BankThink

Certain loans were well underwritten and structured, and are underperforming now solely because of job losses. Drastic approaches like modifications and refis are unnecessary to help these ordinarily creditworthy homeowners.

Receiving Wide Coverage ...JPMorgan: The FT analyzes JPMorgan's regulatory filings and infers that the bank takes more risk when investing excess liquidity — that is, cash that isn't being loaned out — than its megabank counterparts. Government-guaranteed bonds make up a smaller percentage of JPM's securities portfolio than at other large banks, for example. However, one FT reader protests in the comment thread that the conclusion trumpeted in the headline — "JPMorgan Takes More Risk than Rivals" — is overstated: "If you have a bigger securities portfolio and have excess liquidity then it wouldn't be unusual to buy corporate bonds. If your competitor has instead loaned to corporate customers, rather than buying bonds, then your balance sheet isn't riskier." (If this discussion gives you déjà vu, it may be because several hours before the FT posted its story yesterday, American Banker published an analysis by our data editor Harry Terris that similarly compared JPM's bond holdings to those of its competitors, and found the latter to more vanilla.) In the Journal, the "Heard on the Street" column identifies a pitfall of the portfolio hedging involved in JPM's recent $2 billion trading loss: fluctuations in the value of the hedges (if they are hedges — that's a matter of debate) flow through to earnings even when moves in the value of the assets being hedged don't. This "asymmetric accounting" (CEO Jamie Dimon's phrase) makes the true performance of the bank more opaque, even to its managers, the column says.

Traditionally Americans have opposed the establishment of single governmental body with jurisdiction over all aspects of the financial system. Instead we have favored a decentralized system with different regulatory agencies for different types of financial activities and institutions.

Prices garnered prior to the crisis have little in common with what banks are worth today or what they will likely be worth in the future. Yet boards and managers remain irrationally fixated on outdated, irrelevant valuations.

Dodd-Frank establishes U.S. financial stability as a critical hurdle for regulators to evaluate before approving future mergers and acquisitions.

Receiving Wide Coverage ...More Morgan: Elephants indeed. Republicans on Capitol Hill have never forgotten that JPMorgan funneled the majority of its political donations to the Democrats in the 2008 campaign season, and though the firm has since stepped up its Republican giving, GOP lawmakers' patience with Dimon & Co. is wearing thin, the Wall Street Journal reports. Aside from the sour grapes, some Republicans worry that their efforts to roll back new financial regulations were made moot by JPMorgan's massive trading loss. "The argument that Volcker was absurd was building—greatly—and then this happened," says as unnamed Republican on the House Financial Services panel. … The Financial Times suggests that the JPM fallout will direct regulators' attention to the whole concept of portfolio hedging by banks (just in case the regulators needed a little extra nudging here). … The FT also has anointed the next likely successor to Dimon: he's 41-year-old Matt Zames, Ina Drew's replacement as head of the bank's chief investment office, and Dimon says he's the kind of fellow you'd want to share a foxhole with. … Also in the FT, JPM has retained the services of WilmerHale attorney William McLucas, a former director of enforcement at the Securities and Exchange Commission. … Over at the New York Times, the continued fallout over the JPM loss made for a good occasion to reconsider the raison d'être for big banks. The analysis piece argues that the financial industry's direct contribution to the broader economy is overstated, because the primary output measurement is based on the interest they charge for credit — something that has a habit of increasing when appetite for yield leads to increased risk-taking. … And Washington Post opinion writer Dana Milbank, reporting on Tuesday's appearance by Commodity Futures Trading Commission head Gary Gensler and other regulators before the Senate Banking Committee, says that JPM earned a "healthy dividend" on the $20 million it has spent on lobbying and campaign contributions in the past three years. He argues it's the regulators, not JPM executives, who are taking the heat from politicians over the firm's big trading loss.

Last week, we witnessed the largest initial public offering of a technology company in U.S. history — a company that offers its main service for free, lives entirely on the internet, and is run by a 28-year-old. The euro fell into deeper jeopardy, not merely because of news from the debt markets and at the ballot box, but because Greek and Spanish borrowers reacted to that news in real time, withdrawing much of their euro-denominated savings from domestic banks. And a $2 billion bank loss, based on computer-driven and model-based decision making, almost instantaneously impacted policy discussions and market movements, even before facts became clear.

Lost in all the talk about Dodd-Frank Act's various regulatory pieces is a looming — and transformational — rule around compensation.

Receiving Wide Coverage ...Eating JPMorgan's Lunch: By now we've all read or heard about Mitt Romney's quote to the effect that if JPMorgan lost $2 billion, someone else made $2 billion. But who were those fortunate counterparties? The Journal reports that "about a dozen banks," including Bank of America and Goldman Sachs, have either directly or indirectly profited from JPM's soured trading positions. The article also identifies a handful of hedge funds that made money off the London Whale's miscalculations. Interestingly, Citigroup tells the Journal on the record that it didn't score gains from JPM's wrong bets. Meanwhile, Bloomberg News interviews the manager of one of the hedge funds that took the other side of a credit derivative trade from JPM. He tells the wire service his counterparty's losses could get worse — "if we end up with a catastrophe in Europe in the short run, they're probably not positions that anyone would want to have" — but adds he's "not looking to try and cause them any problem." It's not personal, Jamie, it's strictly business.

Lots of ink has been spilled over the loss of at least $2 billion in JPMorgan Chase's Chief Investment Office in London. And nothing, so far, has been learned.