The JP Morgan “Whale” Report and the Ghosts of the Financial Crisis
The Harvard Law School Forum on Corporate Governance and Financial Regulation 2013-01-24
The apparition of 2008 returns once more. Two recently released JP Morgan Chase (JPM) reports on the causes of the "London Whale" trading losses raise important questions about whether financial service firms can exorcise the spectral issues which were so central to the financial crisis. They read as if JPM and a key headquarters unit — the Chief Investment Office — had not learned a single lesson from the meltdown four years ago. And unfortunately, they suggest that, in our huge, complex financial institutions, major failures of organizational discipline and major losses are likely to recur, despite greater attention to risk management.
These reports — one from a company task force and a second from a review committee of the board — were overshadowed by two items announced the same day: the related news that the bank board had slashed CEO Jamie Dimon's annual compensation in half — from $23 million in 2011 to $11.5 million in 2012 — because of his "Whale-related" failures, and that JPM had posted a record 2012 net income of $21.3 billion.