FBI has yet to say anything further on the matter. No news is good news, but not knowing for sure if the bank is going to face criminal charges is unsettling.
Keep calm and carry on
2012 was a strange year for JPMorgan. The superbank came through the financial crash pretty clean, instead ending up with this rogue-trading scandal to deal with. The London Whale came seemingly out of nowhere, and the scandal made for great soul searching on the part of Dimon, leading him to turn the bank's top leadership upside down in an effort to ensure such a thing never happens again.
The good news is, Iksil's disastrous positions seem to be mainly unwound. As such, investors shouldn't be seeing much more cash -- if any -- coming off the balance sheet to pay for the London Whale mess than the $6 billion-plus that already has. The notion that there's not that much more money to be lost out of the London Whale is highly encouraging to me, an investor in the bank.
And though there might be a few black marks waiting out there for JPMorgan in the form of the Senate investigation, and possibly even FBI charges, I believe the worst of the London Whale debacle is behind the bank. As such, my money is staying put, and so should yours.