If you don't know the name Jamie Dimon, you will. Mr. Dimon is the current president, chairman and CEO of JP Morgan Chase. He also serves on the Board of Directors for the New York Federal Reserve. He has been recognized as one of the 100 most influential people four out of the last six years by Time Magazine. And based on last year's CEO salary figures, he received the highest pay package at $23 million. That's in the 1% for sure.... watch out for Occupy Wallstreet, Mr. Dimon!
Besides the titles that Jamie Dimon holds above, he has accomplished a lot for the financial services industry. With the help of Sandy Weill, Mr. Dimon formed the largest banking conglomerate in the world, Citigroup. After becoming the CEO of JP Morgan Chase in December of 2005, Jamie has led the bank to become the top US bank in assets under management, market cap value and stock value. Additionally, JP Morgan Chase is the #1 credit card issuer in the US. During the 2008 credit crisis, Jamie assisted in the decisions to bail out Bear Sterns and was a key decision maker in the Troubled Asset Relief Program (TARP). Remember that program?
The latest news, however, has been quite troubling for Dimon & Co. On May 10, 2012, JP Morgan's trading department reported losing $2 billion in losses. Now that's pretty staggering. It makes my trading account losses seem like a joke. Mr Dimon went on the record with the Financial Times stating how "flawed, complex, poorly reviewed, poorly executed, and poorly monitored" the position was. See the trade was a hedging position. The equity trading department at JP Morgan was expecting an adverse move in the financial markets. Unfortunately, (or should I say fortunately for anyone who has been invested in the stock market over the last few months) the major indices have been making new highs. The $ 2 billion hedge was just a bad trade. People and institutions make them all the time.
So you may be wondering what's all the fuss?
The problem the media and possible shareholders see in this type of trading behavior is the remnants of poor decision still being made with risky asset classes. In other words, the concern is the use of derivatives. Another blast from the past word! The major investment banks and conglomerates were thwarted with this type of risky behavior that was a leading factor to the '08 retraction in the stock market. The worry is whether banks are going to continue to perform risky bets on their assets and, if so, what's going to be done to stop them. You see, the Dodd-Frank Act was signed into law in July 2010 to help enforce the regulation of the financial industry. One aspect to this law was the comprehensive regulation of financial markets, including increased transparency of derivatives (transparency and banks is kind of an oxymoron). But, additional provisions and differences were implemented. This brought upon the Volcker Rule. The rule prohibited proprietary trading by depository banks, but a section 619 was added which allowed banks to trade up to 3% of their capital in private equity or hedge funds as well as for hedging.
Therefore, JP Morgan has technically played by the rules. The big concern is whether the bank is acting in the best interest of its customers, shareholder and even the general public. They have a moral obligation to act prudently and with the best interest of the forenamed individuals. However, the banking sector has received so much stink about ethical practices that this just adds more fuel to the fire. Overall, the financial industry will continue to be on heightened supervision and the public will continue to look for any reason to scream bloody murder.
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Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.