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What Caused JPMorgan's Loss Of $2 Billion?


Joining us now is Gregory Zuckerman. He is a special writer for The Wall Street Journal. He's been covering the story since it broke in early April. And Gregory, to start, tell us more about the man who's believed to be at the heart of this, of the $2 billion in losses, known as the London Whale, I hear.

GREGORY ZUCKERMAN: Sure. His name is Bruno Iksil. He's an interesting guy. He lives in Paris, but he commutes to London. Wears a lot of black. Informal dresser. He comes home, (unintelligible) from his home in Paris on Fridays, the rest of the week is in London. And he is one of a group - it's a group called the CIO group, and frankly, when I started reporting on this, analysts and investors didn't really know much about this group. And the more I uncovered it the more fascinating it became. They're a group that ostensibly hedges the positions of the banks. So the bank does all these loans and other kinds of things, and the group is charged with protecting and hedging the bank by doing various trades. But it also is charged with making money. So it does things that can potentially be risky at the same time.

CORNISH: So Bruno's reputation as a trader though, I mean, what kind of guy was he?

ZUCKERMAN: Bruno Iksil had been a very successful trader. He made more than $100 million for JPMorgan Chase in recent years. He often was able to take advantage of problems in the market. When everyone was selling and panicked, he and the group over there at JPMorgan Chase in the London office and elsewhere of the CIO group, they were buying. And they were able to do that because they had the big, huge fortress balance sheet of JPMorgan Chase. So Bruno Iksil had been doing quite well, but earlier this year, when he became a little too bullish on the market and on companies, people started calling and wondering about him, and there was a buzz on Wall Street saying, he was getting too big and the positions were getting too risky. At the time, JPMorgan expressed confidence in the risk management and in Bruno and in his team. But it seems like they didn't do as good a job protecting themselves in this giant group and in Bruno's trades.

CORNISH: So is Bruno Iksil solely to blame for what happened here?

ZUCKERMAN: Bruno Iksil is not solely to blame. His superiors knew what he was doing. He's not a rogue trader. That's a point that needs to be underscored here. His bosses knew what he was doing and his bosses' bosses supposedly knew, at least that's what they told us originally. Now the argument is that they didn't know all the details. But I don't think it's fair to point all the blame at Bruno. There was an issue of risk management. There was an issue of just poor decision-making in the trading side of things, and also, just having a group dedicated to both hedging and making money just may not make sense for the largest bank in the country.

CORNISH: Can you explain to us about the issue of oversight? Who was watching these traders then?

ZUCKERMAN: Well, it's an interesting group because it's not part of the commercial bank. It's not part of the investment bank. They were self-contained in some ways and they did have people keeping an eye on them. But they weren't the professionals that do this day-to-day in some of the other areas. And that's frankly what they're doing now. They're bringing in some of the pros from investment banking to clean up the mess.

CORNISH: Gregory, put this in perspective for us in terms of the size of this mistake. We know it's $2 billion and counting in terms of the loss for JPMorgan Chase, but this is a bank which once, you know, described its balance sheet as a fortress. So is this just a short-term problem, or is it about long-term competence in the company?

ZUCKERMAN: Several billion dollars is significant for JPMorgan, but it's not a killer. They made about $19 billion last year, to give you some context. But I do think that the larger issue here is the lack of credibility of the largest bank in the United States. Just a month or so ago, they dismissed the concern that we raised in our story at The Wall Street Journal and lack of credibility is something that is going to hurt them going forward, and it's also going to raise the issue of too big to fail. If there is an institution in this country - a financial institution that's too big to fail, it is JPMorgan Chase. And this underscores that we, as citizens, have to be very concerned.

CORNISH: Gregory Zuckerman, thank you for talking with us.

ZUCKERMAN: Great to be here.

CORNISH: Gregory Zuckerman is a special writer for The Wall Street Journal. Transcript provided by NPR, Copyright NPR.