Inside Financial Services

Jamie Explains The World

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I told Betty Liu on Bloomberg TV yesterday morning that Jamie Dimon’s testimony in front of the Senate Banking Committee later that day wouldn’t be the verbal keelhauling so many seemed to expect, nor would it do much to change the banking conversation in Washington. I was right! Still, Jamie’s testimony did have its moments. Some highlights:

1. He struck the right tone. Jamie took responsibility for the surprise $3 billion loss at CIO, repeated his view that the trades were poorly conceived and monitored, and put them in the proper perspective relative to J.P. Morgan’s overall balance sheet. Good. The few senators on the panel who have a clue about how banking works must have been glad to hear that. But while Jamie’s tone was appropriate given the forum, I still would have liked him tbe more aggressive in sticking up for the banking business, and in lambasting some of the nutty regulations coming out of Washington. Yes, he took a few shots, but he might have taken more.

For example, he was asked several times about Dodd-Frank. He said (as he has before) that he likes some parts of the law but thinks it adds needless complexity to bank regulation, and costs banks a bundle. That’s fine, as far as it goes. But we also know that Jamie believes Dodd-Frank is an important challenge to the basic competitiveness of the U.S. banking industry. He might have driven that point home. I also thought that his take on the Volcker rule was too nuanced. Jamie did make the point that the rule would hurt the liquidity of U.S. capital markets, now the broadest and deepest in the world. But he should have been more concrete as to what that means. Take, for instance, public debt offerings. When J.P. Morgan underwrites a municipal offering, it can’t always sell all the bonds investors on the first day and will retain some in inventory. Under a narrowly written Volcker rule, that market-making activity (which is what it is) might count as proprietary trading-which would effectively take Morgan out of the business of underwriting for small municipalities. That in turn would hurt the municipalities’ access to capital and raise its cost.

2. The Senators proved once again they don’t like bankers from big banks–and simply don’t understand banking. It was sometimes humorous to watch certain senators stumble through the questions that had been written by their staffers. It was clear the lawmakers had no clue what they were asking about, and didn’t understand Jamie’s answers, either. I especially enjoyed listening to Herb Kohl try to figure out how to pronounce “loan-to-deposit ratio.” The moment deserves a special spot on YouTube.

Then there were the two craziest senators, Robert Menendez of New Jersey and Jeff Merkley of Oregon, both Democrats, who seem to think that J.P. Morgan was at death’s door during the crisis and is only around today because the government bailed it out. When Jamie pointed out that Morgan took TARP money only because it was instructed to by Hank Paulson, Merkely quickly interrupted and changed the subject.

3. The trading loss is not a big deal for JP Morgan or the banking industry. It will be roughly $3 billion; Morgan’s assets, for perspective, come to $2.3 trillion. Trading loss or not, the company will be solidly profitable for the quarter and the year. What’s more, regulators just put the company through a severe stress test, with the result being that the company is so well capitalized and liquid that it could absorb $80 billion of losses and still be well-capitalized! So, again, a $3 billion trading loss is just not a big deal. Yet these senators (who haven’t been able to find the time to vote on a budget for the U.S. Government in over three years, remember) thought it was important enough to hold hearings on it. What a colossal waste of time. The senators need to get their priorities in order. And how hypocritical for a couple of the senators to suggest J.P. Morgan is too big to manage when the Senate is so dysfunctional that it can barely run itself.

Of course, Jamie’s still not done in Washington; he’ll testify to a House committee next week. That will prove to be equally as useless! Nothing will change!

What do you think? Let me know!

19 Responses to “Jamie Explains The World”

  1. oy

    At the risk of being branded as being overly impressed with the merits of folks in Washington, I will be interested to see if Dimon’s expression of responsibility will be matched with a clawback of any of HIS pay. I would also like to see concrete expressions of what specific portions of Dodd-Frank should be dropped or improved upon, rather than blanket condemnations of the law. Otherwise criticism of the law by the banking industry tends to sound like nothing much more than an attempt to roll back the entire idea of regulating the industry. I’d like bankers from big banks if they were playing with their own money and if they weren’t capable of collapsing the entire economy with their misplaced certainty that the world moves with mathematical precision. Bring back Glass-Steagall.

  2. Bill

    I disagree, Tom. $3 billion is a lot of money, regardless of your ban’s size.

  3. FMM

    While $3 billion is a lot of money the point is that the risk is not outsized compared to JPM’s balance sheet and capital – its we’ll within their capacity to absorb this loss …….. it’s the equivlent of a $2.3 billion bank taking a $3mm loss – thats not even a back page story ………

  4. sjdenver

    If the trading loss was just $3B, why did the stock market reduce the value of JPM by $38B?

  5. rivvir

    “Under a narrowly written Volcker rule, that market-making activity (which is what it is) might count as proprietary trading–” Don’t equivocate, does it or doesn’t it? If it does should be simple enough to offset that by including a stipulation covering that. If it doesn’t then you’re all wet on the point. “… the two craziest senators…both Democrats…” Of course. The crazy republicans we wouldn’t hear about from you. The ones who want to let bankers run free. You still haven’t learned from last time, nor have the republican senators. Trading loss was 3 billion. How much en toto was at risk? I didn’t watch the hearing but i’m sure your account is as biased as one i’d get from someone on the left. And, as i recall, while i give, and earlier gave here in response to a previous piece of yours, dimon credit for admitting his mistake i haven’t forgotten he earlier denied there was a problem with the whale’s position. I think that was when bloomberg first questioned him about it. You think maybe he got lucky it wound up to be only 3 billion? Until you stop looking at things through partisan colored glasses much of you writings turn into a colossal waste of time. Worse, they mislead your readers.

  6. tom brown

    rivvir, the Volcker rule HAS NOT BEEN WRITTEN! it’s been two years and the Fed is having a difficult time trying to figure out how to write it without doing more harm than good. As to politics, the Dodd-Frank bill was passed on partisan lines. If i believe it adds usless complexity and doesnt increase regulatory effectiveness, then of course i am going to disagree with democrats. I am a big fan of Jamie Dimon and there has been no bigger democratic supporter historically than he has been. Get your head out of your a**! These are real issues where people have differences of opinion; debate the merits of the isssues!

  7. tom brown

    Here is a list of some of the agencies that regulate US banks: fed, OCC, FDIC, CFTC, Justice Department, 50 state Atorneys General, 50 state banking agencies, CFPB, SEC, FTC, FINRA and i am sure i am missing some. Banks dont need more regulators or regulation; they need a simplier more effective regulatory system.

  8. PhilTimyan

    Well said Tom. A tiny blemish on a good quarter. You’ve put it into good perspective.

  9. murphyman

    Now Jamie has taken responsibility (and published reports indicate that he was aware of the trading for some time). And he says clawbacks of salaries are likely from those responsible. So how much of his compensation is he going to return?

  10. Jane Doe

    Tomyour day has come and gone . Its time for you to find a new job. You have such an inflated ego it is crazy.

  11. Mr. Chutzpah

    If I were Jamie, I would have been tempted to tell the fools grilling him that they haven’t been able to pass a budget in 3 years and are losing the U.S. Taxpayers $3.5 billion PER DAY! Talk about the 800 pound gorilla in the room.

  12. CRASH

    You sumarized it well when you said they didn’t know what they were talking about.

  13. rivvir

    “… the Volcker rule HAS NOT BEEN WRITTEN!” You’re the one complaining about it before it’s even in final form and in print. D-f , so? Makes you inject “Then there were the two craziest senators, … both Democrats,” into your pitch? As for death’s door, the whole country was put at death’s door, and by extension so was the world. That jpm wasn’t there as yet wasn’t the fault of jpm. It was good management, yes, but good management didn’t make it invulnerable. You didn’t answer my question so i’ll pose it again. How much en toto was at risk? Worst case scenario. As i recall it was well over a 100 billion bet. Imagine the market spiraling out of control downward for a few more days, certainly not an impossibility, while the bet was still in play and losing 100′s of millions a day. You also didn’t answer oy, so i’ll pose again his query as well as i believe it’s a good one. ” I would also like to see concrete expressions of what specific portions of Dodd-Frank should be dropped or improved upon, rather than blanket condemnations of the law.” I’ve got a lot of respect for dimon’s expertise, always have, and i’ve expressed that in different forums. S’what got me investing in jpm during the crisis. His boo-boo this time, and make no mistake, it was his boo-boo, recently got me back into jpm at a nice price instead of just selling puts. He’s not infallible but he’s darned good, so i’ll play along with him. I’m happy to see now you’re now for “increase(d) regulatory effectiveness.” I was afraid your own head was stuck so far up your own ass (why do you feel the need to use **s, they impart no less and no more a gentile demeanor to your post than do ss’s; grow up) it’d never see the light of day, nor be able to concede that insufficient regulation caused such a deep crisis that was near irrecoverable. You are admitting that now, aren’t you? Sure you are.

  14. tom brown

    rivvir, inhale. i have been analyzing banks for 32 years. But in the past 22 of those years i have been bitching about poor bank regulation. please read this closely. FOR THE LAST 22 YEARS WE HAVE INCREASED THE AMOUNT OF BANK REGULATION AND IT HAS BECOME less EFFECTIVE. GET YOUR HEAD OUT OF YOUR ASS! SPENDING MORE ON EDUCATION DOESNT MAKE STUDENTS SMARTER. INCREASING BANK REGULATION DOESNT MAKE IT ANY MORE EFFECTIVE! We have too many regulators; the system needs to be simplified not weakened. Get a grip. Its not less regulation its more effective regulation!

  15. Again....

    Tom, you should hire Meridith, or work closely with her. You think I’m crazy? No, you just need balance in your investing mindset. Disagreeing with her would be a good thing….and for once seeing the possibility that you are missing the elephant in the living room also come forth.

  16. Charles Prince

    A true, long term investor doesn’t care about liquidity. It’s only traders and investment bankers who care and who use that argument.

    As half the big bankers demonstrated so amply in the last decade, there are a lot of big bankers who also don’t understand banking !! They clearly didn’t understand the idea of counter-party or systemic risk.

  17. Stavo Yepremian

    This is fascinating article. We follow this closely overseas. Thank you most for sharing this helpful views. Would be please to have more reports by Mr. Matt Stichnoth as well.

  18. Anonymous

    I just have to say this was no diffferent than the entire crisis. Jamie rides a fence that between between being an avocate for the banks and the holder to the green traffic light for the politicos who haven’t a clue.
    His goal is always stir up Wasington enough to keep them tight and aggitated so their regulations can keep his compition in check. Chase is the only bank that prospers in the current environment mainly because they have always been well run. Chase’s loss is an embarrassment; nothing more. Dimon wishes he didn’t have to deal with it but he takes advantage of it fire up DC and insure only his bank can compete. He plays an incredible game of possium smiling all the way to bank.

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