How Many Criminal Probes Does JPMorgan Need Before It Stops Calling Them “Isolated Failures”

By Pam Martens: July 13, 2012

Jamie Dimon, Chairman and CEO of JPMorgan Chase, Explaining Losses to the House Financial Services Committee, June 19, 2012

If you were one of the smart folks and didn’t waste 120 minutes of your now shortened lifespan listening to three overpaid bankers at JPMorgan attempt to explain away gambling losses on insured deposits on this morning’s conference call, let me distill it down to what all that verbosity and high frequency speech was meant to obscure. 

  • Chairman and CEO, Jamie Dimon, and his colleagues on the call, repeatedly referred to this debacle as an “isolated failure.” The use of the word “isolated” is quite a stretch. JPMorgan Chase currently faces an FBI criminal probe of this matter; criminal probes over rigging overnight borrowing rates (Libor); a probe over rigging the electric markets of California and the Midwest; a fraud trial for rigging derivatives in Milan. It recently paid $1.1 billion to settle its foreclosure fraud issues and had to admit to Congress that it overcharged 4500 members of the military on their mortgages and foreclosed on 18.

  • The largest bank in the U.S. by assets, JPMorgan Chase had to do what is typically limited to shady operators: it had to restate its first quarter earnings to account for its previous underreported losses on derivatives. 

  • Losses on those bad bets now total $5.8 billion year to date, although JPMorgan is trying to get headlines today that report the losses at $4.4 billion – which they are succeeding in doing at many major news outlets.  ($4.4 billion is the loss on the bad bets just for this quarter.) The firm remained profitable in the quarter, reporting net income of $4.96 billion.

  • Two-thirds of the bad bet has been unwound and the mess that’s left has been moved over to the “IB.” Dimon repeatedly refers to the “IB,” as if the public he invited to listen in on the call has a clue what that means.  The IB is the investment bank – a typical Wall Street operation that wheels and deals in mergers and acquisitions, issuance of stocks and bonds, and, today, God only knows what else.  Dimon does not say why the position is moving from the insured deposit bank to the investment bank.  I’ll wager a guess based on many hours of observing the tone of his regulators in Congressional hearings: he was told to get those dicey, illiquid positions off the taxpayers’ back and onto the shareholders’ back. 

  • Pressed by an analyst on the call, Dimon says future losses on the positions could hit a worse case scenario of $1.6 to $1.7 billion – raising the question as to whether this has been a carefully orchestrated restructuring of the gamble into three quarters to break the losses into three less horrific headlines. 

  • There will be clawbacks of employee compensation but no specific dollar amounts were reported and it does not sound like there will be. 

  • Dimon was repeatedly asked about the Libor probe and he would say absolutely nothing. 

  • Dimon insists the business model is good to go when a shareholder on the call asked if all of these missteps prove that the firm is too big to manage and that Chase, the insured deposit bank, should be spun off. 
Share on WhatsApp
Bookmark the permalink.

Comments are closed.