JPMorgan suffers $2.5b loss on trading
blunders
New York: JPMorgan Chase, which emerged from the global
financial crisis as the biggest US bank, has revealed a stunning
US$2 billion (S$2.5 billion) trading loss after an “egregious”
failure in a unit managing risk.
The bank’s chief investment office, run by Ms Ina Drew, 55
took flawed positions on synthetic credit securities that remain
volatile and may cost an additional US$1 billion this quarter or
next, chief executive Jamie Dimon told analysts on Thursday
evening.
“There are many errors, sloppiness and bad judgement,” Mr
Dimon said. “These were egregious mistakes. They were
self-inflicted.”
The shock disclosure sent stock markets across the globe
lower.
Asian shares slumped yesterday, with Singapore stocks
falling almost 1 per cent, while South Korea’s Kospi index was down
1.4 per cent, and Hong Kong’s Hang Seng ended 1.3 per cent
lower.
Sentiment in Asia was also dampened by signs of slowing
growth in China.
Mr Dimon accepted responsibility and apologised. “”These
were grievous mistakes, they were self-inflicted, we were
accountable and we happened to violate our own standards and
principles by how we want to operate the company. This is not how
we want to run a business,” he said at a news conference.
“We will admit it, we will learn from it, we will fix it,
and we will move on.”
Ms Drew, the woman at the centre of this latest financial
mess, was described by one colleague as “scary-smart”, and “all
about risk-taking”.
While the losses originated from the unit’s London team
that reports to Ms Drew in New York, more than one trader was said
to be responsible.
One trader in particular, Mr Bruno Iksi, once likened
himself to Jesus who could “walk on water”. Rival traders called
him “the London Whale” or “Voldermort” for the massive trades that
roiled financial markets last month.
Bloomberg
The Straits Times, Saturday, May 12,2012
Trading loss stains Dimon
$2.5 debacle damages influential CEO’s
reputation and influence.
New York – Days before revelations of JPMorgan Chase’s US$2
billion (S$2.5 billion) trading loss rocked Wall Street, the
company’s always-confident chief executive Jamie Dimon was his
usual exuberant self.
When the bosses of six of the largest banks gathered at
the Federal Reserve Bank of New York in Manhattan to meet a top Fed
governor, the others used the underground garage. Mr Dimon came and
went through the front door, and even chatted with a reporter.
It was a stance familiar to Mr Dimon. He had steered his
bank successfully through the financial crisis, and was known as
Wall Street’s best risk manager, not to mention the most
influential banker in the country when it came to writing new
regulations in Washington.
He was so well regarded by the White House administration
that the former chief of staff Rahm Emanuel was even tapped to
appear at the bank’s board meeting back in 2009 before the
appearance was scuttled.
Now through, Mr Dimon’s reputation and possibly his
influence have been cut down to size.
The trading loss is a rare misstep by a man who prides
himself on having his finger on the pulse of his 270.000 employee
company, and it suggests his vaunted confidence edged towards
hubris.
Mr Dimon said in an interview on Friday that he got a
call from the company’s chef risk officer about the trading problem
late last month.
“Of course I was angry,” he said. “I said, ‘Stop, let’s
learn and get other people involved.’”
“We were meeting constantly. Believe me, for the past
couple of weeks, it was the primary thing going on in my
world.”
In a statement, Representative Barney Frank said JPMorgan
“has lost, in this one set of transactions, five times the amount
it claims financial regulation is costing it”. And that reality may
cost Mr Dimon in Washington.
He has been marshalling the firm’s considerable resources
to help sway the regulators who are writing many of the rules in
the Dodd-Frank banking reform Bill passed in 2010. So far this
year, JP Morgan has spent US$1.92 million on lobbying. In 2010, it
topped the industry in lobbying dollars with US$7.41 million.
Mr Dimon has also been a frequent visitor to Washington
to further his case to lawmakers. According to the Sunlight
Foundation Reporting Group, he has made 10 visits to regulators
over the past two years to discuss Dodd-Frank, principally at the
Treasury Department.
Known as a blunt executive not afraid to raise his voice,
Mr Dimon has been one of the few bankers who still commanded
respect from analysts and investors as well as regulators. He
routinely grills executives to make sure they are prepared for a
variety of contingencies.
He was also known for warning how dangerous one misstep
could be. In April 2007, just as the first sign were emerging of
what would become the sub-prime mortgage crisis, Mr Dimon had a
message for 200 new managing directors assembled at the company’s
headquarters in Manhattan.
“One deal doesn’t make or break us,” he said, according
to one banker who was present. “But the implications of one bad
deal on our franchise are significant.”
Now Mr Dimon, a skilled master of relations with the
media , is having to do some fancy footwork. He taped a segment on
NBC ‘S Meet The Press last Wednesday, one day before he revealed
the disastrous trade. On Friday, he went back to apologise again
for the losses. In recent days, he has been characteristically
blunt but contrite.
“We never said we never make mistakes,” Mr Dimon added on
Friday. “Hopefully, the smaller the better, but this one is not so
small.”
AP
Haunting Words
JPMorgan Chase’s chef executive Jamie Dimon has, since the 2008
financial crisis, argued against excessive regulation that could
potentially limit economic growth. Some of Mr Dimon’s comments have
come back to haunt him, after the bank said last Thursday that it
had lost at least US$2 billion (S$2.5 billion) from a failed
hedging strategy.
Bogged down by rules
“We must not let regulatory reform and requirements create
excessive bureaucracy and unnecessary permanent costs.
“But the result of financial reform has not been intelligent
design. Simplicity, clarity and speed would be better for the
system and better for the economy.”
Mr Dimon’s March 30, 2012 letter to shareholders
Think long term
“Short-term profit means nada If you asked me to increase profit
by 50 per cent next year, I could do it. Take a little more risk.
But that wouldn’t be in the longer-term interest of customers,
employees and communities as well as shareholders.”
On a panel at the World Economic Forum in Davos, Switzerland, in
January 2012
Look back in anger
“Has anyone bothered to study the cumulative effect of all these
things? And do you have a fear, like I do, that when we look back
and look at them all, that they will be a reason it took so long
that our banks, our credit, our businesses and most importantly,
job creation, started going again.”
On tighter banking regulation in an unusual confrontation with
Federal Reserve chairman Ben Bernanke at a June, 2011 conference in
Atlanta, Georgia
Analysis
There’s more to CEO’S clueless
remarks
New York – Could JPMorgan Chase’s chief executive officer really
be as clueless as he sounds?
Last month, after Bloomberg News broke the news that the
company’s chef investment office had, in essence, become a ticking
time bomb, Mr Jamie Dimon called the press coverage’s “a complete
tempest in a teapot”.
That explanation no longer works. Last Friday, he changed
tack.
While he refused to give any meaningful details on how
losses on the investment office’s “synthetic credit portfolio” had
reached US$2 billion (S$2.5 billion) so far this quarter, he more
than made up for that in assigning blame – to himself and JPMorgan
employees.
“There are many errors, sloppiness and bad judgement,” he
said, as JPMorgan’s stock sank in after-hours trading. “These were
egregious mistakes. They were self-inflicted.”
Mr Dimon called himself and his colleagues “stupid”. But
these is more to it than that.
Either he misled the public about the gravity of the
festering trades during the bank’s first-quarter earnings call last
month. Or he did not know what was happening inside the bowels of
his own bank.
History tells us the latter is the norm for Wall Street
bosses, though it is hard to say which is worse.
It is not often that a huge company calls an emergency
teleconference at short notice to discuss an intra-quarter trading
loss that is equivalent to only 1 per cent of shareholder equity.
So when a Deutsche Bank AG stock analyst named Matt O’Connor asked
Mr Dimon why disclose it at all, the answer was bound to be
revealing.
“It could get worse, and it’s going to go on for a little
bit unfortunately,” Mr Dimon replied. The meaning was clear. Worse
could mean disastrous.
It is conceivable that Mr Dimon did not understand the
details of the trades, and simply declined to discuss them rather
than admit this.
The reason the world learnt last month of JPMorgan’s
“London Whale” bets on the credit markets to begin with is that
they had become so big – with as much as US$100 billion riding on
one side of a single transaction – that the bank’s trades were
moving, and maybe even distorting, the market.
Some of the bank’s counterparts were so upset about this
that they started complaining to journalists. They seem to have
discerned the broad outlines of the trading positions a while
ago.
Now they are squeezing the bank for maximum gain, while
JPMorgan is trying to unwind the trades without losing its
skin.
JPMorgan can delay coming clean with the basic facts,
though they probably will come out eventually. Some United States
congressional committee is bound to subpoena its trading
records.
There is only one conclusion to draw from all this: Mr
Dimon must know he has a lot more explaining to do.
Bloomberg.
‘London Whale’ took big bets below the
surface
London – Mr Bruno Iksil was dubbed the “London Whale” in credit
markets due to the size of the trading positions he took, but for
years he stayed well below the surface, avoiding detection.
Now, the French-born JPMorgan trader has been dragged
from the anonymity of the trading floor into the eye of a very
public storm over a US$2 billion (S$2.5 billion) trading loss at
the US investment bank where he worked in a little-known group
called the Chef Investment Office (CIO).
Mr Iksil’s friends, colleagues and fellow traders
describe an unassuming man, a far cry from the brash image normally
associated with traders staking huge bets in fast-moving financial
markets, including derivatives.
“He’s a really nice bloke. A quiet bloke. He’s not an
arrogant trader, he’s quite the opposite. He’s very charming,” one
former colleague at JPMorgan said of Mr Iksil, whom he said is
married with “a couple of kids”.
Mr Iksil, who graduated in engineering in 1991 from the
Ecole Centrale in Paris, looks older than he is, seldom wears a
suit and, according to his former colleagues, lives outside central
London.
“He’s a balding chap with grey and dark hair. I’d say
he’s in his 40s,” the ex-colleague said, adding that there are not
many young traders in CIO, a relatively isolated group where
everybody is in their 30s and 40s.
“Nobody wears suits in CIO. You don’t meet clients face
to face,” he added.
There have been no suggestions that Mr Iksil’s activities
were in any way irregular, but over a period of years he and his
team amassed a book of bets estimated by some to be US$100
billion.
When these became public, opportunistic hedge funds could
not resist trading against the “Whale”. As markets moved against
him, whispers of Mr Iksil’s enormous latent losses circulated,
ultimately undermining JPMorgan’s reputation as the canniest
risk-manager in global finance.
But for all the talk of the “Whale”, the handful of
London-based bankers and traders who have done business with him
say they know little about the man behind the trades.
“Everone knows The Whale, whenever there was a big move
in CDS markets, you knew it was the Whale,” one hedge fund manager
said, adding that Mr Iksil managed to maintain “a very low
profile”, out of kilter with his big influence on the
multi-trillion dollar credit default swaps market.
Mr Iksil’s friends are upset that the trader is being
thrust into the limelight.
“I am not happy with the way Bruno has been singled out.
His name has been mentioned because in the last few years – 2008,
2009, 2010 – he delivered excellent results for the bank,” a friend
who is also a former colleague said.
“His understanding of the markets, his technical skill,
mean he has become someone with real credibility. Although he is in
some ways in the centre of the world, at JPMorgan in London, he is
pretty detached and does not have a culture of money,” his friends
added.
Senior traders and dealers describe Mr Iksil as a “bright
guy”, who was faithfully executing strategies demanded by the
bank’s risk management model but who may have simply misjudged the
amount of liquidity in the markets.
Reuters
Prime, jP morgan scandal, The Sunday Times, May 13, 2012 Pg
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