JP Morgan chief counts the cost of 'London Whale' loss as bonus is cut by half
Directors say he held 'ultimate responsibility' for trading blunder
Nikhil Kumar is The Independent's New York correspondent. He was formerly assistant editor on the foreign desk and has also done a variety of jobs on the city desk, where he wrote about markets, commodities and other business and economics topics.
Wednesday 16 January 2013
The “London Whale” loss has swallowed half of Jamie Dimon's pay, with the JP Morgan Chase chief executive losing his crown as Wall Street's highest-paid bank boss as a result of the $6.2bn (£3.8bn) trading blunder.
The bank's profits during the final quarter of 2012 rose by more than 50 per cent, according to an update today, but Mr Dimon's pay package plummeted after the company's directors concluded that he bore "ultimate responsibility for the failures" connected to the ill-fated bets placed by Bruno Iksil, the trader nicknamed the London Whale.
Mr Dimon, who earned $23m for 2011, making him the top-earning bank chief on Wall Street, will be paid $11.5m for 2012. His base salary, at $1.5m, remains the same, but the loss means his bonus has gone from $21.5m for 2011 to $10.5m for last year.
The board has also delayed valuable share options which were awarded to Mr Dimon in 2008 – which he could have cashed in later this month – until July 2014.
The investigation found that the losses, which involved outsized credit derivatives positions that Mr Iksil took for the bank's chief investment office, the division responsible for investing and managing excess cash, seriously damaged JP Morgan's reputation and has led to a series of court cases against it. Earlier this week US regulators ordered the bank to tighten its controls.
A report into the blunder by a management task force, while holding Mr Dimon to account, put much of the blame on a triumvirate of senior executives. The former chief investment officer, Ina Drew, was blamed for failing to properly oversee the trades, while the former head of risk, Barry Zubrow, took the blame for failures in the way the risk operation was set up. Former chief financial officer Douglas Braunstein was also blamed for weakness in financial controls.
It emerged last night that the bank had reached an out-of-court settlement with Mr Iksil's former boss, Javier Martin-Artajo, who had been named as a defendant in a case filed by the bank in the High Court in London in October. The legal move had come after the bank said it would attempt to claw pay money from those whom it held responsible for the blunder. Today, a source familiar with the case told Reuters that the action against Mr Martin-Artajo had been settled, though no further details were available.
With attention in the post-financial crisis world increasingly focused on whether the promise of big bonuses drives traders to make risky bets, the JP Morgan task force said it had "considered whether compensation might have played a role in these matters". But after spending about eight months scrutinising the blunder, it claims to have found that "the firm's compensation system did not unduly incentivise the trading activity that led to the losses".
Initially dismissed by Mr Dimon as nothing more than a "tempest in a teapot", the loss fed calls for greater regulation of banks in the post-crisis world. But not long afterwards, as more details emerged, Mr Dimon admitted that his initially assessment was "dead wrong". Today, he said the blunder was "one huge, embarrassing mistake".
Despite the London Whale losses, JP Morgan posted its third consecutive year of record profits, with after-tax income rising from $19bn to $21.3bn on flat revenues of $99.9bn. In the fourth quarter, net income stood at $5.7bn, up more than 50 per cent, on revenues of $24.4bn as the mortgage market continued to improve. Announcing the figures, Mr Dimon, who in a conference call said he respects the board's decision to halve his pay, spoke of "favourable credit conditions across our wholesale loan portfolios and strong credit performance in our credit-card portfolio".
The Nomura banking analyst Glenn Schorr said: "All in, we think it's a good quarter for [JP Morgan], and underscores their solid earnings power. Solid earnings progression, capital build & return and reasonable valuation should make '13 another good year in the stock."
In a filing with the US Securities and Exchange Commission, where it disclosed Mr Dimon's pay cut, the JP Morgan board said that while he shouldered some of the blame, he had acted swiftly once he became aware of the gravity of the situation.
"Importantly, once Mr Dimon became aware of the seriousness of the issues presented by the CIO (chief information officer), he responded forcefully by directing a thorough review and an extensive program of remediation," read the bank's statement.
- 1 Nigel Farage: Me vs Russell Brand on Question Time – he's got the chest hair but where are his ideas?
- 2 Harry Potter fans can apply to the Hogwarts-inspired College of Wizardry
- 3 Jessica Chambers: 19-year-old woman 'doused with lighter fluid and burned alive' in the US
- 4 Russell Brand calls Nigel Farage 'poundshop Enoch Powell' in BBC Question Time debate
- 5 Orange Wednesdays are no more
Weather bomb in pictures: Storms cuts power for tens of thousands – and snow is on the way
Jessica Chambers: 19-year-old woman 'doused with lighter fluid and burned alive' in the US
Russell Brand calls Nigel Farage 'poundshop Enoch Powell' in BBC Question Time debate
Russell Brand was rendered speechless on Question Time by this man
Fury at Airbus after it hints the super-jumbo may be mothballed
Disgruntled RBS worker writes hilarious open letter to Russell Brand after anti-capitalist publicity stunt leaves him hungry
Shock poll shows voters believe Ukip is to the left of the Tories
Nigel Farage's approval rating hits 'record low' as popularity suffers in wake of Ukip sex scandal
Ukip candidate jokes about 'shooting peasants' in racist and homophobic rant
Pakistan school attack live: Taliban kill at least 132 children in 'horrifying' massacre
Sony hack: Angelina Jolie branded 'seriously out of her mind' in further embarrassing leaked email saga
iJobs Money & Business
Up to £70,000 per annum + benefits: Sheridan Maine: Are you a qualified accoun...
Up to £65,000 per annum + benefits: Sheridan Maine: Are you a qualified accoun...
£32000 - £35000 per annum + benefits: Ashdown Group: Marketing Services Manage...
£Neg. (DOE) + Excellent Benefits: Guru Careers: A Finance Account Manager with...