J.P. Morgan Chase & Co., the world's biggest bank, will pay regulators $920 million for the 2012 "London Whale" trades in which it ultimately totaled more than $6 billion in derivatives losses.
Regulators in the United States and United Kingdom announced Thursday that the bank would pay the fines for "unsafe and unsound practices" with regard to derivatives trades by the bank's Chief Investment Office.
It's the latest and biggest move regulators have taken to crack down on risky trading practices at big banks.
J.P. Morgan will pay the Office of the Comptroller of the Currency $300 million, the Federal Reserve $200 million, the Securities and Exchanges Commission another $200 million, and the UK’s Financial Conduct Authority about $220 million. The bank's trading losses that regulators identified as malpractice stemmed from a derivatives bet made by a J.P. Morgan employee based in London.
Thomas Curry, the Comptroller of the Currency, said the fines and losses suffered by JP Morgan "serve as important reminders to all bankers of the importance of prudent controls, strong governance and effective risk management."
J.P. Morgan's CEO, Jamie Dimon, responded to the fines in a press statement saying that the bank has "accepted responsibility and acknowledged our mistakes from the start, and we have learned from them and worked to fix them."
The fines follow a lengthy probe by regulators and several congressional hearings on the activities that led to the losses. Initially, Dimon raised hackles by calling the uproar over the trades a "tempest in a teapot," but softened his rhetoric in his appearances before Congress after the losses mounted.
J.P. Morgan admitted wrongdoing as part of the settlement, fulfilling a key goal of regulators. Mary Jo White, the chairman of the SEC who took office in April, said earlier this year that agency would seek admission of misconduct in more cases. Previously, consumer advocates and judges have criticized the SEC for settling with banks in recent years without demanding that they own up to their misdeeds.
“At its core, today’s case is about transparency and accountability, and JPMorgan’s admissions are a key component in that message," said George Canellos, co-director of the SEC's Division of Enforcement.
The agency also released a list of seven items of the bank's wrongdoings that it acknowledged. The list, which the SEC noted is not comprehensive, notes the "woefully deficient" accounting procedures in the bank's investment office and that senior members of the bank's management knew traders weren't accounting properly for the losses on derivatives.
Dimon has been one of the chief critics of a provision in the Dodd-Frank financial regulation reform law that would limit banks from engaging in the kinds of speculative trades that led to J.P. Morgan's losses.
The settlement is the largest since a $550 million deal with the SEC by Goldman Sachs in 2010 for the infamous "Abacus" mortgage security that went bad during the height of the financial crisis. The key player in that deal, former Goldman trader Fabrice Tourre, was found guilty of fraud in August.
Regulators said they would continue looking into the role that individuals played in J.P. Morgan's losses. The bank also faces inquiries from other regulatory bodies than the ones it settled with Thursday, and for other cases.