A Whale Tale: How A JPMorgan London Trader Lost $2bn

JPMorgan confirmed that a senior executive involved in the firm’s $2bn loss is to resign.

It’s been an embarrassing and costly time for the investment bank.

A single trader, Bruno Iksil – known as the London Whale – is believed to be responsible for very costly derivative trades.

Anchor Lisa Mullins speaks with Justin Urquhart-Stewart, director and co-founder of Seven Investment Management, about London’s “financial whales”.

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Lisa Mullins: It’s a whale of a tale that has financial regulators riling and heads rolling. Today JP Morgan announced that the senior executive involved in the firm’s 2 billion dollar trading-loss is leaving the company. The creator is nicknamed “The London Whale” for the enormous volume of his risky business. The whale is still employed. JP Morgan promises to investigate the matter and learn from its mistakes. Now this sort of corporate failure is exactly what American regulators were hoping to eradicate after the 2008 financial collapse on Wall Street. Yet, it’s happened again, by way of London this time. Justin Urquhart-Stewart has worked in the British capitol’s financial district for many years now. He is director and co-founder of Seven Investment Management. We asked him earlier today how many other whales are lurking in London.

Justin Urquhart-Stewart: We have a limited supply of whales I’m pleased to say, although, there are some. And of course, in the past we’ve had a history of them. The reason being of course, London is the most international market. It’s not the world’s largest market at all, but it is very international. So in terms of overseas traders coming in, in terms of overseas banks, we get a huge number of different areas coming in.

Mullins: Could you describe and compare the level of regulation right now in places like the UK versus the United States?

Urquhart-Stewart: The United States would be looked upon as having far more detailed regulation. The SCC is seen as being a very intrusive regulator, one which is actually making sure they’re controlling every aspect. Whereas, of course, in the United Kingdom, you’ve seen is much more light touch regulator overall. In hindsight, of course, that was a huge mistake and we needed a regulator not much of a heavy touch, but a more intelligent regulator that it understood the transactions going on. And of course that was the problem. We have more and more complex derivative trades and the regulators who are supposed to be looking after didn’t understand them. The bankers were in a different style of bankers than the one before. And [xx] how the government and actually moved the regulation of the banks out of the bank of England, the primer regulator, to a brand new regulator called the Financial Services Authority, who didn’t know any matter at all. So a combination of issues came together with more training, more risk, and less understanding.

Mullins: Yeah, more trading and more risk, and some would say more kind of straight up gambling versus actual business being done?

Urquhart-Stewart: Yes, you can come across this in the formal spread betters. And I don’t know how prudent they are in the United States, but these are basically gambling houses by any other name, except they put themselves in a pair of braces on to look a little bit smarter. And frankly, I know more…

[crosstalk]

Mullins: Sorry, we should explain braces being suspenders.

Urquhart-Stewart: Oh I’m sorry.

Mullins: That’s OK.

Urquhart-Stewart: That means something else over here. So as I’m wearing my suspenders now of course hopefully I’m not one of those spread betters. But, nonetheless, what you would find is that these houses tend to be quite literally betting, and aren’t really running investment structures that we would normally understand. So there has been this element of higher risk. But this is now coming home to roost. Having said that, people like the London whale, while there are many of those around, taking those levels of risks, and that I doubt very much indeed, because since the financial crisis of only a few years ago, a lot of that was supposed to been tighten up, bind you. It was supposed to be ties up at JP Morgan as well. So really, while now it looks rather safe, it wonders how many other whales are there. They’re not really whales. How many other pods’ going with the whales.

Mullins: Justin Urquhart-Stewart, director and co-founder of Seven Investment Management, speaking to us from London. Nice to talk to you.

Urquhart-Stewart: Thank you. Goodbye.

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