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Winnipeg Free Press - PRINT EDITION

Dimon avoids a rough ride

JPMorgan CEO revered despite $2-B bath

By: Pallavi Gogoi

Posted: 05/15/2012 1:00 AM | Comments: 0

Mark Lennihan / The Associated Press JPMorgan Chase shares are suffering after CEO Jamie Dimon revealed a $2-billion loss due to a bad bet on credit derivatives. (CP)

NEW YORK -- JPMorgan Chase CEO Jamie Dimon owned up to stock analysts and went on TV to accept blame for a $2-billion trading mistake. Next, he faces shareholders, who are considerably less wealthy since the blunder was disclosed.

Though Dimon may be greeted by some colourful protesters when he arrives for the JPMorgan annual meeting in Tampa, Fla., today, the shareholders are unlikely to call for his head.

For them, facing the crisis without Dimon might be a bigger nightmare than the trading loss.

"When a bank is dealing with this sort of a challenge, you want someone of his calibre to shepherd it through," said longtime JPMorgan shareholder Michael Holland, chairman and founder of money manager Holland & Co.

That has not been a universal opinion since Thursday, when Dimon disclosed to analysts the bank had lost $2 billion by making a bad bet with so-called credit derivatives.

Investors lopped almost 10 per cent off JPMorgan's stock price the next day and three per cent more on Monday. Since Dimon made the announcement, almost $20 billion in market value has evaporated.

Over the weekend, Elizabeth Warren, architect of the Consumer Financial Protection Bureau and a Senate candidate from Massachusetts, called for Dimon to give up his seat on the Federal Reserve Bank of New York board.

On Monday, White House press secretary Jay Carney, without singling out Dimon, said Washington can't prevent "bad decisions being made on Wall Street."

He pointed out it was the bank and its shareholders, not bailout-weary taxpayers, who were suffering this time.

Dimon will be talking to shareholders from a position of weakness for the first time. He has built a reputation as a cost-cutting zealot and an expert at keeping risk under control.

He led JPMorgan into a stronger position than almost any other bank after the 2008 financial crisis, which brought him more praise than at any other time in his career.

Shareholders rarely lash out at Dimon. Vikram Pandit, of Citigroup, and Brian Moynihan, of Bank of America, are not so fortunate. Shareholders at those banks take the slightest opportunity to call for them to step down.

Dimon's reputation has been severely damaged now, but shareholders appear to believe he should get the chance to prove himself again.

"He's earned enough market respect to have the opportunity to correct this," said Benjamin Wallace, of investment firm Grimes & Co., a longtime shareholder that sold its JPMorgan shares six months ago.

Dimon said on Sunday the bank "made a terrible, egregious mistake" and there was "almost no excuse for it."

Yet there have been no signs of a shareholder insurrection against Dimon, and no member of the board of directors has spoken against him since he disclosed the loss.

He still holds a reputation as the man who restored Bank One to a profit a decade ago when few thought it was possible and who kept JPMorgan Chase profitable through the financial crisis by managing its risk.

Although $2 billion was a stunning figure, as the investor reaction demonstrates, JPMorgan is more than big enough to absorb the loss. It made $19 billion last year alone.

Dimon has said the bank lost the money in a strategy to hedge against financial risk, as banks often do, not because it was trading for its own profit. Some lawmakers have cast doubt on that portrayal.

JPMorgan's disclosure has led lawmakers and critics of the banking industry to call for stricter regulation of Wall Street. Many post-crisis rules governing risk-taking by banks are still being written.

Among them is the so-called Volcker rule, which would block banks from trading for their own profit, a practice known as proprietary trading. Dimon has said the trading in question would not violate the rule.

-- The Associated Press

Republished from the Winnipeg Free Press print edition May 15, 2012 B4

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