Stuff JP Morgan bankers say: "There’s no hope. … The book continues to grow, more and more monstrous."

The London Whale report, digested.

The first major investigation into the London Whale scandal is underway - JP Morgan has been accused of "lying to investigators" as losses escalated last year. The losses came from a synthetic credit portfolio - a series of wagers on credit derivatives - which grew rapidly to $6bn. According to the report, the downward spiral was evident by March, but CEO Jamie Dimon pretented it wasn't, calling it a "tempest in a teapot" in early April.

The report is here, (warning, it's over 300 pages). It gathers together a juicy selection of emails, telephone conversations and instant messages, which amount to an interesting reminder that, whether discussing libor-rigging or a trading-loss cover-up, whether at Barclays or JP Morgan, banker communications are all cut from the same cloth.

It charts their last-minute attempts to forstall the multi-billion dollar loss - which get increasingly burlesque:

I can’t keep this going, we do a one-off at the end of the month to remain calm. I think what he’s [Mr. Martin-Artajo’s] expecting is a remarking at the end of the month, you can’t do it unless it’s month-end. … I don’t know where he wants to stop, but it’s getting idiotic. … [N]ow it’s worse than before … there’s nothing that can be done, absolutely nothing that can be done, there’s no hope. … The book continues to grow, more and more monstrous.

At one point, bank executives "yell at" OCC examiners and call them "stupid":

When asked if the CIO’s aggressive reaction to the 2010 examination of the CIO was unique, the OCC indicated that it was not. In fact, the OCC Examiner-In-Charge at JPMorgan Chase told the Subcommittee that it was “very common” for the bank to push back on examiner findings and recommendations. He recalled one instance in which bank executives even yelled at OCC examiners and called them “stupid.” In another example, in early 2012, according to the OCC, the most junior capital markets OCC examiner arrived at a meeting at the bank to discuss with his bank counterpart the results of a recent OCC stress examination. But instead of meeting with a single risk manager, he was, in his words, “ambushed” by all the heads of risk divisions from all the lines of business at the bank, including JPMorgan Chase’s Chief Risk Officer, John Hogan. Given the senior rank of the bank officials, the junior OCC examiner normally would not have led the meeting, but the bank officials pressed him to disclose the OCC’s preliminary conclusions. According to the OCC examiner, on every issue, the bank’s risk personnel criticized the OCC’s findings and recommendations, and the meeting assumed a loud and “combative” tone.

The report details an email sent by Bruno "the London Whale" Iksil to Javier Martin-Artajo on 30th January in 2012, worrying about increasing losses from the bet. He said that it had become "scary". A second email to Martin-Artajo came from Achilles Macris, equally worried. He says that "the book doesn’t behave as intended”.

Nothing was sorted out, and in the weeks that followed, things got worse. On March 22nd, traders were told to stop trading, able to mask the losses by presenting them in a favourable light. However, the differences between these favourable valuations of the derivatives and the actual midpoint prices had by this point "increased to 300" (that's £300m), and traders found they had become unsustainable.

By the time Jamie Dillon made his teapot remark, the report found that he was “already in possession of information about the . . . complex and sizeable portfolio, its sustained losses for three straight months, the exponential increase in those losses during March and the difficulty of exiting the . . . positions”.

The Senate panel said that “the written and verbal representations made by the bank were incomplete, contained numerous inaccuracies, and misinformed investors, regulators, and the public”. The investigation continues.

JP Morgan is being investigated. Photograph: Getty Images

Martha Gill writes the weekly Irrational Animals column. You can follow her on Twitter here: @Martha_Gill.

Photo: Getty
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Who will win in Stoke-on-Trent?

Labour are the favourites, but they could fall victim to a shock in the Midlands constituency.  

The resignation of Tristram Hunt as MP for Stoke-on-Central has triggered a by-election in the safe Labour seat of Stoke on Trent Central. That had Westminster speculating about the possibility of a victory for Ukip, which only intensified once Paul Nuttall, the party’s leader, was installed as the candidate.

If Nuttall’s message that the Labour Party has lost touch with its small-town and post-industrial heartlands is going to pay dividends at the ballot box, there can hardly be a better set of circumstances than this: the sitting MP has quit to take up a well-paid job in London, and although  the overwhelming majority of Labour MPs voted to block Brexit, the well-advertised divisions in that party over the vote should help Ukip.

But Labour started with a solid lead – it is always more useful to talk about percentages, not raw vote totals – of 16 points in 2015, with the two parties of the right effectively tied in second and third place. Just 33 votes separated Ukip in second from the third-placed Conservatives.

There was a possible – but narrow – path to victory for Ukip that involved swallowing up the Conservative vote, while Labour shed votes in three directions: to the Liberal Democrats, to Ukip, and to abstention.

But as I wrote at the start of the contest, Ukip were, in my view, overwritten in their chances of winning the seat. We talk a lot about Labour’s problem appealing to “aspirational” voters in Westminster, but less covered, and equally important, is Ukip’s aspiration problem.

For some people, a vote for Ukip is effectively a declaration that you live in a dump. You can have an interesting debate about whether it was particularly sympathetic of Ken Clarke to brand that party’s voters as “elderly male people who have had disappointing lives”, but that view is not just confined to pro-European Conservatives. A great number of people, in Stoke and elsewhere, who are sympathetic to Ukip’s positions on immigration, international development and the European Union also think that voting Ukip is for losers.

That always made making inroads into the Conservative vote harder than it looks. At the risk of looking very, very foolish in six days time, I found it difficult to imagine why Tory voters in Hanley would take the risk of voting Ukip. As I wrote when Nuttall announced his candidacy, the Conservatives were, in my view, a bigger threat to Labour than Ukip.

Under Theresa May, almost every move the party has made has been designed around making inroads into the Ukip vote and that part of the Labour vote that is sympathetic to Ukip. If the polls are to be believed, she’s succeeding nationally, though even on current polling, the Conservatives wouldn’t have enough to take Stoke on Trent Central.

Now Theresa May has made a visit to the constituency. Well, seeing as the government has a comfortable majority in the House of Commons, it’s not as if the Prime Minister needs to find time to visit the seat, particularly when there is another, easier battle down the road in the shape of the West Midlands mayoral election.

But one thing is certain: the Conservatives wouldn’t be sending May down if they thought that they were going to do worse than they did in 2015.

Parties can be wrong of course. The Conservatives knew that they had found a vulnerable spot in the last election as far as a Labour deal with the SNP was concerned. They thought that vulnerable spot was worth 15 to 20 seats. They gained 27 from the Liberal Democrats and a further eight from Labour.  Labour knew they would underperform public expectations and thought they’d end up with around 260 to 280 seats. They ended up with 232.

Nevertheless, Theresa May wouldn’t be coming down to Stoke if CCHQ thought that four days later, her party was going to finish fourth. And if the Conservatives don’t collapse, anyone betting on Ukip is liable to lose their shirt. 

Stephen Bush is special correspondent at the New Statesman. His daily briefing, Morning Call, provides a quick and essential guide to British politics.