Ina Drew, the former top banker who oversaw JP Morgan's London Whale trading losses, insisted that she was not to blame for the $6.2bn (£4.1bn) black hole that ended her 30-year career.
During hostile questioning in a US Senate hearing, Drew said her oversight had been "reasonable and diligent" and blamed the problems on "deceptive conduct by members of the London team".
Drew, who was one of Wall Street's highest-paid bankers, was head of the "chief investment office" that oversaw the London trading operation where the so-called London Whale trading incident took place. The incident is so called because a trader named Bruno Iksil, known as the London Whale because of the size of the positions he took, made a bad bet on derivatives positions. The Senate investigation found Iksil had objected to the directives of his bosses over the trades and called their instructions "idiotic".
"Some members of the London team failed to value positions properly and in good faith, minimised reported and projected losses, and hid from me important information regarding the true risks of the book," Drew said.
JP Morgan was mauled by members of the Senate subcommittee, which criticised chief executive Jamie Dimon for withholding information from regulators as the bank's London losses mounted.
The bank had snubbed regulators, manipulated documents and flouted its own risk rules as it racked up losses, senators said.
The hearing, chaired by retiring Democratic senator Carl Levin, came a day after the committee published a damning 300-page report on JP Morgan's handling of the London Whale trade. "Firing a few traders and their bosses won't be enough to stanch Wall Street's insatiable appetite for risky derivative bets or stop the excesses. More control is needed," said Levin in his opening statement.
"The American people have already suffered one devastating economic assault rooted largely in Wall Street excess, and they cannot afford another. When Wall Street plays with fire, American families get burned. The task of federal regulators, and of this Congress, is to take away the matches. The Whale trades demonstrate that task is far from complete," he said.
The committee heard that Dimon temporarily withheld key data from the regulator, the Office of the Comptroller of the Currency, as the bank's trading problems grew. Executives said the bank was concerned that information had been leaked in the past. "I'm not sure that there are many organisations or institutions that could get away with such a thing," said Senator John McCain.
Douglas Braunstein, JP Morgan's chief financial officer, said: "Senator, the report in question, I am not certain, I am not aware, if it was a report required to be sent to regulators."
According to the senate committee, JP Morgan changed the model it used to measure the risks it was running shortly before the massive losses were disclosed. The change gave the appearance of halving the risk being taken by JP Morgan even as the bank's London traders were taking ever riskier bets. Dimon dismissed press releases about the mounting losses as nothing more than a "tempest in a tea cup". Levin suggested that the bank started trying to aggressively mark down its losses.
Levin asked Braunstein whether it was appropriate for the bank to attempt to minimise its losses. Braunstein denied that they did this. Levin brought up a transcript of a conversation between Drew and Javier Martin-Artajo, who supervised the London traders.
"It's absolutely fine to stay conservative, but it would be helpful, if appropriate, to get … to start getting a little bit of that mark back," she said. Drew said that she was "challenging him" to show that the position was correct with data.
"But you used the word helpful. Right?" said Levin. "Tweaking is not a prediction or a hope, by the way – tweaking is changing something.
"And I hope the guidance that you would give would be against tweaking," he said. "The suggestion was that he tweak something to make the numbers look better."
The Senate hearing follows JP Morgan's own investigation in January, which put the blame on Drew for failing to be sure that her team understood the traders.JP Morgan's acting chief risk officer, Ashley Bacon, said the bank had taken many actions to make sure that something like this could not happen again.
What they said
Former JP Morgan banker Ina Drew
"I did not, and do not, believe I bore personal responsibility for the losses … Some members of the London team failed to value positions properly and in good faith; minimised reported and projected losses; and hid from me important information regarding the true risks of the book."
Senator Carl Levin "If derivatives books can be cooked as blatantly as they are in this case without breaking the rules, then the rules need to be revamped."
Senator Levin to Drew "You said Jamie Dimon [JP Morgan's chief executive] knew about all the ... trading. Is that true?" Drew "Yes."
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