Former ‘London Whale’ boss at JP Morgan admits mistakes
WASHINGTON — Ina Drew, the former JPMorgan Chase & Co. executive who oversaw the “London Whale” trades, admitted her unit made mistakes that led to at least $6.2 billion in losses but shifted blame to underlings for the scandal that damaged the bank’s reputation.
It also ended her 30-year career.
“Clearly, mistakes were made,” Drew told senators Friday in her first public comments on the episode. “The fact that these mistakes have happened on my watch has been the most disappointing and painful part of my professional career.”
Drew, the bank’s former chief investment officer, was among five former and current JPMorgan executives to testify about the trades at a six-hour hearing — and they all sought to pass the buck.
Federal banking regulators also were on the hot seat for not catching the risky trades of complex financial derivatives before they blew up last spring.
Although regulators from the Office of the Comptroller of the Currency, or OCC, admitted they missed some key red flags, they also shifted blame. They told the Permanent Subcommittee on Investigations they were misled by JPMorgan executives.
Chief Executive Jamie Dimon, who testified twice about the trading losses last year, was not among the witnesses Friday. So the focus was on Drew, who had been one of Wall Street’s highest-ranking women before the huge losses forced her to retire.
JPMorgan clawed back $21.5 million in salary and other compensation from Drew — equivalent to about two years of pay.
Drew said she was “saddened” by the bank’s losses and “accepted responsibility for the events that happened on my watch.”
But then Drew said she was deceived by traders working for her about the amount of risk they were taking in the bank’s Synthetic Credit Portfolio. Drew also blamed a revised JPMorgan metric that she said “significantly understated the real risks” of the portfolio.
“I don’t have all the answers but what I can tell you is that I always tried to do my best,” Drew said. “This was my life’s work.”
Drew said the decision to retire in the wake of the scandal, delivered personally to Dimon in May, “was a devastating and very difficult decision for me.”
But there wasn’t much sympathy from senators, who held the hearing after the subcommittee released a bipartisan, 307-page report Thursday that ripped JPMorgan.
The nine-month investigation found that the trading losses were caused by high-risk bets that the bank failed to catch and halt despite numerous warning signs. At the same time, bank executives, including Drew and Dimon, sought to hide the extent of the losses from regulators and the public, the report said.
“Let me be clear, JPMorgan completely disregarded risk limits and stonewalled federal regulators,” said Sen. John McCain (R-Ariz.), the panel’s top Republican. “This bank appears to have entertained, indeed embraced, the fact that it was too big to fail.”
Subcommittee Chairman Carl Levin (D-Mich.) said the losses showed that tougher regulations were needed on derivatives to prevent another financial crisis. Levin is a key backer of new rules, being drafted by regulators, limiting the ability of banks to engage in trading for their own profit.
“The Whale trades exposed problems that reach far beyond one London trading desk or one Wall Street office tower,” Levin said. “When Wall Street plays with fire, American families get burned. The task of federal regulators and of this Congress is to take away the matches.”
Levin and McCain pressed Drew about statements the bank made Jan. 31, 2012, to the OCC that the London-based derivatives portfolio was shrinking when company documents showed it was increasing, from $51 billion at the end of 2011 to $157 billion on March 31, 2012.
“You assured the OCC that you plan on reducing the portfolio and yet it tripled in size. How does that happen? Was the OCC misled?” McCain asked Drew.
Drew said that she was not in the meeting with the OCC and that the company’s plan was to reduce the size of the portfolio over the course of 2012 after allowing it to get “slightly” higher in the first three months of the year.
“Things went terribly wrong, as we all know, and very large purchases that were made at the end of March were not brought to my attention on time,” she said.
Drew said she relied on two key employees in London: Achilles Macris, head of the chief investment office’s London operation, and Javier Martin-Artajo, who oversaw the portfolio.
She later said “some members” of her team hid important information from her about the true risks. Drew did not name those team members.
The Senate investigation said that Macris, Martin-Artajo and two other former London-based JPMorgan employees — traders Julien Grout and Bruno Iksil, who was dubbed the London Whale for his outsized bets — played key roles but refused to cooperate with the investigation.
Because they live abroad, the subcommittee could not subpoena them, Levin said.
