The US Department of Justice is investigating JPMorgan as result of an estimated $2 billion loss made public on May 10, 2012. The loss, the estimates for which had grown to nearly $3 billion as of May 21, 2012, is apparently the result of a trading strategy involving credit default swaps executed by a London-based trader for the bank.
The Senate Banking Committee has already conducted two hearings into the matter, and a third hearing, at which Mr Dimon, Chairman and CEO of JPMorgan, is set to testify, is scheduled for later this summer.
It is routine for the DOJ to open an investigation when a large bank announces a major issue. JPMorgan is the largest US bank, by assets. The investigation will in part look at JPMorgan’s accounting practices and public disclosures about the trades that caused the loss.
In addition to the DOJ investigation, the SEC is investigating disclosure and accounting practices at JPMorgan, specifically the “accuracy and timeliness of [JPMorgan’s risk] disclosure”. The Commodities Futures Trading Commission also announced on May 21 that it intends to conduct an investigation “related to credit derivatives products as traded by the chief investment office of JPMorgan Chase”.
The loss and ensuing investigations have caused shareholders to question the leadership of Mr Dimon and have also spurred calls for the reform of financial regulation in the US. Specifically, banking critics are calling for the enactment of the Volcker Rule, which would prevent banks from conducting proprietary trading. It is unclear whether the Volcker Rule would, in fact, have prevented the JPMorgan loss.