London Whale Trade Explodes, Current Estimate of JP Morgan Losses as High as $9 Billion. So again, what did Dimon know when? Under the hot lights at the House Financial Services Committee, he repeatedly brushed off the losses on the failed Chief Investment Office trades as no biggie. Let us remind readers that the size of the CIO’s balance sheet would make it the 8th largest bank in the US and it was running half of JPM’s total risk exposures, so it’s hard to see the failure of oversight as something to be waived off.
And now it turns out the losses are going to clock in at a much higher number than the $2 billion that Dimon kept repeating in the hearings. Recall he refused to update that number, maintaining the public would have to wait for the bank’s second quarter earnings release (admittedly, he did signal the final result could come in much higher). Funny that they’ve now leaked out well in advance of that date. Per the New York Times’ Dealbook (hat tip Richard Smith): Occupy the SEC to Jamie Dimon: We Told You So. By Occupy the SEC Jamie Dimon’s plan to enfeeble the Dodd-Frank reforms, specifically the Volcker rule, has blown up spectacularly. Apparently JPM was so confident that their interpretation of the hedging exemption would prevail, that they got ahead of themselves and operated as if this loophople were in effect.
But then things went horribly wrong for them. And the losses are even more damaging since the blowup is the result of activity the law was meant to curtail. Double trouble now for JPM, since it’s inconceivable that the hedging exemption they designed will make it into the final rulemaking. In today’s New York Times, James Wyatt provides an under the radar view of how laws are gutted when the regulators involved in rule-making are heavily lobbied by the regulated. Several visits over months by the bank’s well-connected chief executive, Jamie Dimon, and his top aides were aimed at persuading regulators to create a loophole in the law, known as the Volcker Rule. Michael Crimmins: Why the Cops Should be Knocking on Jamie Dimon’s Door Soon. By Michael Crimmins, who has worked on risk management and Sarbanes Oxley compliance for major banks The scandal surrounding JP Morgan’s losses in its Chief Investment Office is not going away, and for good reason.
Its trading book continues to lose money at an astounding rate. The most recent report estimates that the losses have increased by at least 50% more than the bank’s original loss estimates. The total damage is anyone’s guess at this point. This fiasco is beginning to look a lot like accounting control fraud. Sarbanes-Oxley emerged out of the Enron frauds. Jamie Dimon looks like a very attractive candidate to investigate for SOX violations. For starters, Dimon’s description of what happened rings SOX alarm bells: First of all, there was one warning signal — if you look back from today, there were other red flags. Warning signs and red flags were ignored. JPM has issued quite a few financial statements since 2007 and 2009.
That’s the big picture case. When is a Hedge not a Hedge? The Truth About JP Morgan’s $2 Billion Loss. Must-Read Background Before we can understand what’s really going on with JP Morgan’s loss (which will probably end up being a lot more than $2 billion), we need a little background. JP Morgan: In addition, JPM’s CEO Jamie Dimon: Is a Class A Director of the Federal Reserve Bank of New York, which is the chief bank regulator for Wall Street (including JPM).
Indeed, Dimon served on the board of the Federal Reserve Bank of New York at the same time that his bank received emergency loans from the Fed and was used by the Fed as a clearing bank for the Fed’s emergency lending programs. In 2008, the Fed provided JP Morgan Chase with $29 billion in financing to acquire Bear Stearns. What Does It Mean? Pundits and consumers alike are reacting to JP Morgan’s loss like a startled herd of sheep. They somehow believed that the “best of the breed” bank and CEO – the biggest boy on the block – was immune from losses. And that the biggest of the too big to fails could conceivably fail. Investigating JPMorgan Chase. JP Morgan investment unit played by different high-risk rules | Capital City. Monday, 14 April 2014 JP Morgan investment unit played by different high-risk rules 16 May 2012 This content is not included in your subscription package Please contact us to renew or upgrade your subscription.
Sign In Most popular © Thomson Reuters 2014. (Launches in a new window) Close. More Evidence of Lax Oversight of JP Morgan Chief Investment Office. As reporters keep digging into the “London Whale” story, the picture that emerges about the caliber of risk controls and management supervision at JP Morgan only look worse and worse. The latest revelations comes via the Wall Street Journal. First, that there was no treasurer during the period when the CIO entered into the loss-making trades. The idea that a bank of any size, let alone one as big as JP Morgan, would go for months (five in this case) without a treasurer in place is stunning.
JP Morgan contends this is not germane, since (allegedly) the CIO did not report to the treasurer. Then pray tell, why was it housed in the treasury at all? And the bank’s efforts to make this all sound normal are undermined by this part of the story: So the former treasurer was looking over the positions, even if he was not part of the reporting line (or was he?). J.P. Mr. Indeed, the unit was encouraged to be a profit center, as well as hedging against risk… Why We Regulate. Managing Risks Means Managing Arguments - Justin Fox. By Justin Fox | 9:52 AM May 23, 2012 So it was Lyme disease that did it! The tick-borne illness kept JPMorgan Chase’s Ina Drew out of the office for extended periods in 2010 and 2011. And it was during Drew’s absences, according to a richly detailed account in The New York Times, that the bank’s chief investment office, which she ran, began to get into trouble: The morning conference calls Ms.
Drew had presided over devolved into shouting matches between her deputies in New York and London, the traders said. Whether this really was the main reason for JP Morgan’s $3 billion (and growing) trading loss or not, it does at least sound like it could be true. The words “risk management” usually evokes less subjective, more data-driven pursuits. As far as falsification is concerned, he thought that statements involving stable propensities — such as, ‘The die has a one in six chance of landing on six’ — could be tested by looking at what happens in the long run.
What Was Not Said During Jamie Dimon's Media PR Campaign. Today's Meet The Press PR damage control campaign orchestrated on behalf of Jamie Dimon by the fawning press was just another attempt at redirection, in which a faux contrite Jamie Dimon promises that as a result of being '100% wrong' about his prior "Tempest in a Teapot" description of the Bruno Iksil debacle, he has learned his lesson, and in tried and true American fashion deserves a second chance.
The rest was filler. What was not said is that the entire business model of the modern US banking edifice, where due to the Net Interest Margin limitations imposed by ZIRP, is one of prop trading as being a glorified hedge fund is the only way the banks can generate a rate of return above their cost of capital. What was also not said was the glaring lies by Blythe Masters from a month ago who swore up and down to CNBC that JPM does not engage in prop trading: "We have offsetting positions.