May 11, 2012
Bank stocks have already lost billions of dollars more in stock market value than JPMorgan Chase (JPM) did on the credit derivatives-linked trades that have catapulted it into infamy in the last 24 hours. But while investors certainly take a scathing view of the bank’s failure to identify what was going wrong and put a stop to it before the losses ballooned to $2 billion or more, it’s an ill wind that blows no one any good, as the old cliché has it. In this case, there’s a long list of people who could be lining up to order lavish floral arrangements or outsize boxes of gourmet chocolates on Jamie Dimon in gratitude for his advancing their own agendas. Below, some of those likely to see the biggest boost in their own reputation, prospects or even revenue as a result of JPMorgan Chase’s misstep:
For every loser in a trade like this, there has to be at least one winner—the trader or traders on the other side of the deal. Right about now, an unspecified number of JPMorgan Chase’s counterparties are probably doing a version of the derivatives industry happy dance. For example: Hedge fund firms BlueMountain Capital Management and BlueCrest Capital Management each took in about $30 million by taking the other side of JPMorgan’s bets, according to The Wall Street Journal. There could still be more gains ahead as the bank tries to unwind its position.
RELATED: JPMorgan: A 'Stupid' Bet with Big Implications
Until now, Dimon has been the bank CEO who appeared unable to put a foot wrong, while Blankfein, CEO of Goldman Sachs (GS), seemed unable to do anything but insert his foot in his mouth. Now Dimon has his own version of Goldman’s Abacus to explain to the public – and probably to a Congressional subcommittee at some point – and Blankfein has to be feeling a sense of relief. Not only is Goldman Sachs out of the public eye, but he finally has prima facie evidence that Dimon is not Superman, and JPMorgan Chase no better or worse than Goldman Sachs.
His legacy lies not only in his time at the head of the Federal Reserve, but in the rule that carries his name – the one that would limit banks’ ability to indulge in proprietary trading and invest in hedge funds and other investment vehicles that aren’t part of their core business. In a single stroke, Dimon – the most effective and articulate opponent of the Volcker Rule – has handed its advocates their best ammunition yet. If proprietary trading could cost one of the largest banks, with one of the best track records in risk management and the proven ability to navigate tough times, a whopping $2 billion in only six weeks, what could it do to the financial system? The industry might as well – but likely won’t – just stop its Sisyphean lobbying right now. “Anyone who opposes the Volcker Rule now should be exposed to repeated and complete public ridicule,” MIT professor Simon Johnson told Business Insider.
Speaking of which.… The economist’s book, “13 Bankers,” is a scathing indictment of the “too big to fail” banks that were not only preserved but almost favored by those in power in Washington. Already, as this is being written, Amazon.com is warning buyers its inventory of the book is running low and to order now to avoid disappointment. Break up the banks, Johnson argues in the book – and now he has a great pulpit from which to make his case. He is even calling for Jamie Dimon to resign in disgrace. That’s likely to play well to the crowd.
The regulators apparently have been peering over the shoulders of JPMorgan Chase execs, trying to understand just what the London trading operation responsible for the disastrous credit bet was doing. If anything can give the SEC chair ammunition to fight for more regulatory powers and resources nearly four years after the crisis struck, this is it. JPMorgan is not MF Global; any blow to its balance sheet has some kind of systemic implications.
There are worse things than a slowing rate of growth in a company’s earnings, Zuckerberg could now remind potential investors in the final days before Facebook completes its IPO next week. (Hopefully, the bankers advising him will stop him from doing so, and will find a more subtle way to convey that message.) Invest in Facebook and you won’t need to worry about rogue traders wiping out the company’s capital base overnight because of inadequate risk controls, the argument might run. Certainly, on a relative basis, the recent angst over Facebook’s slower growth looks like a non-issue today.
The leader of Greece’s Pasok (Panhellenic Socialist) party is trying to form a government that will continue unpopular austerity measures. Not only does JPMorgan Chase’s debacle take the spotlight off him, it might also serve to remind Greek voters that Wall Street has to share some of the blame for Greece’s current plight; after all, Wall Street firms worked with Greece to structure derivatives transactions masking the full extent of the country’s debt load.
Well, let’s be honest. There’s lots of material here to keep all of us busy for weeks, if not months. And the Bloomberg and Wall Street Journal teams who last month drew attention to JPMorgan trader Bruno Iksil – or the “London Whale,” as he became known – may have earned themselves a series of journalism prize nominations.
Occupy Wall Street
“See, we told you so!” ‘Nuff said.