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JPMorgan slashes CEO Dimon's bonus on "Whale" trade

A man walks past JPMorgan Chase & Co's international headquarters on Park Avenue in New York July 13, 2012. REUTERS/Andrew Burton
A man walks past JPMorgan Chase & Co's international headquarters on Park Avenue in New York July 13, 2012. REUTERS/Andrew Burton

By David Henry and Rick Rothacker

NEW YORK (Reuters) - JPMorgan Chase & Co's board of directors cut Chief Executive Jamie Dimon's annual bonus in half, citing the company's $6.2 billion "London Whale" trading loss.

Dimon's pay was slashed even though JPMorgan, the largest U.S. bank, said fourth-quarter net income jumped 53 percent, and earnings for 2012 set a record. The fourth-quarter results were helped by increased mortgage lending profits and a decline in the costs for bad loans.

The board said the bank's strong results were a key reason to give Dimon a bonus, but the London trading losses cut into his compensation.

"As chief executive officer, Mr. Dimon bears ultimate responsibility for the failures that led to the losses in the Chief Investment Office," the bank said in a filing on Wednesday with the Securities and Exchange Commission.

Dimon's pay for 2012 was $11.5 million, the company said in the filing, including a salary of $1.5 million and a bonus of $10 million. In 2011, Dimon was paid $23 million, including the same salary and a bonus of $21.5 million.

Dimon told reporters on a conference call he "respects" the board's decision.

The board's move followed calls from government officials after the financial crisis for companies to cut, or even take back pay from executives at companies that lose money for failing to control risk.

"It is not going to affect his lifestyle, but it is important symbolically," said Charles Elson, director of the John L. Weinberg Center for Corporate Governance at the University of Delaware.

The trading loss, which was suffered primarily in the second quarter of 2012, has been a major embarrassment for the company.

The debacle has become known for the London Whale nickname that hedge fund traders gave to JPMorgan trader Bruno Iksil, for the large positions he established from London for the Chief Investment Office. The trade, made with credit derivatives, became too big for the company to exit easily.

The report of the bank's management task force, released on Wednesday, primarily assigns blame to three executives beneath Dimon: Ina Drew, the former chief investment officer; Barry Zubrow, the former risk chief; and Douglas Braunstein, the former chief financial officer.

Drew failed to properly oversee the trades that led to the losses, Zubrow failed to properly set up the risk function in the Chief Investment Office, and Braunstein was responsible for a weakness in financial controls, the report said.

But Dimon was not without blame either, according to the task force.

"(He) could have better tested his reliance on what he was told," the task force said, while also praising him for responding "forcefully" when he learned of the problem.

While Dimon said Wednesday the Whale position was close to being a "non-issue" from a trading standpoint, regulators were still probing what happened. He also acknowledged the trade caused another modest loss in the fourth quarter, though he declined to say how much.

In a conference call with analysts, Dimon said the company plans to reduce its share buybacks in 2013 in a bid to build capital to meet stricter international standards by the end of the year.

When asked if increased regulatory scrutiny spurred by the Whale loss had played a role in the bank's more conservative plan, Dimon said: "Not really."

Fourth-quarter net income rose to $5.69 billion, or $1.39 a share, from $3.73 billion, or 90 cents a share, a year earlier. Results for both periods included special items.

Baird analyst David George said JPMorgan's results should compare favorably to peers and other brokers. Goldman Sachs Group Inc , the fifth largest U.S. bank by assets, also posted stronger profits on Wednesday.

MORTGAGE REVS JUMP

JPMorgan's revenue from mortgage production, excluding losses on repurchases of past loans, increased 51 percent to $1.6 billion.

JPMorgan, like Wells Fargo & Co , which is the nation's largest home lender, has benefited from being a middleman in the U.S. Federal Reserve's drive to channel inexpensive money to borrowers to support the housing market and the economy. Revenue from making home loans has eased the squeeze on bank profit margins that has come with low interest rates.

The provision for credit losses plunged 70 percent to $656 million.

"We continued to see favorable credit conditions across our wholesale loan portfolios and strong credit performance in our credit card portfolio," Dimon said in a statement.

On a conference call, Dimon said the first quarter of 2013 was "probably okay" for the mortgage business. As the mortgage refinancing boom runs its course, some worry that lending for new purchases will not rise fast enough to offset the decline.

JPMorgan shares edged up 0.2 percent to $46.41 in mid-day trading. The stock has more than recovered all of the $26 billion in market value it lost in the first two weeks after the company acknowledged the Whale trade. Dimon said share buybacks were still a good deal at current prices.

"All in, we think it's a good quarter for JPM, and underscores their solid earnings power," Nomura analyst Glenn Schorr said in a note to clients. "Solid earnings progression, capital build & return and reasonable valuation should make '13 another good year in the stock."

(Reporting by David Henry in New York and Rick Rothacker in Charlotte, North Carolina; Writing by Ben Berkowitz; Editing by Jeffrey Benkoe)

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