Investors and federal investigators turned up the heat on JPMorgan Chase on Tuesday, as shareholders called for pay givebacks from executives responsible for a stunning $2 billion trading loss and the Federal Bureau of Investigation opened a preliminary review of the debacle.
The FBI case will examine potential criminal wrongdoing at JPMorgan, according to people briefed on the matter, representing the most serious inquiry to stem from the losses. The investigation, which is being led by the FBI’s New York office, will in part scrutinize JPMorgan’s accounting practices and public disclosures about the trades that prompted the loss, the people briefed on the matter said. JPMorgan also recently received questions from federal prosecutors in New York, one person said.
They cautioned that the inquiry was at an early stage and that it was routine for federal authorities to open a case after a big bank disclosed a huge blunder. No one at JPMorgan has been accused of wrongdoing.
While the trading loss is not likely to blow a hole in JPMorgan’s balance sheet, the trades could continue to spill red ink for months, costing the bank several billion dollars.
And ultimately, the more lasting damage could be to the once-stellar reputation of the bank and its chief executive, Jamie Dimon.
News of an FBI investigation came after the bank concluded its annual meeting, held in Tampa on Tuesday morning. Shareholders generally showed support for the bank’s leadership at the meeting, but raised questions about the oversight of its embattled leader.
About nine out of 10 shareholders supported Dimon’s $23 million compensation package and elected management’s nominees to the board. But four out of 10 of them wanted to replace Dimon as chairman with an independent director. He is both chief executive and chairman.
While the majority of shareholders had voted before the bank’s announcement last Thursday of the bet gone bad, several investors said that the latest trading blunder illuminated the dangers of allowing a chief executive to operate with limited oversight.
“There is an essential and potentially disastrous conflict of interest when the same person shares both jobs,’’ said Lisa Lindsley, the director of capital strategies at AFSCME Employees Pension Plan, which proposed the independent chairman resolution. She added. “There is clearly not a sufficient check on Mr. Dimon.’’
At the meeting Tuesday, a visibly agitated Dimon, who seemed to race through his opening remarks, said the board ensures that he is operating in the best interest of the company. He pointed to its 11-person operating committee as proof that he does not have undue influence.
Continuing his apologies about the trading loss, Dimon told investors that the bank had made mistakes, which he called “self inflicted.’’ Still, investors were not placated. Some seized on Dimon’s position on the board of the Federal Reserve Bank of New York as even further evidence of the executive’s undue influence.
That concern was initially raised by Elizabeth Warren, the driving force behind creation of the Consumer Financial Protection Bureau and a Massachusetts candidate for the Senate, who called Monday for Dimon to give up his seat on the board of the Fed. Dimon countered that he had limited influence in that role and could not even vote on the Fed’s chairman.
Adding to the fallout from the trade, New York City’s comptroller, John C. Liu, demanded that the bank “claw back every single dollar possible’’ from the compensation of executives tainted by the trade, including Ina R. Drew, who oversaw the office that orchestrated the trade and resigned on Monday.
Dimon said Tuesday that the bank “will do the right thing’’ and that may include clawbacks.
The bank’s proxy statement says that stock awards can be wiped out or reclaimed if an “employee engages in conduct that causes material financial or reputational harm’’ to JPMorgan. A senior executive at JPMorgan said Tuesday that it was exceedingly likely that it would claw back compensation from Drew. She was among the most powerful women on Wall Street, and last year she earned roughly $14 million.
Shares of JPMorgan rose 1.26 percent on Tuesday, to close at $36.24, still down 11 percent from when the trading debacle was made public Thursday.