JPMorgan Chase's (JPM) horrific $2 billion-and-counting loss shows that Wall Street has learned nothing from the 2008 financial crisis that brought down one-time stalwarts Lehman Brothers and Bear Stearns.
What's more, the staggering loss, due to bets on complex derivatives, puts the lie to the suggestion that Wall Street need less, not more, regulation.
JPMorgan's CEO Jamie Dimon apparently is sticking to that lie.
Mr. Dimon has been a leading critic of financial reform under the Dodd-Frank Act and the Volcker Rule, which would limit the amount of trading banks can do with their own capital. Dimon's touchiness on the subject of the Volcker Rule was on full display during a conference call with analysts and investors last Thursday evening to announce the loss.
According to a Wall Street Journal article by Dan Fitzpatrick, Gregory Zuckerman and Liz Rappaport, Mr. Dimon said that the trading loss "plays right into the hands of a whole bunch of pundits out there. We will have to deal with that- that's life." Indeed, Mr. Dimon appeared almost more concerned with looming rules and regulations about in-house trading as he was about the reasons for the stunning loss. Asked about the Volcker Rule, the Journal reported that Mr. Dimon made the following statement: "This doesn't violate the Volcker rule, but it violates the Dimon principle."
After the Journal originally reported in early April that JPMorgan was seeing massive trading losses based on the bets of the "London Whale," Mr. Dimon said that the questions about the office's trading were "a complete tempest in a teapot."
Mr. Dimon was singing a different tune over the weekend. During a TV interview that aired Sunday he said that he was "dead wrong" when he dismissed concerns about the bank's trading last month. "We made a terrible, egregious mistake," he said. Wall Street princes such as Mr. Dimon are supposed to be the masters of numbers. But it is the frightening inability of such titans to face up to the reality of numbers that is truly on display here.
As Aaron Elstein of Crain's New York Business noted over the weekend, "it's abundantly clear that, for big banks, huge trading losses have become part of the business."
Eight months ago, UBS (UBS) reported a loss of $2 billion due to a trader in London. "JPMorgan's entry into this club means that six banks have disclosed trading losses of $500 million or more in the past five years," Crain's reported. "Heading into 2007, there had been exactly one such blowup in all the previous ten years."
Of course, the ten years prior to the financial crisis were much kinder to the banks. But isn't a financial institution's true strength revealed in how it manages its capital in times of adversity?
The news for JPMorgan kept getting worse on Monday. Top executives who ran the trading unit that caused the mammoth loss resigned and lawmakers in Washington are calling for investigations. Next up for Mr. Dimon: a meeting on Tuesday in Florida with shareholders. We are sure that the Dimon Principle, whatever that is, will be on full display.
Disclosure: Zamansky & Associates are securities attorneys representing investors in federal and state litigation and arbitration against financial institutions, including JPMorgan and UBS.