“Jamie Dimon and JP Morgan Chase just proved what anyone not getting a paycheck from a Wall Street bank already knows: gigantic too-big-to-fail banks are too-big-to-manage. They must not be allowed to continue to threaten our financial system and our economy.” Dennis Kelleher, president of the financial-reform advocacy group Better Markets.
JPMorgan Chase CEO Jamie Dimon. Turns out there’s a problem with the bank’s London Whale.
JPMorgan Chase has suffered big, unexpected losses at a closely watched trading desk, providing fodder to supporters of a new financial regulation the bank’s CEO has loudly opposed.
The biggest U.S. bank by assets said on Thursday that it had lost $2 billion on bad bets on credit derivatives, made by a London trading desk, run by a man other traders have alternately dubbed “The London Whale” and “Voldemort.” The office is intended to hedge the giant bank’s credit risk, not increase it.
In a regulatory filing on Thursday, the bank said that, since the end of March, its chief investment office “has had significant mark-to-market losses in its synthetic credit portfolio, and this portfolio has proven to be riskier, more volatile and less effective as an economic hedge than the firm previously believed.”
In a quickly scheduled conference call Thursday evening, CEO Jamie Dimon, who has been persistently critical of government efforts to regulate banks, said JPMorgan’s trading losses were due to “egregious and self-inflicted mistakes,” from trades that were “poorly executed and poorly monitored.”
In recent months, news reports had alleged the office’s trading desk was engaged in speculative trading, not hedging. Supporters of financial regulation used the reports as evidence of the need for the “Volcker Rule,” a feature of the Dodd-Frank financial-reform act that would prohibit government-insured banks from taking big market bets with their own money. Critics of the Volcker Rule countered that banks sometimes need to be able to make big market bets as a way of hedging their risks. JPMorgan’s losses suggest, at the very least, that even such a hedging operation can be subject to large, unexpected losses.