From telegraph.co.uk
Original source
Staff from the bank’s investment banking arm privately told the management - including chief executive Jamie Dimon - that the bank’s Chief Investment Office (CIO) was an “accident waiting to happen”.
Bill Winters, the former co-chief executive of JP Morgan’s investment banking division, is understood to have been among senior staff at the bank who made clear their concerns about the risks being taken by the CIO.
Mr Winters and other staff from the investment bank raised their worries, saying the unit did not fully understand the risks it was taking and was not properly managing its positions.
In a further blow on Friday night, JP Morgan's credit rating was cut one notch by Fitch, while S&P lowered the bank's outlook to negative from stable.
JP Morgan shocked the market on Thursday evening with its disclosure that it had made a net loss in the past six weeks of $800m as a result of $2bn of trading losses from the CIO. Mr Dimon apologised for what he described as a “grievous mistake” and said it was the result of “errors, sloppiness and bad judgment”. Shares in the bank dropped 9.3pc on Friday in the wake of the revelations, wiping $14.4bn off the company's market value.
London-based staff working the CIO business have been singled out as directly responsible for much of the loss, including French-born trader Bruno Iksil, who is known among City fund managers and peers as “Voldemort” after the villain in the Harry Potter books, as well as “the London Whale”.
Mr Iksil’s nickname is due to the size of the trades he is reputed to have placed. Since 2007 the value of the assets held by the CIO had tripled in value to more than $350bn at the end of 2011.
Ina Drew, the New York-based chief investment officer of the bank who was responsible overall for the division, received $14m in salary and bonuses last year. She is now under scrutiny, as is Achilles Macris, the London-based head of the CIO business and Mr Iksil’s direct manager.
It is understood that, as early as 2007, staff in JP Morgan raised queries with managers about the positions being taken by the CIO, which, they thought, showed the business was taking unnecessary risks.
Managers were also told of concerns about the quality of risk management in the unit, which was regarded as relatively unsophisticated compared with the systems used by JP Morgan investment banking division. Analysts at CreditSights said many of the trades placed by the CIO “could be difficult to exit”, raising the prospect of new losses for the bank.
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