Bl***y Banks Again

Rate Scandal Stirs Scramble for Damages

By NATHANIEL POPPER


As unemployment climbed and tax revenue fell, the city of Baltimore laid off employees and cut services in the midst of the financial crisis. Its leaders now say the city’s troubles were aggravated by bankers’ manipulation of a key interest rate linked to hundreds of millions of dollars the city had borrowed.

Baltimore has been leading a battle in Manhattan federal court against the banks that determine the interest rate, the London interbank offered rate, or Libor, which serves as a benchmark for global borrowing and stands at the center of the latest banking scandal. Now cities, states and municipal agencies nationwide, including Massachusetts, Nassau County on Long Island, and California’s public pension system, are looking at whether they suffered similar losses and are weighing legal action.

Dozens of lawsuits filed by municipalities, pension funds and hedge funds have been consolidated into a few related cases against more than a dozen banks that are involved in setting Libor each day, including Bank of America, JPMorgan Chase, Deutsche Bank and Barclays. Last month, Barclays admitted to regulators that it tried to manipulate Libor before and during the financial crisis in 2008, and paid $450 million to settle the charges. It said other banks were doing the same, but none of them have been accused of wrongdoing.



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Libor, a measure of how much banks must pay to borrow money from one another in the short term, is set through a daily poll of the banks.

The rate influences what consumers, businesses and investors pay on a wide range of financial contracts, as varied as mortgages and interest rate swaps. Barclays has said it and other banks understated the rate during the financial crisis to make themselves look healthier to the public, rather than to make more money from clients.

As regulators and lawmakers in Washington and Europe assess the depth of the Libor abuse and the failure to address it, economists and analysts are already predicting it could be one of the most expensive scandals to hit Wall Street since the financial crisis.

Governments and other investors may face many hurdles in proving damages. But Darrell Duffie, a professor of finance at Stanford, said he expected that their lawsuits alone could lead to the banks’ paying out tens of billions of dollars, echoing numbers from a recent report by analysts at Nomura Equity Research.

American municipalities have been among the first to claim losses from the supposed rate-rigging, because many of them borrow money through investment vehicles that directly derive their value from Libor. Peter Shapiro, who advises Baltimore and other cities on their use of these investments, said that “about 75 percent of major cities have contracts linked to this.”

If the banks submitted artificially low Libor rates during the financial crisis in 2008, as Barclays has admitted, it would have led cities and states to receive smaller payments from financial contracts they had entered with their banks, Mr. Shapiro said.

“Unambiguously, state and local government agencies lost money because of the manipulation of Libor,” said Mr. Shapiro, who is managing director of the Swap Financial Group and is not involved in any of the lawsuits. “The number is likely to be very, very big.”

The banks have declined to comment on the lawsuits, but their lawyers have asked for the cases to be dismissed in court filings, pointing to the many unusual factors that influenced Libor during the crisis.

The efforts to calculate potential losses are complicated by the fact that Libor is used to determine the cost of thousands of financial products around the globe each day. If Libor was artificially pushed down on a particular day, it would help people involved in some types of contracts and hurt people involved in others.

Securities lawyers say the lawsuits will not be easy to win because the investors will first have to prove that the banks successfully pushed down Libor for an extended period during the crisis, and then will have to demonstrate that it was down on the day when the bank calculated particular payments. In addition, investors may have to prove that the specific bank from which they were receiving their payment was involved in the manipulation. Before it even reaches the point of proving such subtleties, however, the banks could be compelled to settle the cases.

One of the major complaints was filed by several traders and hedge funds that entered into futures contracts that are traded through the Chicago Mercantile Exchange and that pay out based on Libor. These contracts were a popular way to protect against spikes in interest rates, but they would not have paid off as expected if Libor had been artificially lowered.

A 2010 study cited in the suit — conducted by professors at the University of California, Los Angeles and the University of Minnesota — indicated that Libor was significantly lower than it should have been throughout 2008 and was particularly skewed around the bankruptcy of Lehman Brothers.

A separate complaint filed in 2010 by the investment firm Charles Schwab asserts that some of its mutual funds, including popular ones like the Schwab Total Bond Market Fund, lost money on similar investments.

The complaints being voiced by municipalities are mostly related to their use of a popular financial contract known as an interest rate swap. States and cities generally enter into these swaps with specific banks so that they can borrow money in the bond market. They pay bondholders based on a floating interest rate — like an adjustable-rate mortgage — but end up paying their bankers a fixed rate through a swap. If Libor is artificially lowered, the municipality is stuck paying the same fixed rate, but it receives a smaller variable payment from its bank.

Even before the current controversy, some municipal activists have said that banks took advantage of the financial inexperience of municipal officials to sell them billions of dollars of interest rate swaps. Experts in municipal finance say that because of the particular way that cities and states borrow money, they are especially liable to lose out on their swaps if Libor drops.

Mr. Shapiro, who helps cities, states and companies negotiate these contracts, said that if a city had interest rate swaps on bonds worth $1 billion and Libor was artificially pushed down by 0.30 percent, which is what the lawsuits contend, that city would have lost $3 million a year. The lawsuit claims the manipulation occurred over three years. Barclays’ settlement with regulators did not specify how much the banks’ actions may have moved Libor.

In Nassau County, the comptroller, George Maragos, said in a statement that according to his own calculations, Libor manipulation may have cost the county $13 million on swaps related to $600 million of outstanding bonds.

A Massachusetts state official who spoke on the condition of anonymity because of potential future legal actions, said the state was calculating its potential losses.

“We are deeply concerned and we are carefully analyzing all of our options,” the official said.

Anne Simpson, a portfolio manager at the California Public Employees’ Retirement System — the nation’s largest pension fund — said that the fund’s officials “are sifting through the impact, but there certainly is an impact.”

In Baltimore, the city had Libor-based interest rate swaps on about $550 million of bonds, according to the city’s financial report from 2008, the central year discussed in the lawsuit. The city’s lawyers have declined to specify what they think Baltimore’s losses were.

The city solicitor, George Nilson, said that the rate manipulation claims meant that the city lost out on money when it needed it the most.

“The injury we suffered during the time we suffered it hurt more because we were challenged budgetarily,” Mr. Nilson said. “Every dollar we lost due to illegal conduct was a dollar we couldn’t pay to keep open recreation centers or to pay police officers.”

ULSTER BANK ARE STILL HAVING PROBLEMS WITH THEIR SYSTEMS.

I THINK I HEARD THAT BARCLAYS,HSBC AND RBS ETC HAVE GOT INTO PROBLEMS IN CANADA,NOT SURE IF RELATED TO LIBOR ETC OR SOMETHING ELSE.
I WONDER WHEN THE BANKS WILL STOP HAVING PROBLEMS.

That's one thing you can say for the Americans , they are taking action , all these claims from Investment Companies in the US will keep this going for months. If any British Companies decide to sue Barclays U.K. the Bank might be liquidated.

I read this a long time ago, Barclays has a Green Card issued every month to the Trader who made the most profit for the Bank. One Guy took the Green Card to the most expensive Restaurant in London with a few of his friends , ordered loads of drink and the total bill came to £16,000!!!!

Panda wrote:

That's one thing you can say for the Americans , they are taking action , all these claims from Investment Companies in the US will keep this going for months. If any British Companies decide to sue Barclays U.K. the Bank might be liquidated.

I read this a long time ago, Barclays has a Green Card issued every month to the Trader who made the most profit for the Bank. One Guy took the Green Card to the most expensive Restaurant in London with a few of his friends , ordered loads of drink and the total bill came to £16,000!!!!

COULD THE BANKING PROBLEMS STILL BE GOING WHEN I AM 104!

Badboy wrote:

Panda wrote:

That's one thing you can say for the Americans , they are taking action , all these claims from Investment Companies in the US will keep this going for months. If any British Companies decide to sue Barclays U.K. the Bank might be liquidated.

I read this a long time ago, Barclays has a Green Card issued every month to the Trader who made the most profit for the Bank. One Guy took the Green Card to the most expensive Restaurant in London with a few of his friends , ordered loads of drink and the total bill came to £16,000!!!!

COULD THE BANKING PROBLEMS STILL BE GOING WHEN I AM 104!

104, would you like to live to that age Badboy

If Governments don't rein in the Banks after this and refuse a licence to them if they don't accept the new rules, tough , we don't want them . Time was when Banks had to have 11% liquidity , borrowers could only borrow two and a half times their Salary to purchase a House and a wife's income was not taken into account. This was soon ignored which meant a Housing Boom at inflated prices. Even if your House appreciated in value by say £10,000 a year, the bank would lend you more money .!!!! The FSA have been woefully negligent in all this which started 5 years ago.

Bob Diamond wants another meeting with the enquiry because he insists he did not lie.

Panda wrote:

Badboy wrote:

Panda wrote:

That's one thing you can say for the Americans , they are taking action , all these claims from Investment Companies in the US will keep this going for months. If any British Companies decide to sue Barclays U.K. the Bank might be liquidated.

I read this a long time ago, Barclays has a Green Card issued every month to the Trader who made the most profit for the Bank. One Guy took the Green Card to the most expensive Restaurant in London with a few of his friends , ordered loads of drink and the total bill came to £16,000!!!!

COULD THE BANKING PROBLEMS STILL BE GOING WHEN I AM 104!

104, would you like to live to that age Badboy

If Governments don't rein in the Banks after this and refuse a licence to them if they don't accept the new rules, tough , we don't want them . Time was when Banks had to have 11% liquidity , borrowers could only borrow two and a half times their Salary to purchase a House and a wife's income was not taken into account. This was soon ignored which meant a Housing Boom at inflated prices. Even if your House appreciated in value by say £10,000 a year, the bank would lend you more money .!!!! The FSA have been woefully negligent in all this which started 5 years ago.

EVEN IF I WANTED TO LIVE TO 104,I PROBABLY WOULDN'T THAT LONG.

CHANGING THE SUBJECTI HAVE BEEN LOOKING AT TRIODOS BANK WEBSITE, THEY SUPPORT MANY SOCIAL ENTERPRISES.

JUST HEARD ON SKY NEWS THAT BARCLAYS IS IN TROUBLE IN JAPAN

Badboy, Barclays is not the only Bank HSBC is also supposedly involved, another major bank. Britain always had a good reputaion in Banking that has been destroyed by this revelation annd the blame rests firmly with the Government's FSA dept for not monitoring events. It was only when Britain teamed up with the U.S. that all this came to light. Ed Balls supposedly advised " a light touch" as regards investigating the banks.......and he would
be the next Chancellor iif Labour got elected !!!

BOB DIAMOND IS TO APPEAR BEFORE A CONGRESSIONAL COMMITTEE?

Badboy wrote:BOB DIAMOND IS TO APPEAR BEFORE A CONGRESSIONAL COMMITTEE?

Yes, he wants to appear again before the U.K. Committee to refute the claim that he did not tell the truth when he was questiioned previously.

Banks

How Iceland stalks its banksters


12 July 2012
Le Monde Paris Comment




Bromley (Financial Times)


In London, Barclays rigged the interest rates on interbanks loans, while in Madrid, Bankia cooked the books in order go public. How can banks be held accountable? Iceland has appointed a team of investigators that seeks out fraud and sends the perpetrators to court. Excerpts.

Charlotte Chabas


Prior to the economic crisis, Olafur Hauksson was police commissioner in Akranes, a small port town of 6,500 inhabitants stranded at the end of a frozen peninsula some fifty kilometres from Reykjavik. Since 2009, he tracks down and brings to justice those who played a role in the country's economic collapse of 2008.

At the end of 2008, the Icelandic bubble burst as a consequence of the subprime crisis in the United States. Two weeks after the dramatic fall of Lehman Brothers, the country's three major banks – valued at 923% of gross domestic product (GDP) – collapsed. The crisis swept through the island, the Icelandic krona dropped in value and no intervention could halt its downward spiral. On October 6, 2008, live on national television, the then-prime minister ended his speech by asking God to "save the island".

Since that fateful day, Iceland has known troubled times. In 2009, the Icelanders, although not used to demonstrating over social issues, shouted their anger against the politicians and the "neo-Vikings" of finance that betrayed them. The "revolution of pots and pans" forced the resignations of the Parliament and of the conservative government.

One of the demands of that movement was that those that profited from the economic situation and who pushed Iceland into the economic abyss be brought to justice. Early legislative elections [in 2009] brought the left to power. The new prime minister, Johanna Sigurdardottir, wanted to quickly appoint a special prosecutor to investigate the causes of the crisis but candidates applying for the post were hard to find.

Olafur Hauksson, isolated in his little provincial police station, had the merit of having no relations with the elite accused of having hastened the island towards bankruptcy. Despite his total inexperience concerning matters of economic law, he was the only one to apply for the job. More than three years after his appointment, he recognises himself "only recently feeling at ease in his function". Starting out with a team of five, he now manages over one hundred assistants.

Relocating abroad

Theirs is a double burden: "On one hand, we have to investigate all suspicion of fraud and offences committed before 2009, on the other hand, we bring the lawsuits against the suspects to court ourselves," Hauksson explains. This is a "totally new" method which allows the investigators to "follow the case" and the judicial system to "know the cases like the back of their hand". This is indispensable in order "to compete with the well-prepared defence attorneys".

To ease the prosecutor's job, the government modified the laws on banking secrecy. "Today, we have access to all information with no objections possible," claims Olafur Hauksson. Suspected bank fraud, swindles, professional identity theft, misuse of funds, the types of investigations are wide-ranging and the three – soon to be four – interview rooms are never empty. The prosecutor says he is currently working on "a hundred priority cases".

Most of those targeted are former banking sector officials or were board members of banks before the crisis. These Icelanders have often opted to relocate abroad – to Luxembourg, for example – to further their careers. A dispersal that complicates the task of Hauksson's team. Yet searches continue and the team pursues its investigations abroad in the foreign subsidiaries of the Icelandic banks and includes questioning foreigners. "We enjoy full international cooperation," stresses Olafur Hauksson.

To date, some convictions have been achieved. Two former officials of the Byr bank, the first to be brought to trial, are now serving prison sentences of four and a half years. The former chief of staff to the finance minister at the time of the crisis, Baldur Gudlaugsson, was sentenced to two years in jail for insider trading. More recently, Sigurdur Einarsson, former CEO of the Baupthing Bank was sentenced to reimburse the bank 500 million Icelandic kronur – 3.2 million euros – and had his assets frozen.

“Purge” will not take immediate effect

Others are awaiting their day in court. Jon Thorsteinn Oddleifsson, former head of treasury at the Landsbanki, should soon discover his fate, as should Làrus Welding chief executive of the Glitnir Bank.

Olafur Hauksson's work raises vivid criticism from the population. "We know that all eyes are on us, that we must not fail," he says, but "to hasten the process would inevitably lead to errors and, given the current context, with so much mistrust towards institutions on the part of Icelanders, we must, more than ever, be above reproach."

It is difficult to be "above reproach" in a society where questionable practices were standard for a long time. In May, two members of the prosecutor's team sold information for 30 million Icelandic kronur – 191,000 euros – to a mysterious recipient. The two former police officers were investigating the Sjovar/Milestone case, concerning an insurance company in which the Icelandic Central Bank invested before yielding its shares at a loss. Accused of breaching the confidentiality of their function, the two men were suspended and placed on retirement.

The "purge" of the Icelandic financial system, as Olafur Hauksson likes to call it, will not take immediate effect. While aiming to end his mission in 2015, the special prosecutor mainly hopes that Iceland, whose economy has slowly revived, will one day "look back and be proud to have drawn the lessons of the past".


What do you think the Prime Minister will do to curb the excesses of the banks???? Gordon Brown was quick to seize the assets of Icelandic Banks in
Britain too repay British Investors and was villified by the Icelandic President.

It seems as though even the U.S.A. is considering doing away with all these "gambling" practices their Banks have used and wants to bring back normal
Banking so this crisis will never occur again.

RBS and an American Bank are being sued for $1 Billion but RBS is supposedly taking legal action to deny access to Files. This is the Bank I think 70% owned by the Government!!!! Gordon Brown also bailed out Northern Rock which has recently been sold to Branson for a loss. This Libor scandal will
involve several Banks, even in Japan so the Economy will not pick up and the next stage in the cycle "depression" is not far off. Bl**dy Banks and
incompetent regulators.

BAUPTHING BANK,SHOULD THAT BE KAUPTHING BANK OR AM I CONFUSED?

Panda wrote:
RBS and an American Bank are being sued for $1 Billion but RBS is supposedly taking legal action to deny access to Files. This is the Bank I think 70% owned by the Government!!!! Gordon Brown also bailed out Northern Rock which has recently been sold to Branson for a loss. This Libor scandal will
involve several Banks, even in Japan so the Economy will not pick up and the next stage in the cycle "depression" is not far off. Bl**dy Banks and
incompetent regulators.

BARCLAYS BANK WAS DENIED THE OPPORTUNITY TO BUY JAPANESE BANK BONDS BECAUSE OF THE LIBOR SCANDAL.

Badboy, this scandal will go on and on and I see several Banks going Bankrupt. and to think they had the Bl**dy cheek to complain about Vince Cable's
decision to remove Retail Banking in 5 years time from Investment Banking so that the ordinary Bank accounts would not get caught up in these
crazy Bank deals which has made the whole concept of the word BANK meaningless, they are more like Casinos.

Panda wrote:

Badboy wrote:BOB DIAMOND IS TO APPEAR BEFORE A CONGRESSIONAL COMMITTEE?

Yes, he wants to appear again before the U.K. Committee to refute the claim that he did not tell the truth when he was questiioned previously.

Perhaps he'll go before a committee consisting of members he is not on first name terms with this time...

malena stool wrote:

Panda wrote:

Badboy wrote:BOB DIAMOND IS TO APPEAR BEFORE A CONGRESSIONAL COMMITTEE?

Yes, he wants to appear again before the U.K. Committee to refute the claim that he did not tell the truth when he was questiioned previously.

Perhaps he'll go before a committee consisting of members he is not on first name terms with this time...

Hi malena, I think it is the Chairman he is after and Agias being questioned by the Committee if you watched it was obviously out of his depth and not used to being questioned .

I shouldn't laugh because I am so angry that these Banks have cheated their Clients and brought the World into turmoil. If it hadn't been for the U.S.
this would not have been exposed and many U.S. Investment Companies and Public Offices are taking action.

Just realised one of my Banks,Barclays,has had my address wrong for the last 16 years ! Lucky the post code was right but wrong street,was wondering why some of my stuff went missing.

Panda wrote:

malena stool wrote:

Panda wrote:

Badboy wrote:BOB DIAMOND IS TO APPEAR BEFORE A CONGRESSIONAL COMMITTEE?

Yes, he wants to appear again before the U.K. Committee to refute the claim that he did not tell the truth when he was questiioned previously.

Perhaps he'll go before a committee consisting of members he is not on first name terms with this time...

Hi malena, I think it is the Chairman he is after and Agias being questioned by the Committee if you watched it was obviously out of his depth and not used to being questioned .

I shouldn't laugh because I am so angry that these Banks have cheated their Clients and brought the World into turmoil. If it hadn't been for the U.S.
this would not have been exposed and many U.S. Investment Companies and Public Offices are taking action.

PENSION FUNDS AS WELL

I was watching a Dispatches program about Tax Avoidance and would you believe it, some Members of HMR own or are Chairman of offshore Tax
Haven Companies in Luxembourg, Guernsey and even Mauritius!!!!!

Latest News , Geithner , the U.S. equivalent of our Chancellor of the Exchequer sent a cable to King, Governor of the Bank of England in 2008 voicing
his concern about LIBOR in 2008 but King did nothing,!!!!!! Betwen the Bank of England and HMR unable or willing to close the loopholes in tax avoidance
Britain has lost the prestige it had for honesty. King and Geithner are to be questioned.

Morgan Stanley and DeutcheBank are the Latest Banks to be involved in the scandal and are being sued by Investment Companies and County Councils
it is expected that Shareholders will face at least 15% reduction in the value of their shares,Banks are already vulnerable so who knows where this will end....Bl**dy Banks.!!!!

LEICESTER CITY COUNCIL IS TO TAKE THEIR MONEY OUT OF BARCLAYS BECAUSE OF LIBOR SCANDAL

Badboy wrote:LEICESTER CITY COUNCIL IS TO TAKE THEIR MONEY OUT OF BARCLAYS BECAUSE OF LIBOR SCANDAL

Whatever amount David Parsons, the recently resigned Tory leader of Leicestershire County Council, has not claimed in expenses.

13 July 2012 Last updated at 19:09 Share this pageEmail Print Share this page


Bank of England Governor Sir Mervyn King and US Treasury Secretary Timothy Geithner discussed concern about Libor interest rates as early as May 2008.

Mr Geithner, who headed the New York Federal Reserve at the time, called for procedures to prevent misreporting.

The Bank of England said concerns were widespread at the time, but they had seen no evidence of wrongdoing.

But separate documents released by the New York Fed indicate that the Americans did have some evidence.

Several banks are being investigated for allegedly manipulating Libor, the daily figure which reflects the amount that banks are charging to lend each other money, and which is the benchmark for trillions of dollars worth of financial transactions.

It stands for London Interbank Offered Rate, and is made up of banks' own estimates each day of their borrowing costs in various currencies and various fixed terms up to one year.

'Absolute rubbish'

In one transcript of a telephone call from 11 April 2008 released by the New York Fed on Friday, a Barclays employee told the New York Fed that Barclays was underreporting its rate to avoid the stigma associated with being an outlier with respect to its Libor submissions, relative to other participating banks.

In a later telephone call, on 24 October 2008, a Barclays employee told a Fed official that the Libor rate was "absolute rubbish".

"Yesterday's ... it's a touch lower than yesterday's but please don't believe it. It's absolute rubbish," said the unnamed Barclays employee.

"I think the problem is that the market so desperately wants libors down it's actually putting wrong rates in," he went on to say, explaining that Barclays - and some of its peers - were under-reporting their rate to avoid being perceived as an outlier compared to other participating banks.

There was a great deal of concern, both within Barclays and the government, as to why Barclays' Libor submissions were higher than other banks at the height of the financial crisis at the end of 2008.

A higher submission rate might be interpreted by the market as a sign that Barclays was in particular trouble compared with other banks, and this created an incentive for Barclays to under-report its true cost of borrowing to the Libor committee.

Barclays' high Libor submissions had led some to suspect that - after the part-nationalisations of RBS, Lloyds and HBOS - Barclays would be next, deputy Bank of England governor Paul Tucker told MPs on the Treasury Committee earlier this month.

'Enhancing credibility'

In late April the New York Fed said it began seeking ways to deal with the "problems with Libor", a statement said.

It also met with officials from the British Bankers' Association (BBA), the UK banking lobby and which is in charge of Libor, to express concerns and "establish in greater depth the flaws in the Libor-setting process."

The BBA at the time was already aware of rate manipulation at Barclays, according to the US Commodity Futures Trading Commission, after a senior treasury manager at the bank informed the body that the bank was not "clean-clean".

It is yet unknown whether the BBA had notified the Bank of England, and if not, why.

The Bank of England said Sir Mervyn and Mr Geithner had met in May 2008 at a summit of central bankers in Basel.

Mr Geithner emailed Sir Mervyn on 1 June 2008 a set of recommendations for "enhancing the credibility of Libor", the Fed's statement said.

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US concerns about Libor
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However, the email does not specify evidence given by the Barclays employee and it is unknown to what extent the Bank of England governor was aware of the wrongdoing.

The recommendations included one that would "eliminate the incentive to misreport", a document released by the Bank of England showed.

The New York Fed suggested that Libor figures should be published without identifying which banks had reported particularly high or low borrowing costs - something that might have taken the pressure off a bank in Barclay's position.

Sir Mervyn then responded Mr Geithner shortly afterwards, saying he had passed the Fed's recommendations onto the BBA.

"As it is clear from the report... the New York Fed helped to identify problems related to Libor and press the relevant authorities in the UK to reform this London-based rate," said the Fed statement.

In his evidence session, Mr Tucker told MPs that he had personally rung the major banks, urging them to take seriously the review of Libor that the British Bankers' Association - which runs the system - was then carrying out.

Four months later, in October 2008, a senior Barclays executive - chief operating officer Jerry del Missier - instructed traders to keep Barclays' Libor submission rates low.

Barclays has agreed to pay a fine of £290m ($450m) to UK and US authorities for giving inaccurate figures and trying to manipulate Libor rates between 2005 and 2008, initially for profit, and around 2008 to reduce concerns about the extent of financial stress it was under.

Mr del Missier, who resigned from Barclays in the wake of the scandal, is due to face the Treasury Committee on Monday.

New Fraud Inquiry as JPMorgan’s Loss Mounts

By JESSICA SILVER-GREENBERG


Jin Lee/Associated PressJamie Dimon, chief of JPMorgan Chase, entered his bank’s Manhattan headquarters on Friday.

9:07 p.m. | Updated

JPMorgan Chase disclosed on Friday that losses on its botched credit bet could climb to more than $7 billion and that the bank’s traders may have intentionally tried to obscure the full extent of the red ink on the disastrous trades.

Mounting concerns about valuing the trades led the company to announce that its earnings for the first quarter were no longer reliable and would be restated. Federal regulators, who were already examining the trades, are now looking at whether employees of the nation’s biggest bank by assets intended to defraud investors, according to people with knowledge of the matter.

The revelations left Jamie Dimon, the bank’s chief executive, scrambling for the second time within two months to contain the fallout from the trading debacle. It has already claimed one of his most trusted lieutenants, compelled Mr. Dimon to appear before Congress to account for the blunder and prompted the bank to claw back millions in compensation from three traders in London at the heart of the losses. A top bank official said that the board could also seize pay from Mr. Dimon, but did not indicate that it would do so.


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Since announcing initial losses of $2 billion in May, Mr. Dimon, once vaunted for his risk prowess after navigating the bank deftly through the financial crisis, has worked to prove that any flaws in risk management are limited to the chief investment office, a once-obscure unit with offices in London and New York. But the latest news is prompting fresh questions about whether risk controls throughout the bank are weak.

“This points to fundamental and potentially widespread risk management failure,” said Mark Williams, a professor of finance at Boston University, who also served as a Federal Reserve Bank examiner.

Much more than profits are at stake for Mr. Dimon. The mounting problems from the soured bets strengthen the hand of lawmakers in Washington who have been pushing to curtail the kind of risk-taking that led to the trading losses.

The possible deceptions came to light in a regulatory filing early Friday just before the bank reported its second-quarter earnings. While the bank posted a profit of nearly $5 billion despite the trading losses of $4.4 billion for the quarter, some analysts and regulators zeroed in on the valuation of the trades.

“If traders misrepresented a fact with the intent to defraud, they can be subject to criminal charges,” said Alan R. Bromberg, a securities law expert at Southern Methodist University.

In contrast, investors appeared to accept Mr. Dimon’s pledges that the bank had rooted out the problems and could reap record annual profits. They rallied behind the bank, sending its shares up nearly 6 percent, the best among its peers on an overall strong day for American stocks.

If the trades had been properly valued, the bank said it would have lost $1.4 billion on the position in the first quarter, bringing the total losses to $5.8 billion so far this year. In a conference call with analysts on Friday, Mr. Dimon said that the trade, under the worst market conditions, could result in another $1.7 billion in losses.

In a rare move, the bank seized millions in pay from three managers in the unit’s London office who had “direct responsibility” for the blunder. People with knowledge of the clawbacks said that pay was taken back from Achilles Macris, Javier Martin-Artajo and Bruno Iksil, the trader who gained infamy as the London Whale for his large credit trades.

A lawyer for Mr. Makris declined to comment. A lawyer for Mr. Martin-Artajo could not be reached. Raymond Silverstein, a lawyer for Mr. Iksil, said his client believed he had “done nothing wrong and that he will be exonerated in due course.” While the company did not indicate the total tally for the clawbacks, Douglas Braunstein, the bank’s chief financial officer, said the bank could claim roughly two years of total compensation, including stock options.

Ina R. Drew, the senior executive who resigned as head of the chief investment office shortly after the trading losses, volunteered to give back her pay. The giveback is a precipitous fall for Ms. Drew, once one of Mr. Dimon’s most trusted executives. Ms. Drew earned roughly $14 million last year, making her the bank’s fourth-highest-paid officer. Ms. Drew declined to comment.

JPMorgan said that an internal investigation, led by Mike Cavanagh, a former chief financial officer at the bank, unearthed questions about how traders in the bank’s chief investment office were valuing their bets. After combing through thousands of e-mails and phone call records of traders, senior executives at the bank feared that traders, in an attempt to disguise the magnitude of the losses, improperly marked their trades.

“Certain individuals may have been seeking to avoid showing the full amount of the losses in the portfolio during the first quarter,” the bank said in a statement, but didn’t indicate how many traders may be embroiled in the mismarking.

Certain tough-to-exit trades can be extremely difficult to value, according to current and former traders in the chief investment office. On some positions, “valuing a trade is like throwing a ball at a target while blindfolded,” said a former trader who requested anonymity because of the continuing investigations into the trade. The Securities and Exchange Commission, which is one of several federal regulators investigating the trading losses, is interested in the valuation of the trades, according to a person briefed on the investigation.

Separately, federal regulators from the Office of the Comptroller of the Currency and the Federal Reserve Bank of New York stationed at the bank’s Manhattan headquarters have been examining the valuation of the trades in weekly meetings with the staff at the chief investment office, according to current regulators who insisted on anonymity because the investigations have not concluded.

Mr. Cavanagh said that the executives within the unit were outmatched by the increasing complexity of the bets being made as the unit grew over the last several years. JPMorgan, Mr. Cavanagh, emphasized, is undertaking a “complete revamp of C.I.O. management.” Part of that change began Friday, when the bank announced that Irvin Goldman, who had overseen risk for the chief investment office, was resigning.

Started roughly five years ago, the unit, which grew from a sleepy operation into a profit center, was also torn by internal strife between deputies in New York and London, according to current and former traders.

Mr. Dimon emphasized that the investment office was going to focus on conservative investments. The bank has moved the majority of the soured trade to JPMorgan’s investment banking unit, where Mr. Cavanagh told analysts risk controls were strong.

Mr. Braunstein, the chief financial officer, told analysts that the decision to refile first-quarter earnings was made on Thursday, the day before the bank reported its second-quarter results. The change means that revenue for the first quarter fell by $660 million, and net income dropped by $459 million.

Mr. Dimon urged analysts Friday to focus on the bank’s overall strength.

The bank reported a $4.96 billion profit for the second quarter, down 9 percent from $5.43 billion a year earlier. Revenue also fell to $22.2 billion, down 17 percent from the same period last year.

“All of our client-driven businesses had solid performance,” Mr. Dimon said.

At one point during the earnings call, Mike Mayo, an analyst with Crédit Agricole Securities, asked whether the bank had reached a “tipping point” where it had become too unwieldy to manage.

Mr. Dimon answered with a succinct “no.”

JPMorgan, for its part, has emphasized that the trading loss is a blip in terms of the bank’s overall profitability. Mr. Dimon added that while the bank is “not proud of this moment, we are proud of this company.”


Tags
Doug Braunstein, Jamie Dimon, JPMorgan Chase & Co., Securities and Exchange Commission
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$7 Billion!!!!! and the Banks object to any monitorinng........how many starving people would that amount of money feed.