Trading Loss Takes a Bite Out of Jamie Dimon's Credibility
According to to a new article in the Washinton Post, Jamie Dimon was responsible for ramping up JP Morgan's (NYSE: JPM) Chief Investment Office from a hedging center into a profit center. David Olson, a former head of credit trading in the firm's chief investment office, was told by executives “We want to ramp up the ability to generate profit for the firm. This is Jamie's new vision for the company.”
According to the Post, Dimon was responsible for pushing the unit into investments in riskier, higher-yielding assets such as credit derivatives, sovereign debt, and equities. The $2 billion in losses that the firm announced last week were generated by a massive bet in synthetic credit derivatives whereby a London trader made a bullish bet on corporate credit quality which was so large it caused unusual gyrations in the $10 trillion market.
The Post also reports that Dimon personally reviewed daily profit and loss statements from the Chief Investment Office. Olson, the JPM credit trader, recounts that the only reason he was not fired when big losses were realized amid 2008's roiling credit markets, was because Dimon personally had intimate knowledge of the positions which were responsible for the losses. Furthermore, JP Morgan's chief investment officer, Ina Drew, who oversaw the unit where the losses occurred, rose to her position in 2005 when Dimon was named CEO and reported directly to him.
In light of the massive loss and the accompanying fallout, Drew has left JP Morgan. She made $15 million in 2010 and $14 million in 2011 according to the Washington Post. The consequences of the debacle are sure to damage the reputation of Jamie Dimon who has been hailed as the "King of Wall Street," and the best risk manager in the banking business.
Making matters worse is the fact that Dimon has been the leading opponent of the Dodd-Frank Financial Reform Act and, more specifically, the Volcker Rule which would force big banks to curb speculative trading for their own accounts.
Dimon's belligerence and self-righteousness on financial reform issues has now backfired on him in a huge way as his bank finds itself in the cross-hairs of regulators and the public alike. It now appears obvious that the one-time "King of Wall Street" has lost his seat at the table regarding the shape and scope of financial regulation in the United States. This scandal, at the very least, assures that.
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