The City's reputation suffered another blow yesterday as JPMorgan revealed a sharp escalation in losses from the activities of some of its London traders.
Bets on credit placed by the bank's London-based Chief Investment Office (CIO) racked up losses of $4.4bn (£2.8bn) between April and June, more than twice the initial estimate of $2bn. Combined with first-quarter losses of $1.4bn, the total stands at $5.8bn.
Jamie Dimon, the chief executive, admitted that the bank "had shot itself in the foot". He said an internal investigation had raised questions about the values that traders placed on certain bets, and that the traders may have sought to mask losses.
Ina Drew, the so-called "Queen of Wall Street" who had responsibility for the unit, quit as a result of the affair, and Mr Dimon said she had offered to give back pay. The traders responsible, who have been fired, will also lose up to two years' money.
Further losses of up to $1.7bn are possible, but overall JPMorgan still made profits of $5bn, down 7 per cent, in the second quarter. The bank saw a $2.1bn reduction in bad debt write-offs and gained $1bn from equities held in the CIO.
The three London-based bankers at the heart of the affair, including Bruno Iksil, the so-called London whale, left JPMorgan recently.
Mr Iksil and his immediate bosses, Achilles Macris and Javier Martin-Artajo, were suspended from trading when the losses were discovered in May, but stayed to help unwind the positions. All three remain on the Financial Services Register of authorised people.
Mr Dimon, who has been called before Congress twice in recent months, said that the part of the bank where the losses mounted up, the synthetic credit group in the CIO, has been closed down.
He told investors: "These kind of events are terrible but we have had hundreds of people working around the clock to get this thing hustled down and hopefully we will be a better company for it. We are not proud of this moment but we are a very proud of the company. We are not making light of this error but we believe this is an isolated event."
Mr Dimon denied that his bank had become too big to manage. But his traders have given further ammunition to critics of the City of London who are fuming over the Libor interest rate fixing scandal which cost Barclays £290m in fines. Around 20 global banks remain under investigation and more fines are expected.
Critics have been given further ammunition by a recent su rvey by the US whistleblowers' law firm Labaton Sucharow which found that one in four London finance professionals believe "financial services professionals may need to engage in unethical or illegal activity to get ahead".
Asked if the JPMorgan trading scandal would be another blow to London's reputation, the longtime City commentator David Buik, from Cantor Index, said: "How can it not be? It is appalling by any standards. There is a regulation, a compliance or a credit problem or all three."
From the opposite side of the political divide, Brendan Barber, the TUC's general secretary, said: "The recent banking scandals show that there has not just been poor regulation in the City, but a far greater cultural failure of bonus-fuelled greed and short-termism that has turned the City into an industry that serves itself and has wrecked the rest of the economy."