London traders 'face arrest' over £4bn bank loss

US agents to seek extradition of two former JPMorgan Chase bankers accused of cover-up

London's reputation as a global financial centre is poised to be tarnished further after it emerged last night that two former employees of a major US bank are suspected of concealing a near £4bn trading loss from the heart of its UK operation in Canary Wharf.

Two former employees of JPMorgan Chase are expected to be arrested in London this week, according to US reports. Federal investigators said the men are suspected of trying to cover up a $6bn trading loss last year. The loss, disclosed in 2012, was an embarrassment for the US's biggest bank and raised concerns about risk-taking on Wall Street four years after the financial crisis.

A federal grand jury voted to indict both men on criminal fraud charges, according to The New York Times. Reports linked the charges to evidence provided by Bruno Iksil, a trader at JPMorgan in London who placed the large bets that led to the loss. Mr Iksil, who was dubbed the London Whale, is not the subject of any investigation the reports said.

Last night the US attorney's office in New York declined to comment on the allegations, as did the Federal Bureau of Investigation and JPMorgan.

Both employees, named last night as Javier Martin-Artajo, a manager, and Julien Grout, a trader, could ultimately be extradited. But those briefed on the matter, who spoke on condition of anonymity, cautioned that it is unclear whether British authorities will be able to locate the men, as they are natives of other European countries.

The losses at the heart of the JPMorgan case stemmed from outsize wagers made by the traders at the bank's chief investment office in London. The traders used derivatives – complex financial contracts the value of which is typically tied to an asset like corporate bonds – to bet on the health of other large companies. The trades turned sour last year, racking up steep losses for the bank. It has been reported that, after studying internal emails and phone recordings, prosecutors and the FBI concluded the two employees understated the value of their trades to hide the problem from New York executives.

The investigation into the trading losses stems from early 2012. As their bet worsened, JPMorgan has said, the traders started to underestimate the losses.

Since the loss announcement, the bank has overhauled its controls and ousted the employees involved. The bank's chief executive, Jamie Dimon, has apologised for the breakdown in oversight. The bank also commissioned an internal investigation into the trades, ultimately turning over its findings to federal authorities and a Senate subcommittee.

While authorities are not pursuing charges against JPMorgan's top executives, according to reports, the bank expects to be fined by regulators including Britain's Financial Conduct Authority.

While embarrassing for JPMorgan, the case is also expected to show British regulators in a poor light for their inability to properly supervise major international banks.

City regulators have been criticised for failing to spot the lending boom and subsequent bust and for consistently failing to curb the risky trading of banks, resulting in expensive bailouts by the taxpayer.