Did JP Morgan Chase Draw Any Conclusions from the London Fiasco?
The uncontrolled operation of too-big-to-fail banks remains a huge risk in the eyes of Americans and, consequently, is a huge risk for the global financial system. However, these banks continue to oppose tougher financial regulation in every way possible. More proof of this came today, during a Senate Banking Committee panel with the head of JP Morgan Chase & Co., Jamie Dimon.
The reason for this hearing was the thunder that came booming from a supposed bright blue sky in May, the announcement of the bank’s colossal losses — the largest in the United States by asset size. Then it turned out that the London branch of the bank’s financial transaction division lost at least $2 billion, and possibly a billion more, due to imprudent derivatives-based transactions. Paradoxically, the purpose of those transactions was hedging — that is, insurance against risk.
The beginning of Dimon’s speech was marred by protests. A group of activists chanted demands to “stop” the bankers, particularly foreclosures. Before the protestors were thrown out of the courtroom, one man yelled in the face of the financier: “Jamie Dimon is a crook!”
The banker listened without showing any emotion. During his testimony, which had been circulated in advance, he argued that what happened in London was a single occurrence that did not endanger the safety of the bank, which he likened to a “fortress balance sheet.” “We expect our quarter to be solidly profitable,” Dimon said. He also said that his company is taking its own measures to avoid repetitions of this event and “probably” would force top managers to return some of their bonuses.
The previous day the Wall Street Journal wrote that, as early as two years ago, some of JP Morgan’s senior executives knew of the risky transactions in London. According to the newspaper, Dimon himself knew of some of the transactions and was talking to those who were involved. Nevertheless, in April he called doubts about the bank’s trading strategy “a tempest in a teapot,” though later he was forced to publicly admit he was “dead wrong.”
The reason for this hearing was the thunder that came booming from a supposed bright blue sky in May, the announcement of the bank’s colossal losses — the largest in the United States by asset size. Then it turned out that the London branch of the bank’s financial transaction division lost at least $2 billion, and possibly a billion more, due to imprudent derivatives-based transactions. Paradoxically, the purpose of those transactions was hedging — that is, insurance against risk.
The beginning of Dimon’s speech was marred by protests. A group of activists chanted demands to “stop” the bankers, particularly foreclosures. Before the protestors were thrown out of the courtroom, one man yelled in the face of the financier: “Jamie Dimon is a crook!”
The banker listened without showing any emotion. During his testimony, which had been circulated in advance, he argued that what happened in London was a single occurrence that did not endanger the safety of the bank, which he likened to a “fortress balance sheet.” “We expect our quarter to be solidly profitable,” Dimon said. He also said that his company is taking its own measures to avoid repetitions of this event and “probably” would force top managers to return some of their bonuses.
The previous day the Wall Street Journal wrote that, as early as two years ago, some of JP Morgan’s senior executives knew of the risky transactions in London. According to the newspaper, Dimon himself knew of some of the transactions and was talking to those who were involved. Nevertheless, in April he called doubts about the bank’s trading strategy “a tempest in a teapot,” though later he was forced to publicly admit he was “dead wrong.”