Jamie Dimon and JPMorgan Chase Lose Two Billion Dollars in Six Weeks on Risky Trades

[Conley]

Jamie Dimon, chief executive of JPMorgan Chase & Co., said that “in hindsight we took far too much risk” in his first public comments since his bank’s stock tumbled by more than 9% amid $2 billion of trading losses.

Dimon made the comments on NBC’s Meet The Press in an interview that was taped on Friday afternoon. David Gregory, the host of the political talk program that broadcasts on Sunday mornings, originally taped an interview with Dimon on Wednesday. The next day JPMorgan disclosed that it had experienced $2 billion of trading losses in six weeks related to synthetic credit securities and Dimon did a second interview on Friday.

The trading losses have been a black eye for the nation’s biggest bank and Dimon, who has been lauded for successfully navigating JPMorgan through the credit crisis. But in recent years Dimon has also lobbied hard against new federal regulations like the proposed Volcker Rule that would rein in banks by restricting their ability to make speculative investments. He has also at times appeared smug in belittling critics and the media, including reports in April that warned about the London Whale, the trader whose trades Dimon has now acknowledged were “somewhat related” to the $2 billon of losses.

http://www.forbes.com/sites/nathanvardi/2012/05/13/jamie-dimon-we-took-far-too-much-risk/?feed=rss_home

Where's the incentive to not take those risks when you know the government will bail you out?

[wingrider]

good question,, how come the taxpayer who is footing this bill dont get a bailout... I propose a 2 year moritorium on all taxes

[Peter1469]

We need to bring back Glass-Steagall. Banks should protect citizen's deposits and financial institutions should be free to gamble all they wish. Keep them separate.

[Shoot the Goose]

Yes, in some circles, $2 billion is a lot of money. But can anyone tell me what amount is within reason for JP Morgan to lose in a series of trades that would not then have folks, such as the above posters, saying that this loss by JP Morgan is evidence that this event should have been more regulated ?

Let me explain. JP Morgan has a $2.2 trillion market capitalization. This amount represents one-tenth of one percent of that.

In 2011 JP had $99.8 billion in revenue. This amount is about 2% of that.

As I type this, the DOW is down about 0.7% on the day. Assuming JP was evenly spread in just the DOW, their portfolio would be down about $15 billion just today. However, JP does not have its entire portfolio at such risk. But the example works.

Just this March, JP was one of 15 big banks to pass the federal Reserve Stress test.

That does not mean that one of JP's offices did not make some trades that would not seem as prudent to the rest of the firm. But they are in the risk business. While the Great Recession and the Housing Bubble bust indicated many problems with our system, not the least of which is government and its ability to distort markets, this loss is tiddly-winks.


Out government will lose $4 billion today, btw. That is, it will create $4 billion in debt, spendng/wasting what it does not have.

[Conley]

Losing two billion in six weeks is significant for anyone. I believe JPM's market cap is quite a bit lower than what you state 2.2T? - it's around 137B according to this - http://finance.yahoo.com/q/ks?s=JPM. You probably know this better than I do, so please show me where you're getting these numbers. I'm here to learn.

The reason this news is met with alarm is because it was risk taking behavior that required a government bailout not so long ago. JPM along with others took TARP money. That they repaid these funds is not the issue to me, my concern is that the markets and their behavior have not changed at all, therefore history may repeat itself. It is not right to demand deregulation and no oversight while at the same time expecting the federal government to throw a lifeline when the bet loses.

Welcome to the forums also!

[Conley]

BTW, that market cap lost about 15B in one day, so I think many investors felt these losses by JPM were significant. Even those who held through the news obviously took a hit. The CIO is retiring also. Surely this is significant news?

[dsolo802]

We need to bring back Glass-Steagall. Banks should protect citizen's deposits and financial institutions should be free to gamble all they wish. Keep them separate.Bang. Dead on!

[Shoot the Goose]

Losing two billion in six weeks is significant for anyone. I believe JPM's market cap is quite a bit lower than what you state 2.2T? - it's around 137B according to this - http://finance.yahoo.com/q/ks?s=JPM. You probably know this better than I do, so please show me where you're getting these numbers. I'm here to learn.

The reason this news is met with alarm is because it was risk taking behavior that required a government bailout not so long ago. JPM along with others took TARP money. That they repaid these funds is not the issue to me, my concern is that the markets and their behavior have not changed at all, therefore history may repeat itself. It is not right to demand deregulation and no oversight while at the same time expecting the federal government to throw a lifeline when the bet loses.

Welcome to the forums also!


BTW, that market cap lost about 15B in one day, so I think many investors felt these losses by JPM were significant. Even those who held through the news obviously took a hit.

I should have listed it as their total value of assets invested with them, to manage, not to be confused with what you have linked, which is the value of their stock, which is a completely different horse. That is where this loss occured. In the portfolios that they manage.

If you look to your Yahoo link, you will see such as that their yearly revenue was over $90 billion, and that their cash assets are $866.9 billion, so we are already talking a frame of reference well beyond what $136 B.

Yes, losing $2 billion in one trade, or one hedge, is "significant". But as I note, its a drop in their bucket. I otherwise do not see any basis provided by anyone that makes this anymore than a BFD. The option, and what anyone has advocated, is not as you state:


....... therefore history may repeat itself. It is not right to demand deregulation and no oversight while at the same time expecting the federal government to throw a lifeline when the bet loses.

What I see is a bad trade, or sloppiness by one office of JP, being hyped into something that it was not.

One source for me. It puts their assets at $2.2 T:

http://www.foxbusiness.com/industries/2012/05/11/jpmorgan-losses-argument-for-capital-not-volcker-rule/

[Peter1469]

Yes, in some circles, $2 billion is a lot of money. But can anyone tell me what amount is within reason for JP Morgan to lose in a series of trades that would not then have folks, such as the above posters, saying that this loss by JP Morgan is evidence that this event should have been more regulated ?

Let me explain. JP Morgan has a $2.2 trillion market capitalization. This amount represents one-tenth of one percent of that.

In 2011 JP had $99.8 billion in revenue. This amount is about 2% of that.

As I type this, the DOW is down about 0.7% on the day. Assuming JP was evenly spread in just the DOW, their portfolio would be down about $15 billion just today. However, JP does not have its entire portfolio at such risk. But the example works.

Just this March, JP was one of 15 big banks to pass the federal Reserve Stress test.

That does not mean that one of JP's offices did not make some trades that would not seem as prudent to the rest of the firm. But they are in the risk business. While the Great Recession and the Housing Bubble bust indicated many problems with our system, not the least of which is government and its ability to distort markets, this loss is tiddly-winks.


Out government will lose $4 billion today, btw. That is, it will create $4 billion in debt, spendng/wasting what it does not have.


The books are cooked. JP Morgan has over $78.1T of likely worthless derivative exposure.

Depository banks, which service the general public, should not be allowed to gamble.

http://www.zerohedge.com/news/five-banks-account-96-250-trillion-outstanding-derivative-exposure-morgan-stanley-sitting-fx-de

[Shoot the Goose]

BTW, that market cap lost about 15B in one day, so I think many investors felt these losses by JPM were significant. Even those who held through the news obviously took a hit. The CIO is retiring also. Surely this is significant news?

I know that I quoted this in the prior post, but did not address it directly. Unfortunately, with this event, we are talking two different sets of "investors". What you reference above would be those who own JP stock.

The $2B loss that was revealed Thursday was within the total of funds within JP's portfolios, a completely different batch of money.

As to "significant", my earlier point went to the threshold of "significance", that being that this $2B loss supposedly was significant enough to represent the need for more government oversight and regulation today than existed a week ago today.

I do not see it in the numbers provided.

And "thanks", btw ;)

[Shoot the Goose]

The books are cooked. JP Morgan has over $78.1T of likely worthless derivative exposure.

Depository banks, which service the general public, should not be allowed to gamble.

http://www.zerohedge.com/news/five-banks-account-96-250-trillion-outstanding-derivative-exposure-morgan-stanley-sitting-fx-de

Well, fine to both. And much of that has been debated around the Housing Bubble burst, and all the crazy financial products involved there.

But neither has much to do with this particular loss. As I said, this loss was less than one-tenth of one-percent of their assets, and less than 2% of their yearly revenue. Which by all measures is that it is being hyped as far more than it was, or is. I assume for political purposes.

[Chris]

Shoot, you make some good points about what the loss, a lot to a lot of us, means in context, not a lot.

Peter, if the books are cooked, isn't that fraud that ought to be prosecuted. It doesn't seem to me the government prosecutes any of these financiers.

Glass-Steagall sounds OK but how do you avoid, like gun laws, punishing law abiding financiers?

My suggestion would be to undo corporate laws in such a way that these financial corporations are held responsible for th risks they take, meaning it involves personal risk, not risk with other people's money, and in such a way as to refocus financial institutions from short-terms gains to long-term growth--laws like the Private Securities Litigation Reform Act of 1995 discussed in The misguided practice of earnings guidance (http://www.uic.edu/classes/actg/actg516rtr/Readings/Markets/Earnings-Guidance-1-McKinsey-Full.pdf) (.pdf).

[Shoot the Goose]

Shoot, you make some good points about what the loss, a lot to a lot of us, means in context, not a lot.

Peter, if the books are cooked, isn't that fraud that ought to be prosecuted. It doesn't seem to me the government prosecutes any of these financiers.

Glass-Steagall sounds OK but how do you avoid, like gun laws, punishing law abiding financiers?

My suggestion would be to undo corporate laws in such a way that these financial corporations are held responsible for th risks they take, meaning it involves personal risk, not risk with other people's money, and in such a way as to refocus financial institutions from short-terms gains to long-term growth--laws like the Private Securities Litigation Reform Act of 1995 discussed in The misguided practice of earnings guidance (http://www.uic.edu/classes/actg/actg516rtr/Readings/Markets/Earnings-Guidance-1-McKinsey-Full.pdf) (.pdf).

Good post. I think there is a bit of a consensus to limit the exposure of depositor funds, and hence government bail-outs, to monies deposited for safe-keeping, that being most folks concept of normal banking. Again, just IMMHO, too much of what happened with the Housing Bubble etc became political theater, and passing of the buck, such that we ended up fixing some of what was not broken, while ignoring what was.


Let's hope for better politicians, and then a better fix.

[Peter1469]

Shoot, you make some good points about what the loss, a lot to a lot of us, means in context, not a lot.

Peter, if the books are cooked, isn't that fraud that ought to be prosecuted. It doesn't seem to me the government prosecutes any of these financiers.

Glass-Steagall sounds OK but how do you avoid, like gun laws, punishing law abiding financiers?

My suggestion would be to undo corporate laws in such a way that these financial corporations are held responsible for th risks they take, meaning it involves personal risk, not risk with other people's money, and in such a way as to refocus financial institutions from short-terms gains to long-term growth--laws like the Private Securities Litigation Reform Act of 1995 discussed in The misguided practice of earnings guidance (http://www.uic.edu/classes/actg/actg516rtr/Readings/Markets/Earnings-Guidance-1-McKinsey-Full.pdf) (.pdf).


I agree there should be massive prosecutions. As I have said after the S&L crisis 1000 + bankers got felony raps and another 3000 got misdemeanor raps. Today, nada.

Glass- Steagall separated traditional banks from financial institutions, so the general public's savings were not tossed into a Las Vegas style casino. Of course you can invest in those entities if you wish, you just know what you are getting into.

[Chris]

Tom Easton on Dodd-Frank: "A Terrible Law" (http://reason.com/blog/2012/05/12/tom-easton-on-dodd-frank-a-terrible-law): "To those who feel that the financial crisis was caused by a lack of regulation, Easton counters, "the argument that there needs to be more regulations (on banks) is frankly ludicrous if you look at how they were regulated before.""

Easton addresses Glass-Stealgall beginning 1:14 into video.


http://www.youtube.com/watch?feature=player_embedded&v=348WAJ5XEPM

[Peter1469]

Right on Dodd Frank. Not so right on Glass Steagall. Ever wonder why you earned 9% interest on a checking account in the late 1990s and now you earn around 1%.

Look there are normal people who just want to park their money, and there are real investors who want to take risk. Why not have separate institutions to service them? Why have granny risk her life savings because you don't think that the government has any business regulating banks?

[Mister D]

When I started saving for my house the rates had just plummeted. It would have been nice to earn 6-9% on the $20K or so I put away.

[Peter1469]

When I started saving for my house the rates had just plummeted. It would have been nice to earn 6-9% on the $20K or so I put away.You have already bought, correct?

[Mister D]

You have already bought, correct?

Yeah. I've been here for over a year now. The plus side was that it was a buyers market. Still is.

[Peter1469]

Yeah. I've been here for over a year now. The plus side was that it was a buyers market. Still is.

In general I think the market is going to drop another 30%, but if you are staying for life it doesn't really matter so long as you are employed.

[Mister D]

In general I think the market is going to drop another 30%, but if you are staying for life it doesn't really matter so long as you are employed.

I'm not going anywhere for at least a decade. Could be several for all I know. I like traveling but I don't like uprooting myself.

[Peter1469]

You will be fine.

[Chris]

Right on Dodd Frank. Not so right on Glass Steagall. Ever wonder why you earned 9% interest on a checking account in the late 1990s and now you earn around 1%.

Look there are normal people who just want to park their money, and there are real investors who want to take risk. Why not have separate institutions to service them? Why have granny risk her life savings because you don't think that the government has any business regulating banks?

Are all financial institutions joined at the hip this way, or just some?

[Peter1469]

Are all financial institutions joined at the hip this way, or just some? I think that the big 16 are.