Will JP Morgan be able to walk away from billion dollar losses?


by Guest    
11:45 am - May 18th 2012

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contribution by Iain Overton

The JPMorgan story doesn’t look like it’s going away any time soon. The losses suffered by the bank keep getting bigger and bigger. Insiders are now saying they’ve surpassed the initial $2 billion estimate by at least $1 billion.

The Federal Reserve has stepped in. It’s set out to examine the scale of the losses and the size of the original bets. It’s also going to ask whether the American bank’s chief investment office took too many risks for a federally insured depository.

One thing is clear – a serious investigation is necessary.

We can’t take JPMorgan’s claims at face value.

This is Jesse Eisinger of ProPublica:

…when they are in trouble, banks will mislead the world about their financials. And some will lie. Richard S. Fuld Jr. of Lehman Brothers, E. Stanley O’Neal and Charles O. Prince of Citigroup all played down their banks’ exposures before their institutions took vast losses. Were they deliberately misleading? Because of the failures to investigate the financial crisis adequately, we still don’t know.

There are real questions to be asked. And Eisinger is right to ask them.

  • What did Jamie Dimon, JP Morgan’s chief executive, and Doug Braunstein, the bank’s chief financial officer, know about the bets and when did they know it?
  • How accurate were JPMorgan’s first-quarter earning claims?
  • Were execs at the top of JPMorgan being wholly truthful when discussing the chief investment office’s investments?
  • Were there other trades made by JPMorgan and when did those losses take place? And were the bank’s positions marked correctly?
  • Finally, JPMorgan recently changed a crucial measure of risk. Why? And was that adequately disclosed?

So many questions. So few answers.

The thing that underpins all of these suspicions is that the timings of this whole drama doesn’t stack up.

The Wall Street Journal and Bloomberg picked up on the “London Whale” in early April.

At the time JPMorgan dismissed journalist’s questions. In its first-quarter earnings on the 13th April, Dimon and Braunstein called it a “tempest in a teapot.”

The bank maintains its main losses happened in late April and early May. But timings and statements are already being challenged by shareholders. Two suits have already been filed, accusing the bank of grossly misrepresenting the trades.

The allegations are that the bank was bluffing all along. Fearing if news of their exposed position got out, losses would have ballooned. So, the claims go, JPMorgan dodged the questions. And so there are more questions.

Eisinger sums it up, arguing “how little true accountability there has been since the financial crisis. No top-tier banker has gone to prison for the many bank failures, the deceptive sales practices or the misrepresentations of the books. As a society, we have thrown up our hands at Too Big to Prosecute financial fraud”.

We need far greater accountability. And the questions posed here need to be answered. Any less would be criminal.

—
Article first published at The Bureau for Investigative Journalism

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Reader comments


1. Barrie J

“Eisinger sums it up, arguing “how little true accountability there has been since the financial crisis. No top-tier banker has gone to prison for the many bank failures, the deceptive sales practices or the misrepresentations of the books. As a society, we have thrown up our hands at Too Big to Prosecute financial fraud”.

“We need far greater accountability. And the questions posed here need to be answered. Any less would be criminal”.

As a ‘society’ we have stood by, in part helpless, whilst politicians failed to control or regulate and then in turn did back room deals to help their ‘City / Wall Street’ mates out of the hole they had all helped dig.

I don’t recall a UK politician (possible exception of Vince Cable MP) or an economist warning about the Banks behaviour, were they complicit or just plain stupid?

We had Gordon Brown hoping that he could do for the country what the City had and the Tories cheering them on whilst urging more freedoms and de-regulation.

Now we have the unedifying sight of the Governor of the Bank of England, crying that ‘he should have done more’, should have heeded warnings, etc., etc.

Truly pathetic.

They all exemplify the worst excesses of greedy capitalism at its most brutal, they don’t care and I predict, have no intention of changing any time soon.
They would eat their babies if there was a dollar in it.

2. gastro george

As has been noted, Morgan are hiding behind these trades, describing them as hedges, when they are nothing of the sort: http://neweconomicperspectives.org/2012/05/why-was-jpmorgan-doing-faux-hedges-of-european-distressed-debt.html

3. Oliver

But in other news… it’s all our fault, apparently.

No matter how obscene the practices of banks and finance are revealed to be, ‘real issue’ is that people got up to their eyeballs in debt through ridiculous mortgages and rents instead of living like urban Bedouins or living with their parents until they were 45. The ‘real issue’ is people desperately looking for full time work actually being ‘workshy’. The ‘real issue’ is that people in wheelchairs are really pretending.

We/governments/banks need to stop repairing broken politics and economics and just admit it keeps failing because the actual model itself is a bad one.

4. Graham

@2.Oliver.

Since 2008, politicians who have been totally complicit in the neoliberalism fraud of the last 30 years, have done everything possible to to patch up the leaking ship, and have desperately tried to point the finger of blame elsewhere (disabled, jobless, benefit claimants, and now everyone except bankers who aren’t working hard enough apparently!!).

The patches won’t work, and sooner or later there will be a bigger crisis which will blow the whole flawed edifice out of the water. Then hopefully someday we will have an equivalent of a Roosevelt or Attlee come along and put the feral rich and banksters back into their box!

5. john b

Two suits have already been filed, accusing the bank of grossly misrepresenting the trades. The allegations are that the bank was bluffing all along. Fearing if news of their exposed position got out, losses would have ballooned. So, the claims go, JPMorgan dodged the questions.

In which case, the shareholder lawsuits are even more stupid than shareholder lawsuits usually are (which is ‘very’: shareholders own the company, so shareholder lawsuits essentially consist of people suing themselves). If JPM dodged the questions, it was in order to minimise the losses suffered by its shareholders!

Meanwhile, to people who aren’t JPM shareholders, this is of no importance at all. The bank’s quarterly profit without this farce would have been $6bn – so even if it turns out to be three times as bad as initially expected, that’s still only three months of earnings down the toilet. Total scandal size is equivalent to one microgreece…


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