JPMorgan unit ‘played to different rules’

The risk of losses is tallied by the bank using a so-called value at risk (VaR) calculation. However, the Chief Investment Office, the unit responsible for the high-profile loss that JPMorgan disclosed last Thursday, had a separate VaR system.

It used a less stringent calculation that gave a lower risk assessment of its trades, according to people who previously worked at the bank.

The unit also reported directly to CEO Jamie Dimon, a factor which allowed it to maintain a separate risk monitoring set-up to other parts of the investment bank, these people said.

Despite repeated warnings from executives inside the firm as long ago as 2005, the CIO unit remained notably free from oversight.

A source with knowledge of the situation said that these warnings included the size of the CIO, the fact that its risk reporting was not transparent and the scope for the unit to get “bigger and bigger” because it had a lower cost of funding than the rest of the investment bank.

Until April, the CIO unit’s unusual autonomy allowed it to build up risky positions without triggering alarms.

Ina Drew, who headed the unit, earned more than $15m in each of the past two years, making her among the highest-paid executives at the bank.