Jamie Dimon is easy to dislike. He's gruff, cocky and lost $2 billion recently.
If that weren't enough, he's a banker.
None of that justifies the public flogging Dimon has received since announcing his trading loss last Thursday. Political agendas and score-settling do.
First, take a look at Dimon's alleged sin: losing money through a bet on credit derivatives. Pundits will probably never agree whether the trade was a hedge permissible under Dodd-Frank's Volcker Rule, or a bid to turn a profit (a reported federal criminal probe aside, losing money wasn't illegal as of press time).
Strip the question down to the bare math and it's hardly worth asking. The $2 billion loss equals 10.5% of the $19 billion the bank made last year and 1.6% of its remaining $127 billion in shareholders' equity. One message the cool-headed could take away: Even when just about everything possible apparently went very wrong, JPMorgan's risk management worked.
Another reason Dimon has taken so much flak is his mouth. The trades in question "were flawed, complex, poorly executed, poorly designed, and poorly monitored," the CEO said during a conference call May 10. "These were egregious mistakes, self-inflicted. This not how we want to run a business."
The press had a field day with such unvarnished admissions of fault from a big-bank CEO. Dimon's detractors should ask themselves: Would it have been better for him to have gone in front of the cameras and mics and talked in PR double-speak? "We are conducting a thorough investigation involving all relevant parties, will leave no stone unturned and intend to provide a full accounting of events as soon as it's available…"
Another piling-on point is that—horror of horrors—Dimon had previously lobbied for the right to continue conducting the very sorts of trades that might have gotten JPMorgan into its loss-making position. Remember, during the financial crisis Dimon's bank was among the rescuers—not the rescued. He accepted Troubled Asset Relief Program funds grudgingly, only because the government pressured him to. He rescued what was left of Bear Stearns and Washington Mutual. Given that track record, there's no reason to expect Dimon to roll over and accept a law as complex and flawed as Dodd-Frank without a fight.
Flawed how? Debit card interchange fees didn't cause the financial crisis, but they're part of Dodd-Frank. Fannie Mae and Freddie Mac were most definitely part-and-parcel of the housing collapse, but Congress left them out of the law. The Volcker Rule itself includes a craven political carve-out—the rule seeks to forbid banks from speculating, unless it's in U.S. Treasurys. The feds don't want to eat the same dog food as everyone else by limiting liquidity for the national debt.
The public and press mostly don't get it. Washington definitely doesn't. As for JPMorgan Chase's shareholders, 91.5% of them just approved Dimon's pay package. He's making money for them, just like he's paid to do.
Neil Weinberg is the editor in chief of American Banker. The views expressed are his own.
I have to strongly disagree with you here. Detractors are piling on Dimon because they see hypocrisy. Dimon has been telling politicians, regulators and reformers to leave him and JP Morgan alone because everything is under control. Although his remarks were candid, they were telling. I can only imagine how uncontrolled things must really be for even Jamie Dimon to have been surprised at the depth and breadth of the loss in such a short time.
When is a hedge not a hedge and why does it matter if the bank is still supposedly making a profit? JP Morgan is making a profit on the backs savers and small investors, small businesses who can;t get credit even though the Fed has kept interest rates low to facilitate recapitalization of the big banks. Small investors, retirees, and others can't earn something on their money while prices on commodities like gas and groceries are still going up. JP Morgan is still sitting on overvalued assets. (Note the $8 billion of supposed unrecognized mark-tomarket gains mostly on mortgage backed securities which are on paper, not proven by sustained market sales.) The bank also has huge litigation contingencies as as a result of perpetrating a host of other bad acts that have hurt everyone from mortgage borrowers to active duty servicemen, MF Global customers to MBS investors.
Dimon has been the confident face of a bank that has escaped the scrutiny and criticism his fellow systemically important backs have already faced. Forgive some of us from delighting in the fact that he now has to answer for many of the same weaknesses they have.