J.P. Morgan Claws Back Comp on 'Whale'

J.P. Morgan Chase & Co. threw the book at the traders behind the "London Whale" blunder, seizing millions of dollars of compensation in what it called the "maximum permitted clawback" under its policies.

The New York company said Friday the clawbacks cover three London-based managers who had "direct responsibility" over the synthetic-credit portfolio at the center of the trading losses the company first disclosed in May. People familiar with the situation said the traders are Achilles Macris, Javier Martin-Artajo and Bruno Iksil, the trader nicknamed the "London Whale" for his outsize trading positions at the bank's Chief Investment Office, or CIO.

The company didn't disclose specific numbers but said the amount clawed back from each person represents about two years of total annual compensation. The recovered sums include restricted stock and canceled stock options grants.

Ina Drew, a top lieutenant of Chief Executive James Dimon who ran the CIO until the losses were disclosed this spring, volunteered to return pay in line with the maximum clawback, Dimon said on a conference call with analysts and investors.

Ms. Drew declined to comment. Attorneys for Messrs. Macris and Martin-Artajo didn't immediately respond to requests for comment. Iksil didn't immediately respond to a request for comment.

J.P. Morgan's plan is the most prominent instance of a major U.S. bank seeking to recover pay from a high-ranking executive since the financial crisis. Bank policies permit the company to recover compensation paid to employees who engage in behavior deemed to hurt a company and its shareholders, in a bid to reduce incentives for employees to take unnecessary risks.

The company said Friday the trading losses have hit $5.8 billion and could increase by as much as $1.7 billion in what it deemed a worst-case scenario. J.P. Morgan also said Friday it was restating its first-quarter earnings to reflect possible mismarking of trading positions in the CIO. The bank said the restatement of first-quarter results reflects "recently discovered information that raises questions about the integrity of the trader marks and suggests that certain individuals may have been seeking to avoid showing the full amount of the losses in the portfolio during the first quarter."

The restatement and the clawbacks are the latest fallout from an episode that has bruised the bank since The Wall Street Journal reported in April that traders in the CIO were making outsize wagers on certain corporate credit indexes. The bank has lost more than $20 billion of market value since the May disclosures, though J.P. Morgan shares rose Friday.

Messrs. Macris, Martin-Artajo and Iksil have been "separated" from the firm, the company said in a release, with no severance pay. The Wall Street Journal reported their departures from the company Friday.

Dimon said Ms. Drew offered to give up "a significant amount of past compensation" that he said is equivalent to the maximum clawback allowable. Ms. Drew earned $15.5 million in 2011 compensation, including $7.5 million in stock awards, and was due as much as $14.7 million in termination payments.

Rules aimed at recovering pay go back a decade. The Sarbanes-Oxley Act, passed in 2002 after Enron Corp.'s failure, empowered companies to claw back pay from executives in the event of a financial restatement or certain misconduct, and the Dodd-Frank financial overhaul of 2010 expanded the types of behavior that can be subject to recovery. J.P. Morgan in 2010 expanded its policy to cover behavior that contributed to outsize losses or reputational harm.

"For members of the Operating Committee and senior employees with primary responsibility for risk positions and risk management, the Firm may cancel or require repayment of shares if employees failed to properly identify, raise, or assess risks material to the Firm or its business activities," the company said in its proxy statement this spring.

Until now, there have been few known financial-sector examples. The most notable recent case was a February decision by UBS AG, struggling to deal with a rogue-trading scandal, to rescind some share-based payouts for investment-bank employees due to receive bonuses of more than $2 million apiece.

Many Wall Street firms have expanded their clawback policies in recent years, but it isn't clear how often they have been used.

At Credit Suisse Group AG, a spokeswoman said the firm has had clawbacks for traders for more than a decade, and the policy has lately been expanded. Some of the firm's proprietary traders had their pay clawed back after losses suffered in 2008 during the financial crisis, according to a person familiar with the matter.

Goldman Sachs Group Inc. also has used clawbacks in some circumstances, according to people close to the bank, but hasn't disclosed specifics.

This story first appeared on WSJ.com.

Write to Dan Fitzpatrick at dan.fitzpatrick@wsj.com