The FBI has opened a probe into trading losses at J.P. Morgan Chase & Co, stepping up the pressure on the bank after the US Securities and Exchange Commission and the Federal Reserve said they were also looking into the wrong-way bets that led to the losses.
Yet at the same time, shareholders backed embattled Chief Executive Jamie Dimon at the bank's annual shareholders meeting in Tampa, Florida on Tuesday, voting against a proposal to split the jobs of CEO and chairman. Though shareholders mostly gave Dimon a pass, pressure mounted on the bank to reclaim some of the millions of dollars it paid to the executives who oversaw the trades. Dimon said J.P. Morgan would pursue more disciplinary action against those who were responsible.
"We will do the right thing. That may well include clawbacks," he told reporters after the annual meeting. The timing on any such move was not clear, though, and the various regulatory probes could add complications. A source familiar with the FBI investigation, opened by the agency's New York office, described it as being at a preliminary stage.
The probe was seen in some quarters as necessary, given the ongoing debate in Washington about bank regulation and reform, and one expert said it raised the level of concern around what happened. "The FBI looks for evidence of crimes and goes after people who it alleges are criminals. They want to send people to jail. The SEC pursues all sorts of wrongdoing, imposes fines and is half as scary as the FBI," said Erik Gordon, a professor in the law and business schools at the University of Michigan. After two trading days of heavy losses, J.P. Morgan shares were u p 3.4 percent to $36.99 in afternoon trade. The stock is down more than 9 percent si nce the trading losses were disclosed, wiping out $14 .3 billion of market capitalisation.
"It affects my opinion of the entire financial industry," said Dennis Hong, principal with Altimeter Capital, a hedge fund that manages about $250 million. "It's really shocking because J.P. Morgan has been known as the most conservative in terms of managing their business risk. They may be losing their way," Hong said at an event in Boston. In Washington, US Treasury Secretary Timothy Geithner said J.P. Morgan's losses strengthened the case for reform. "I think this failure of risk management is just a very powerful case for financial reform," Geithner told an event sponsored by the Peterson Foundation.