Should JPMorgan Fire the London Whale?

Would you fire an employee responsible for losing your company a couple billion dollars? I mean, hey, mistakes happen. But we’re talking two billion, here, with a “B”.

It’s not a hypothetical question, at least not for one major financial institution. As has been widely reported, JP Morgan Chase has now acknowledged that recent trading losses of two billion dollars are “somewhat related” to the controversial activities of a single London-based broker. The broker, whose real name is Bruno Iksil but who is often referred to as The London Whale, made enormous bets on U.S. corporate bonds…and lost.

I don’t think anyone has seriously suggested firing The Whale, at least not in public. But it does make you wonder. Even a company the size of JPMorgan can’t quite shrug off losses of that magnitude. And as others have pointed out, the hit to the company’s reputation may be more damaging, in the long run, than the short-run hit to its bottom line.

It’s worth noting that The London Whale was not a rogue trader. Indeed, his strategy was widely known, and apparently approved of by top executives at the company’s chief investment office.

Still, executive approval or no, it would be easy enough to make a scapegoat of The London Whale. But of course, that would be disingenuous, and the complicity of the Whale’s bosses is now public knowledge. And anyway, it’s entirely possible that the company will continue to see him as a valuable trader. He lost money this time around, but only insiders have the numbers to know how much he has made or lost for the company during his years there. And it’s entirely possible for even a losing bet to be regarded as one that it was smart to make in the first place.

There is also a public interest angle here. One of the key lessons of the last 4 years has been that innovative risk-taking by financial institutions can be a threat to the public good, not to mention the public purse. So even if The London Whale, and his overseers, aren’t destined to be axed by those who serve the company’s shareholders, that doesn’t mean they don’t collectively deserve our opprobrium, in addition to warranting stricter regulation.

1 comment so far

  1. Constant Geographer on

    You make an important distinction, I think, in that you distinguish Bruno Iksil from the “Rogue Trader” ilk. This episode reminds me of 1995s Nick Leeson, who caused the collapse of Barings, Jerome Kerviel who cost French Societe Generale $6.7B in 2008, and the 2011 $2B UBS loss caused by Kweku Adoboli. In those cases, rogue traders were responsible, were caught, tried, and convicted.

    What happens when the loss is part of doing business?

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