Nomi Prins: On JPM, the Whale Man, and Glass-Steagall

This is one of the better commentaries on JPM and the history and imperatives of banking regulation that I have seen recently.

I do not wish to beat this to death, but I have read too many glib economist and stock tout comments sloughing this off as 'no big deal.' Not surprisingly, these were many of the same people who said similar things during the build up of the credit bubble and the financialization of the real economy.

And I also expected something like this to happen in the derivatives markets, following the thefts of customer money at MF Global.  It just happened a little sooner than I had imagined.  Things are progressing quickly.

JPM Chase Chairman, Jamie Dimon, the Whale Man, and Glass-Steagall
By Nomi Prins
May 11, 2012

It was fitting that while President Obama and his Hollywood apostles broke fundraising records at a sumptuous $40,000 per plate dinner at George Clooney’s place, word of JPM Chase’s ‘mistake’ rippled through the news. Not long ago, Dimon’s name was batted about to become Treasury Secretary. But as lines are drawn and pundits take sides in the Jamie Dimon ego deflation saga – or, as I see it - why big banks should be made smaller and then, broken up into commercial vs. speculative components ala Glass Steagall – it’s important to look beyond the size of the $2 billion dollar (and counting) beached whale of a trading loss.

Yes, $2 billion in the scheme of JPM Chase’s book and quarterly earnings is tiny, a ‘trading blip’ as it’s been called by some business press. But that’s not a mitigating factor in what it represents. In this era dominated by a few consolidated and complex banks, the very fact that it’s a relatively small loss IS the red flag.

First - because the loss could (and will) grow. Second, because even if it doesn’t, it’s a blatant example of a big bank incurring un-due risk within a barely regulated, highly correlated financial markets. It only takes another Paulson hedge fund, or a trading desk at Goldman Sachs, to short the hell out of the corporates that JPM Chase is synthetically long, or take whatever the other side really is, to create a liquidity crisis that will further screw those least able to access credit – individuals, small businesses, and productive capital users.

We know this. We’ve seen this. We're in this. There’s no such thing as an isolated trading loss anymore. And yet Jamie Dimon, seated atop the most powerful bank in the world, has smugly led the charge to adamantly oppose any moves to alter the banking framework that allows him, or any bank, to call a bet - a hedge or client position or market-making maneuver - with central bank, government official, and regulatory impunity.

Flashback to the unimaginable in 1933

It’s 1933 and the country has undergone several years of painful Depression following the 1920s speculation that crashed in the fall of 1929. Investigations into the bank related causes began under Republican President, Herbert Hoover and continued under Democratic President, FDR...

Read the rest here.

Tavakoli: JPMorgan May Be a Trading Accident Waiting To Happen

I think the next financial crisis is less than two years away, and it will strike the global real economy as badly as the banking crisis with the collapse of Lehman Brothers.

Jamie Dimon's SNAFU: JPMorgan's Other Derivatives' Losses
By Janet Tavakoli
05/12/2012

In an August 2010 commentary about JPMorgan's losses in coal trades I wrote: "The commodities division isn't the only area in which JPMorgan is vulnerable. Credit derivatives, interest rate derivatives, and currency trading are vulnerable to leveraged hidden bets. Ambitious managers strive to pump speculative earnings from zero to hero."

At issue is corporate governance at JPMorgan and the ability of its CEO, Jamie Dimon, to manage its risk. It's reasonable to ask whether any CEO can manage the risks of a bank this size, but the questions surrounding Jamie Dimon's management are more targeted than that. The problem Jamie Dimon has is that JPMorgan lost control in multiple areas. Each time a new problem becomes public, it is revealed that management controls weren't adequate in the first place.

JPMorgan's Derivatives Blow Up Again

Jamie Dimon's problem as Chairman and CEO--his dual role raises further questions about JPMorgan's corporate governance---is that just two years ago derivatives trades were out of control in his commodities division. JPMorgan's short coal position was over sized relative to the global coal market. JPMorgan put this position on while the U.S. is at war. It was not a customer trade; the purpose was to make money for JPMorgan. Although coal isn't a strategic commodity, one should question why the bank was so reckless.

After trading hours on Thursday of this week, Jamie Dimon held a conference call about $2 billion in mark-to-market losses in credit derivatives (so far) generated by the Chief Investment Office, the bank's "investment" book. He admitted:

"In hindsight, the new strategy was flawed, complex, poorly reviewed, poorly executed, and poorly monitored."


But lets get back to commodities. For several years, legendary investor Jim Rogers has expressed his concern to me about JPMorgan's balance sheet, credit card division, and his belief that Blythe Masters, the head of JPMorgan's commodities area, knows so little about commodities. Jim Rogers is an expert in commodities and is the creator or the Rogers International Commodities Index. He also sells out-of-the-money calls on JPMorgan stock. So far, that strategy has worked out well for him. (Rogers gave me permission to publicly reflect his views and his trades.) Moreover, JPMorgan is still grappling with potential legal liabilities related to the mortgage crisis.

Is Jim Rogers justified in his harsh view of JPMorgan's commodities division? After he expressed his concerns, JPMorgan's coal trade made the news, and it appeared to me that Jim Rogers is on to something. For those of you who missed it the first time, my August 9, 2010 commentary is reproduced below in its entirety. Dawn Kopecki at Bloomberg/BusinessWeek broke the story wherein Blythe Masters' quotes first appeared...

Read the rest here.

The Worst Is Yet to Come (But We Beat the Numbers) - J. P. Morgan

Interesting quotes from Jamie Dimon, CEO of J.P. Morgan, the Fed's instrument of policy, their house bank, king of the derivatives pyramid, as the world is amazed that they beat the EPS numbers again this morning, at least on paper.

The problem is not so much the banking system and a lack of confidence in it. They do not deserve any. Our financial system has become a shell game, an extended accounting fraud, that permeates and selectively destroys whole segments of the real economy.

The problem is that the average consumer in the United States is a wage earner, and their real wages have been stagnating for the past twenty or more years, despite a rosier-than-reality set of CPI figures from the last two administrations.

The fact that most in New York and Washington have not quite realized yet is that the average American consumer is exhausted, tapped out, broke.

Providing easier credit terms, new sources of debt to feed the machine, may stretch this out a bit longer, may cushion the impact as the overloaded and imbalanced economy hits the wall, butit will do nothing to create sustainable growth.

Unless and until something is done to address the real median wage, to provide sources of income, rather than fresh sources of debt, to the middle class, there will be no recovery other than more monetary bubbles, that will be increasingly fragile and destructive in their collapse, ultimately testing the foundations of democracy.

The economic, and then the political, situation in the United States will deteriorate, perhaps much more rapidly than most would expect or even allow, unless something is done to break this cycle of debt and wealth transference, this illusion of vitality and stability.


AFP
JPMorgan chief says worst of the crisis still to come
Wed Jan 14, 10:13 pm ET

LONDON (AFP) – The chief executive of US bank JPMorgan Chase, Jamie Dimon, told the Financial Times on Thursday that the worst of the economic crisis still lay ahead as hard-hit consumers default on their loans.

"The worst of the economic situation is not yet behind us. It looks as if it will continue to deteriorate for most of 2009," he told the business daily.

"In terms of our sector, we expect consumer loans and credit cards to continue to get worse."

Dimon said the bank -- which bought rivals Bear Stearns and Washington Mutual last year -- was prepared for a deterioration in consumer-orientated businesses but if things were worse than expected, it would have to cut costs further.

The interview was published after a fresh wave of selling hit US and European stock markets Wednesday, as an unrelenting flow of bad economic and corporate news sparked fears of a deepening global downturn.


Bloomberg
JPMorgan Profit Drops 76 Percent, Less Than Analysts Estimated
By Elizabeth Hester

Jan. 15 (Bloomberg) -- JPMorgan Chase & Co., the second- largest U.S. bank by assets, said profit fell 76 percent, beating analysts’ estimates, as the company navigates the credit crisis with more success than most of its peers.

Fourth-quarter net income was $702 million, or 7 cents a share, compared with $2.97 billion, or 86 cents, a year earlier, the New York-based bank said today in a statement. Fourteen analysts surveyed by Bloomberg had an average earnings estimate of 1 cent a share.

JPMorgan’s $20.5 billion of writedowns, losses and credit provisions through the third quarter were less than a third of those at Citigroup Inc., which was forced to sell control of its Smith Barney brokerage to Morgan Stanley for $2.7 billion this week. Chief Executive Officer Jamie Dimon has used JPMorgan’s relative strength to acquire troubled rivals, including Bear Stearns Cos. in March and Washington Mutual Inc. in September.

“JPM is better positioned against deteriorating loan portfolios than many of its peers given its strong loan-loss reserves,” KBW Inc. analyst David Konrad wrote in a Jan. 14 research note.

JPMorgan, which moved up its earnings announcement by six days, is the first of the largest U.S. banks to disclose fourth- quarter figures. New York-based Citigroup reports tomorrow, and Bank of America Corp., which bought Merrill Lynch & Co. two weeks ago, is scheduled to release results on Jan. 20. San Francisco- based Wells Fargo & Co. will follow on Jan. 28 as it works to absorb Wachovia Corp.

...Federal Reserve officials and President-elect Barack Obama have said more government help will be needed to shore up the U.S. financial system.

Fed Chairman Ben S. Bernanke said Jan. 13 that banks’ holdings of hard-to-sell investments raise questions about the companies’ underlying value, and called for the government to take on or insure the assets. Obama is deciding how to use the remaining $350 billion of the $700 billion Troubled Asset Relief Program that Congress approved in October, with some Democrats saying the plan should favor homeowners and community banks over larger financial-services companies.