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Morgan cited on Sumitomo
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April 3, 1997: 8:27 a.m. ET
Report: Federal and state regulators reprimand blue-chip bank
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NEW YORK (CNNfn) -- Federal and state banking regulators have reportedly singled out J.P. Morgan & Co. for lax management in its relationship with Sumitimo Corp., the Japanese trading company rocked by a copper trading scandal.
The Wall Street Journal reported Thursday that J.P. Morgan was the only U.S. bank reprimanded by Federal Reserve and New York State banking officials. Bankers Trust New York Corp., Chase Manhattan Corp. and Citicorp were also involved in business transactions with Sumitomo.
The newspaper said it remains unclear why J.P. Morgan alone was cited in the six-month investigation into the role of U.S. banks in the Sumitomo scandal or exactly what it did wrong.
J.P. Morgan had loaned $400 million to Sumitomo trader Yasuo Hamanaka in the form of derivative transactions that allowed Hamanaka to account for the loans as copper trades and not outright loans. The other banks also loaned Sumitomo money through a similar method. However, J.P. Morgan is believed to have had a much closer relationship with the Japanese firm, the newspaper said.
A legend in the base-metals arena, Hamanaka was blamed last year for $2.6 billion in losses from copper trades. U.S. regulators subsequently initiated an investigation into the role U.S. banks played in the scandal.
Neither the regulators nor J.P. Morgan officials would comment on the reprimand. The newspaper said sources familiar with the investigation said bank officials were stunned. J.P. Morgan has long prided itself on a pristine record. As the only U.S. bank disciplined, the action is particularly embarrassing for the blue-chip bank.
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J.P. Morgan
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