BankThink

The announcement is surprising as it follows so soon after hefty penalties were assessed against many other banks for their overdraft programs.

The facts in the JPMorgan Chase (JPM) "London Whale" case are still being sorted out, but that hasn't stopped analysts — myself included — from pondering its policy impact. Much of what the bank's CEO, Jamie Dimon, calls punditry has focused on whether the $2 billion-plus loss proves points on the Volcker Rule, TBTF, CEO compensation and, perhaps, nicknames.

Receiving Wide Coverage ...Your JPMorgan Minute: Irvin Goldman, recently “relieved of his duties” (the Journal’s words) as chief risk officer at JPMorgan’s chief investment office after the $2 billion-and-counting blowup, has prior experience with trading losses. In 2008, he blew at least $10 million during a prior job at the bank as a trader, the Journal reports today. And before he joined JPMorgan, he was fired (the Journal uses the “f” word in this instance) from Cantor Fitzgerald in 2007 after the MBS unit he ran lost $30 million. And JPMorgan put him on leave eight months after he joined, while the NYSE’s electronic trading arm investigated his trading while at Cantor. He had been day trading certain securities for his own personal account that he was also trading with the firm’s money. (Cantor settled the probe for $250,000.) Of course, one learns by making mistakes, so perhaps JPMorgan could argue that these expensive blunders might have given Mr. Goldman an appropriately jaundiced eye for risks (both the market and regulatory kind), and thus justified giving him the CRO role, despite his reportedly scant experience with risk management. The fact that he is the brother-in-law of JPM’s head of corporate regulatory affairs might undermine such an argument, though. … A Times story reports that Ina Drew, JPM’s recently relieved chief investment officer, “began to lose her grip” on the unit a couple years ago after a medical issue necessitated her frequent absences from the workplace. With Drew less involved in the day-to-day, her underlings in New York clashed with their London counterparts over the latter camp’s increasingly risky trades. The Londoners prevailed, apparently through sheer will. Achilles Macris, the direct supervisor of the “London Whale” trader Bruno Iksil, comes off in this story as, well, a heel. … The Journal’s “Heard on the Street” column asks some disquieting questions about JPMorgan’s fiddling with its value-at-risk model during the first quarter: “Had the trade gone bad and someone didn't want the Var model to start alerting others to rising risk?” … The Times’ “DealBook” says the CFTC has joined the SEC and FBI in opening a preliminary investigation into the JPMorgan trading loss. … Politico’s Ben White reports that CFTC chief Gary Gensler will cite the JPM mess in a speech today on cross-border application of reforms to the swaps market. … In case you missed Paul Krugman’s Times column last week, in which he said the JPM loss shows the need for tougher regulation, his column this week says the JPM loss shows the need for tougher regulation. … Finally, though it’s not directly related to the beaching of the Whale, JPMorgan has returned $178 million to the bankruptcy trustee for MF Global. This cash was posted as collateral to JPM, which was MF Global’s lead bank, during the commodities brokerage’s waning days. The FT says the $178 million is not a part of that missing $1 billion-plus, which is evidently still missing.

A conversation about credit unions and frank responses.

For the past decade or so, most credit unions have relied upon one of two things to forecast branch volume for scheduling purposes-industry averages or tradition.

Credit unions are getting more attention these days because many Americans have grown weary of big banks dominating the financial landscape.

Receiving Wide Coverage ...The JPM-a-Thon Goes On: Fans of slow-motion car wrecks will take a certain pleasure in the sting of nasty news that seems to be pulling JPMorgan Chase (JPM) inexorably closer to calamity — political, if not economic. It turns out the same London Chief Investment Office that wracked up the $2 billion loss so much in the news is, separately, sitting on $100 billion (yes, billion with a "B") of risky bonds, reports the Financial Times. The funny-coloured paper says the holdings are part of a deliberate 2009 move that JPM's CIO made out of safer assets, such as U.S. Treasuries, to increase returns and diversify investments. The bank's CIO has been "the biggest buyer of European mortgage-backed bonds and other complex debt securities, such as collateralised loan obligations in all markets for three years." That's according to "more than a dozen senior traders and credit experts" cited by the FT. "I can't see how they could unwind these positions because no one can replace them in terms of size," a trader is quoted as saying. "It's a bit of the same problem they face with the derivatives trade. They pretty much are the market." Translation: good luck getting out of these babies. Adding to the sense of disarray and mismanagement, JPM didn't have a treasurer in place during a five-month period when its CIO placed trades that led to the more than $2 billion in losses, according to the Wall Street Journal. Normally, the treasurer would play a critical role in managing the firm's balance sheet, capital, funding and liquidity and working closely with heads of all lines of business, it notes. Worse, at least as far as how it sounds, the executive put in charge of risk management for the CIO in February had little experience and is the brother-in-law of another top bank executive, the Journal reports. If all that weren't enough for one day, there's that item at the top of the Journal's front page with the inside-JPM tick-tock account of events leading up to its $2 billion bombshell. The tale is replete with Jamie Dimon "barking" and tossing documents (Quick: Who's going to play Jamie in the movie?), as well as internal debates about what to make public and when. Where Wall Street blunders occur, of course, politicians are sure to follow. The Senate Banking Committee said Thursday that it will ask Dimon to testify as early as next month. That same committee is separately holding a round of Dodd-Frank hearings involving JPM's regulators, including the Federal Reserve, Office of the Comptroller of the Currency and Securities and Exchange Commission. Separately, Senator Carl Levin of Michigan and Senator Jeff Merkley, Democrats who authored the Volcker Rule, used a Thursday call with reporters urge fellow lawmakers to close the "JP Morgan Loophole" that presumably permitted its ill-fated trades. The news of Dimon's upcoming testimony follows press reports (from anonymous sources, of course) that the U.S. Justice Department and several regulators have already opened probes. JPM's losses, meanwhile, have continued to build by as much as $150 million a day since last week's announcement and could eventually total more than $5 billion, according to the Journal. If J.P. Morgan could mess up, what about Citigroup (NYSE:C) , Bank of America (BAC), Morgan Stanley (MS) or Goldman Sachs (GS)? asks the Journal's Heard column. Somewhere out there, the hedge fund masters on the other side of the JPM's trades are undoubtedly sizing up bigger yachts.

Personal financial management software must deliver real value to banks, not just consumers. Just saying PFM increases customer loyalty doesn't cut it. The value proposition has to be more attractive given the revenue pressures banks face today.

Editor's Note, July 25, 2012: This and other BankThink opinion columns written by Joel Sucher bearing this note, published between October 2011 and June 2012, mentioned the law firm of Stephen J. Baum, Litton Loan Servicing, or both. The columns should have disclosed that Baum’s firm, working on behalf of Litton, had attempted to foreclose on the writer’s property in 2009. American Banker's editors were unaware of this history at the time the columns were published.

If the credit derivative positions are hedges, why doesn't JPMorgan account for them as such under GAAP?