JPMorgan Chase, the biggest U.S. bank by assets, announced on Thursday that it had lost $2 billion on bad bets on credit derivatives, made by a London trading desk, run by a man other traders have alternately dubbed “The London Whale” and “Voldemort,” reports The Huff Post.
“It puts egg on our face and we deserve any criticism we get,” CEO Jamie Dimon said in a quickly scheduled conference call.
Mr. Dimon admitted the losses were linked to a Wall Street Journal report last month about a trader, nicknamed the ‘London Whale’, who, the report said, amassed an outsized position which hedge funds bet against, tells The Telegraph.
Dimon then called the concern “a complete tempest in a teapot.” However, on Thursday he said the bank’s loss had “a bit to do with the article in the press.” He added, according to Reuters: “I also think we acted a little too defensively to that.”
The losses are an embarrassment for Dimon who has led Wall Street’s fight against what banks have deemed excessive regulation in the wake of the financial crisis.
“Jamie has always styled himself as one of the kings of Wall Street,” said Nancy Bush, a bank analyst and contributing editor at SNL Financial. “I don’t know how this went so bad so quickly with his knowledge and aversion to risk.”
JPMorgan shares fell almost 7 percent after the closing bell and dragged other financial shares lower, with Citigroup down 3.6 percent and Bank of America down 2.6 percent.
Carl Levin, a Democratic Senator who had insisted on tougher regulation of banks’ trading, said that the loss “is just the latest evidence that what banks call ‘hedges’ are often risky bets that so-called ‘too big to fail’ banks have no business making.”
Dimon said the losses did not change his opposition to Volcker Rule — though he admitted they did not help his argument.
“It plays right into the hands of a bunch of pundits out there,” said Dimon. “But that’s life.”
He refused to reveal any details about the trades that the bank had put on, but pointed out that its focus was now on “maximising the economic value of these positions. We’ve got staying power and we’re willing to use it.”
“Jamie Dimon and JP Morgan Chase just proved what anyone not getting a paycheck from a Wall Street bank already knows: gigantic too-big-to-fail banks are too-big-to-manage,” Dennis Kelleher, president of the financial-reform advocacy group Better Markets, said in an email to The Huffington Post. “They must not be allowed to continue to threaten our financial system and our economy.”
Just last week Jamie Dimon and leaders of other large banks met Federal Reserve Governor Daniel Tarullo in New York to question the way the regulators conduct stress tests to see if banks have enough capital to withstand possible losses. They also made arguments over trading restrictions.
Joseph Evangelisti, JPMorgan spokesman, said the company uses pay formulas to reduce the chance of that happening in the Chief Investment Office and throughout the bank. Except for people handling the bank’s private equity investments, “no one at JPMorgan is paid on their profits and losses,” he said.