Bloomberg reports that the bank restated first-quarter results, paring profit by $459m, in part because an internal review revealed that U.K. traders had priced their books 'aggressively', Mike Cavanagh, Head of Treasury & Securities Services, said in a July 13th meeting with analysts. The mispricing made losses on a portfolio of credit derivatives look smaller than they were, and executives concluded that traders may have sought to hide the 'full amount of losses', JPMorgan said in a presentation.
JPMorgan requires traders to mark their positions daily so the firm can track their profits, losses and risk. An internal control group double-checks the marks against market prices monthly and at the end of each quarter, said three former executives from the CIO and a senior executive in market risk. The firm uses the control group’s prices, not what individual traders submit, to calculate earnings, making it difficult for one trader or trading desk to rig prices, the people said.
'We just have questions about whether the traders were doing what they need to do for accounting, which is put a mark on their positions where they think they can exit', Cavanagh, who led the internal review, said on a conference call with reporters. 'Instead, it felt more like they were pricing their marks a little bit more aggressively, but generally inside the bid-ask spread'.
The decision to restate results for the first three months of 2012 was made one day before New York-based JPMorgan reported second-quarter net income of $4.96bn, and after executives and lawyers interviewed employees, and reviewed thousands of hours of calls and about 1 million e-mails, said Cavanagh.
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