BANKTHINK

London 'Whale' Loomed Large in Trading Probe But Escaped Charges

Print
Email
Reprints
Comment
Twitter
LinkedIn
Facebook
Google+
Partner Insights

Receiving Wide Coverage ...

It's Official: In a widely expected announcement, prosecutors formally charged Javier Martin-Artajo and Julien Grout for their actions to allegedly try to hide JPMorgan Chase losses stemming from the disastrous "London Whale" trades last year. But in addition to the straight news reporting by the Journal, Times, FT and Washington Post, three of the papers also dug into the details around how Bruno Iksil the London Whale himself avoided prosecution by cooperating with authorities building a case against his colleagues. The Journal pointed out that Iksil's name was left out of the criminal complaints, but he is identified under the handle "CW-1." "Prosecutors chose to give Mr. Iksil a relatively rare 'nonprosecution agreement,' partly because he pushed back against his colleagues' alleged efforts to conceal losses." The Times said the decision to make Iksil a potential "top witness" in any future trial "is a step the Justice Department rarely takes, more commonly having an individual plead guilty in exchange for an agreement to cooperate." The FT also observed how Iksil allegedly tried to convince his colleagues that the bank "should take a one-time hit to get the values in line with market prices but was rebuffed." The Times included analysis on how the case reflects the risks banks face trying to value derivatives. "On Wall Street, bets worth hundreds of billions of dollars are valued using a considerable amount of guesswork. The dangers of that approach were revealed on Wednesday in the government's criminal complaints against two former JPMorgan Chase traders."

Wall Street Journal

U.S. District Court Judge Richard Leon, who recently ruled that a regulatory cap on debit swipe fees was too high, had potentially worse news for banks at a hearing Wednesday. (Check out American Banker's take on the hearing here.) Leon suggested "banks would not only collect lower debit fees going forward but may have to reimburse 'funds that have been collected but shouldn't have been.' He also gave the Federal Reserve just a week to come up with a timeline for rewriting its rule that had set the cap. "The judge's push ratchets up pressure on the Fed, which has until the end of September to appeal the court's ruling."

China's "credit binge," which has driven much of that nation's economic growth, is starting to look a lot like a bubble as banks and borrowers start to feel the effects. "Bank-fueled lending to state enterprises and local governments has led to overcapacity; serious debt problems for local governments, companies and lenders alike; and numerous white-elephant projects, from nearly empty malls and resorts to bridges to nowhere." Banks are trying to limit losses by strengthening their balance sheets in advance of an anticipated rise in delinquent loans. "Raising capital will likely be expensive for the banks because investors, who have sold off shares of banks, are worried about their deteriorating health and China's slowing growth."

Consumer borrowing, particularly auto loans, is showing stronger growth, according to a report by the New York Fed. Auto lending rose by $20 billion in the second quarter, and credit-card balances also increased.

Financial Times

"Lex" explored the broader implications for M&A from the Texas deal between Cullen/Frost Bankers and WNB Bancshares. The story focuses on how U.S. bank mergers have been limited to smaller institutions with the biggest banks facing "more significant regulatory headwinds."

The largest global banks had thought they were on their way to being in compliance with Basel III capital standards. But that optimism has diminished in the face of revived efforts by regulators to strengthen Basel requirements even more. Regulators are now "leaning more heavily on an older, less sophisticated measure of debt levels: the leverage ratio." The new leverage ratio is meant to prevent banks from being able to follow the rules simply by "massaging down their assets." "It is a blunter, simpler backstop: a dollar is a dollar whether it is a risky loan or safe government bond. The disadvantage, say bank executives and some officials, is that, without risk weights, it can tempt banks to move towards riskier loans that earn higher returns but are more likely to result in losses."

New York Times

A program in the blighted city of Gary, Ind., offers residents the opportunity "to pay less for a house than for their morning coffee." With a third of its homes unoccupied, the city plans to demolish some but sell others for the whopping price of $1. But there are strings attached. The buyers would have to "meet a minimum income threshold (starting at $35,250 for one person) and demonstrate the financial ability to bring the neglected property up to code within six months. Those selected would have to live in the home for five years before receiving full ownership."

JOIN THE DISCUSSION

SEE MORE IN

Winners and Losers in CIT's OneWest Deal

CIT Group's $3.4 billion deal for OneWest Bank the year's largest bank deal ended long-running M&A speculation surrounding both players. Here's a look at the winners and losers in the deal.

(Image: Bloomberg News)

Comments (0)

Be the first to comment on this post using the section below.

Add Your Comments:
Not Registered?
You must be registered to post a comment. Click here to register.
Already registered? Log in here
Please note you must now log in with your email address and password.
TWITTER
FACEBOOK
LINKEDIN
Already a subscriber? Log in here
Please note you must now log in with your email address and password.