JPMorgan Slashes CEO Dimon's Bonus Due to 'Whale' Trade

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, the company said on Wednesday.

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 securities filing.

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

It is 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 for the trading losses to the failure of 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.

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 fell 1.2 percent to $45.80 in early 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."