14 AugIt all comes back to haunt you

The London Whale. That story is not going away and the latest revelations have something in common with the recent LIBOR shenanigans; people pressured into doing the wrong thing.

JP Morgan’s problems occurred in the London office of their CIO, the Chief Investment Officer. It seems that some of the highest paid people in the bank worked in that team. One of the London team,┬áJavier Martin-Artajo, was earning north of $10mm in 2010. In 2012, the good Javier needed a solid P&L to keep being paid the same chunk of change. The latest reports (For more detail, click here.) have alleged, based on some real evidence, that Martin-Arajo pressured one of his team to mark the trading book away from market prices. Apparently too, the person who was pressured, Julien Grout, actually kept a spreadsheet tracking the difference between the true numbers and the fudged ones.

Armed with this trail of evidence, it appears that in the US there will be a criminal investigation. That would seem to be appropriate, as the mis-deeds resulted in JPM’s public results appearing better than they really were. The extent to which this was an act of conspiracy, with two people working in concert, rather than somebody simply being pressurised will occupy our learned friends from the legal profession.

Lessons Learned: Now, the assets in question were certainly rather exotic, however it seems that the independent price valuation process (IPV) that ought to take place, was either inadequate or totally absent. It also seems that one of the team succumbed to the pressure to “do the right thing”. From the media coverage it is not clear quite how well Julien Grout was paid and whether he chose to play along to keep the money coming in. Keeping a record of the deception was a dangerous approach; in the absence of whistle-blowing, the evidence suggests this is another sad tale of greed in the City gone wrong. You have to hope that those involved spend some time in jail.


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