JPMorgan’s magical numbers

JPMorgan has just announced that its hedging losses that CEO Jamie Dimon had previously said were a “tempest in a teapot” are now $5.8 billion, up $3.8 billion from the previous announcement. “At most” he says, “any additional losses will be limited to another $1,7 billion from the bad credit trades.”

Happily, all this bad news coincides with what would have been the bank’s best quarter ever. The announced earnings per share (EPS) of $1.21 compares well with the previous record of $1.34 earned in Q1/2007. The effect of the hedging losses taken in the second quarter are $0.69. So without that extraordinary trading loss, the EPS would have been a record $1.90. Now that’s a happy coincidence.

After making the announcement of the increased loss and the quarterly profit JPMorgan’s shares rose by almost 6%.

Now we do know that in the next quarter there’s going to be another charge of up to $1.7 billion. But, if these numbers are real, then in the quarter after that, the business is going to be very profitable.

So the share price should have jumped a lot more.

Perhaps there are other people who are a little skeptical about the numbers.

More at:
JPMorgan Chase raises its recent trading loss to $5.8bn
U.S. investigates whether JPMorgan traders hid losses
Yahoo – JPMorgan Chase NYSE
Earnings Releases
SENIOR MANAGEMENT BIOGRAPHIES

Recent:
JP Morgan accused of hiding losses by Senate report

Unacceptable

Tim Johnson, the chairman of the Senate Banking Committee, opened the hearing into the $2 billion trading loss that JPMorgan recently incurred. In his address, Johnson said “it was an out-of-control trading strategy with little to no risk controls that cost the company billions of dollars. …. we can, and must, demand that banks take risk management seriously and maintain strong controls. …. I expect Mr. Dimon to be able to answer tough, but fair questions today.  A full accounting of these events will help this Committee better understand the policy implications for a safer and stronger financial system going forward.”

Johnson made the objectives almost impossible to achieve from the outset, limiting each senator to 5 minutes. It was clear from the questioning that no strategy had been agreed between the Senators, and so a number of them were left with unanswered questions.

In Dimon’s prepared testimony, he ascribed the losses to a change of strategy, that instead of reducing risk, increased it.

It was a reporter for CNBC, not one of the Senators, that questioned Dimon on the email that he’d been copied notifying him of the change. “I paid virtually no attention to it. I didn’t think it was significant,” he said. The portfolio is worth $350 billion.

If that’s not significant, what is?

Dimon, at least, is open about his mistakes.

Dimon says that clawback provisions will be applied to recover some of the losses from responsible officers.

It’s a pity that the Senator’s salaries don’t have similar provisions.

More at:
JOHNSON STATEMENT ON JPMORGAN HEARING
Testimony of Jamie Dimon Chairman & CEO, JPMorgan Chase & Co. Before the U.S. Senate Committee on Banking, Housing and Urban Affairs Washington, D.C. June 13, 2012
Dimon Says Overconfidence Fueled Loss He Can’t Defend
Dimon Fires Back At ‘Complex’ System In U.S. Senate Grilling
Jamie Dimon of JPMorgan Chase leaves Senate banking committee in the dust
Senators Suck Up to Jamie Dimon, Get Paid for It
Top 20 Contributors Senator Tim Johnson 2007 – 2012
Senate Banking, Housing and Urban Affairs Committee
Dimon, JPMorgan Chase Have History with Senate’s Banking Panel
Jamie Dimon’s Risky Business
Dimon has now joined the Lou Club

Fooling all of the people

Jamie Dimon, the CEO of JPMorgan, took a different approach to the recent $2 billion trading loss the bank suffered. In the other cases: Barings (Nick Leeson), Société Générale (Jérôme Kerviel), UBS (Kweku Adoboli) it was blamed on the rogue trader. In JPMorgan’s case Dimon took responsibility. “We are sorry” he said. “We let a lot of people down.”

JPMorgan’s “fortress” balance sheet saw the bank through the 2008 crash and repay the $25 billion loan from the government in under a year.

Now things are a little different. Dimon is testifying to the US Senate Banking Committee, answering how and why the loss happened. How hard will he be grilled?

There is concern that he will get off lightly because the five most senior members of the Committee have a heavy reliance on campaign contributions from the politically connected New York bank.

The bank’s long political shadow hangs over the hearing, although several observers were skeptical that it will buy Dimon any favors in such a high-profile public setting.

“Contributions are useful, but they do not protect you when you have gotten in trouble in a high visibility way,” said Larry Sabato, director of the University of Virginia’s Center for Politics. “That description fits Dimon just now.”

The sub-text here is that if it weren’t such a high profile matter, JPMorgan would get special treatment because of the contributions.

There is a clear a conflict of interest, and members should have recused themselves. How will we know whether they have probed as deeply as they could. How do they, in their own minds, know that.

There is already a clue. A big question is whether the $2 billion figure covers the full extent of the losses. Dimon has successfully evaded the question, and the Senators have not pressed him. If he knows that the $2 billion is the total of the loss, there is no reason not to answer – so either he does not know – which is very bad, or he knows that it’s bigger and isn’t telling, which is worse.

The American voters have a right to something better.

More at:
JPMorgan Builds Vast Web of Staff, Financial Ties to Lawmakers
Charting the Cozy Connections between JP Morgan and the Senate Banking Committee
JP Morgan’s Jamie Dimon apologises for $2bn losses
Schumpeter A tissue of lies
Ina Drew Out At JPMorgan After $2B Trading Loss, Dimon Says Firm Still ‘Very Strong’
Where is the Money? Eye on the Bailout