JP Morgan Chase Losses
Bolster Case for New Financial Regulations
May 14, 2012
Banks stocks took a big hit Friday after JP Morgan Chase and Company
reported a $2-billion loss on a complex trading strategy that went bad.
The bank's disclosure is renewing debate over the need for tougher
It's one of the world's biggest investment banks, and its CEO is among
the harshest critics of government efforts to rein in risky financial
bets. But in a late night conference call to shareholders, JP Morgan CEO
Jamie Dimon told investors the bank may have taken too big a risk.
“We are reducing that hedge, but in hindsight, the new strategy was
flawed, complex, poorly reviewed, poorly executed and poorly monitored,"
blamed the $2-billion loss on a complex trading scheme that was
designed, ironically, to help manage the bank's credit risks. Instead,
the trading blunder bolstered the argument that big banks cannot be
trusted to handle risks on their own.
"Well, as he [Dimon] said himself,
there's egg on his face [he's embarrassed] and it does play very well,
as he says, into the pundits who have been advocating the Volcker rule
and also the scenario of being too big to fail," said CMC Markets
analyst Brenda Kelly.
The Volcker rule is named after former Federal Reserve Chairman Paul
Volcker. It would restrict the biggest U.S. banks from making risky
investments that do not benefit bank customers. Volcker said such trades
involving credit default swaps and other derivatives played a key role
in the financial crisis of 2008.
"It was elements of a casino, a very complex casino with all sorts of
inter-dependencies. And when it came under pressure, not just from
credit default swaps but otherwise, when the system came under pressure
- it collapsed," said Volcker.
JP Morgan has warned investors to expect additional losses - sending a
shiver through Wall Street. JP Morgan stock lost more than 8 per cent of
its value. Other financial stocks also suffered big declines.
Analysts fear the scandal will impact regulations not just in the U.S.,
but around the world.
"Just as it will in the U.S. and in the eurozone, Asia will not be
spared this push down the path of greater, tighter regulations," said
Tim Condon, who is head of Asia research at ING Financial Markets.
In a statement Friday, U.S. Senator Carl Levin of Michigan, who has been
pushing for new banking rules, said the bank's losses were "a stark
reminder of the need for regulators to establish tough, effective