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The $2 billion loss not only helped proponents of a tougher Volcker Rule and punctured the myth of CEO Jamie Dimon's infallibility. It also strengthened calls from regulators like Tom Hoenig for stronger action against big banks.
May 11 -
WASHINGTON — The big question following JPMorgan Chase & Co.'s now-notorious derivative trade is whether it would have been permitted under the so-called 'Volcker Rule.' But the answer is clear cut to an advocacy group that has led calls for regulatory restrictions after the 2008 crisis.
May 18 -
The fallout of JPMorgan Chase & Co.'s $2 billion trading loss has reignited old worries of just how close Wall Street is to one of its top regulators, the Federal Reserve Bank of New York. Politicians and consumer activists have called for Jamie Dimon, JPMorgan's chairman and chief executive, to resign from his position as a board director at the New York Fed.
May 18 -
If the credit derivative positions are hedges, why doesn't JPMorgan account for them as such under GAAP?
May 17
WASHINGTON — Jamie Dimon, the chairman and chief executive officer of JPMorgan Chase (JPM), said Monday that the bank would suspend its planned stock repurchases following its more than $2 billion trading loss.
Speaking at the Deutsche Bank Financial Services conference in New York, Dimon said the bank was suspending the buyback because it "made a commitment to ourselves and to regulators…to get on a glidepath to comply with Basel III."
"We want to be on that glidepath," Dimon said.
JPMorgan Chase passed the Federal Reserve Board's stress tests earlier this year, allowing the bank to go forward with a planned $15 billion stock repurchase plan (The bank planned to buy back $12 billion in shares this year and $3 billion in the first quarter of next year).
But JPMorgan's May 10 news that it was taking significant losses in its trading activities alarmed the bank and regulators. Fed officials have said repeatedly that banks must ensure they are on track to comply with Basel III capital requirements well before they begin to be officially implemented in 2013.
Industry observers said Dimon was acting prudently by suspending the buyback — and likely will preserve its ability to pay a dividend.
"By taking the initiative itself to suspend repurchases, JPMorgan appears to be acting like a responsible adult," wrote Jaret Seiberg, senior policy analyst with Guggenheim WRG's Washington Research Group, in a note to clients. "That will buy it credibility in the coming weeks when Jamie Dimon appears on Capitol Hill. He can argue that even with the massive capital hoard the bank decided to be extra prudent by stockpiling even more capital. This also will give him a way to punch back at those lawmakers who say the bank must suspend the dividend."
JPMorgan's shares fell nearly 4% as Dimon was speaking early Monday, though they had rebounded a bit by late morning. The stock was trading at $33 at midday, down 1.55% from Friday's close.
During the conference, Dimon largely reiterated his past comments about the now-infamous "London Whale" trades, saying the overall loss would be manageable.
"There's no outcome that would be disastrous for the company," Dimon said. "I am not standing here worried about the ultimate loss on this thing. It's an embarrassment, a black mark."
But he continued to raise concerns that regulators will go too far in implementing the so-called Volcker Rule, which would ban proprietary trading. Lawmakers, industry representatives and the bank's officials continue to debate whether the London trades would have violated the Volcker Rule had it been in effect, leading some policymakers to push for a tougher version of the plan when it is finalized by regulators.
Dimon said he is concerned the final outcome could curb "market making" activities, and push significant business overseas.
"Market making is a critical thing to do right," he said. "I would be surprised if the U.S. goes out and destroys the best capital markets in the world."
