Receiving Wide Coverage ...
Your Daily Dose of Dimon: The financial media is running out of whale-related puns, but JPMorgan news is still dominating your Morning Scanner's browser tabs like Bruno Iksil cornering the corporate credit default swap index market. To preserve our sanity and yours, we've been organizing our summaries of each day's developments by theme. Without further ado…
Cue the 'Dragnet' Theme. The Department of Justice and the FBI have opened an inquiry about JPM's trading loss, the papers report, citing anonymous sources who give the usual caveats (The probe "is at an early stage and it isn't clear what possible legal violation federal investigators may be focusing on," says the Journal; the anonymice "briefed" on the investigation emphasize to the Times that "the inquiry was at an early stage and that it was routine for federal authorities to open a case after a big bank disclosed a huge blunder"). The investigators are looking into what management knew, and when they knew it, given CEO Jamie Dimon's infamous dismissal of concerns about the chief investment office as a "tempest in a teapot" less than a month before the $2 billion bungle came to light. For those feeling déjà vu, this is separate from the previously reported SEC investigation. Wall Street Journal, Financial Times, New York Times
The votes are in. At JPMorgan's annual meeting in Tampa, shareholders overwhelmingly approved Dimon's 2011 pay package. There were "a handful of angry questions" from the investors present, according to the Journal, and about 20 protestors outside the gated building in Tampa, says the FT. But Dimon faced a mostly hospitable audience inside. The strongest indication of any kind of festering discontent was that 40% of the company's owners voted to split the chairman and CEO roles, both held by Dimon. Though not enough to compel a change, it was the highest percentage garnered for this proposal in seven years. New York City Comptroller John Liu, who runs Gotham's pension funds, called for the bank to claw back "every single dollar possible from the executives responsible for the $2 billion loss," and Dimon said clawbacks were a possibility. Wall Street Journal, Financial Times
Wheels within wheels. By now, you may already know that the long position the London Whale took on synthetic corporate credit was meant to offset a short position the CIO took as a hedge. A story in today’s Journal reveals another wrinkle: there was a third step in which the bank bought credit protection to offset the protection it sold to offset the protection it bought. The big question raised in the article is whether the overall strategy amounted to hedging or speculation. Meanwhile, the Times reports that a mutual fund run by JPMorgan Chase’s asset management arm was buying the same type of insurance the Whale was selling. Though this conjures images of fiefdoms within a large organization working at cross-purposes, in a way the situation reflects well on JPM, the article says, since “it indicates that the asset management division … acted independently from the bank, as is required.” A story in the FT puts the CIO’s recent stumble in the context of the rocky history of credit derivatives (a product that the old J.P. Morgan pioneered in the 1990s, before it merged with Chase Manhattan).
That old-time religion. Op-eds by columnist Joe Nocera in the Times and Frost Bank chairman emeritus Tom Frost in the Journal make similar pleas to get all this risky investment mishegoss out of FDIC-insured banks. (Frost politely omits any mention of JPMorgan, but Nocera puts the bank’s woes front and center in his argument.) “Heard on the Street” in the Journal presents a stronger case against big, complex banks than any pundit could make, at least from a capitalist’s point of view: diversified megabanks tend to trade at lower multiples than simpler, bread-and-butter regional banks.
Fallout on Capitol Hill. Lawmakers want to hold hearings on JPM’s trading loss and may call Dimon down to Washington to explain what happened. Meantime, they’ve tabled legislation that would water down the Dodd-Frank reforms. Wall Street Journal, New York Times