Jamie Dimon With $2B ‘Egg on His Face’

by 11 May 2012

(Bloomberg) -- Jamie Dimon, the CEO of JP Morgan Chase and one of the most vocal defenders of the financial industry in Washington, may find himself in a tough spot now.

Yesterday he announced the firm had a $2 billion trading loss after an “egregious” failure in a unit managing risks. Dimon in April called this business a “sophisticated” guardian of the bank’s funds. Yesterday he said it took flawed positions on synthetic credit securities. Losses mounted as JPMorgan tried to mitigate transactions designed to hedge credit exposure.

Proponents of tighter restrictions on proprietary trading are already using Dimon’s statement as ammunition.

Senator Carl Levin, the co-author of the so-called Volcker rule, said this is a “stark reminder” to the Washington regulators who are working up rules for a proprietary-trading ban.

“The enormous loss JPMorgan announced today is just the latest evidence that what banks call ‘hedges’ are often risky bets that so-called ‘too-big-to-fail’ banks have no business making,” he says.

Bloomberg News reported last month that JPMorgan’s chief investment office had taken bets so big that JPMorgan, the largest and most profitable U.S. bank, probably couldn’t unwind them without losing money or roiling financial markets.

Yesterday, Dimon said the timing of the trading blunders “plays right into the hands of a bunch of pundits out there” who are pushing for a strict version of the ban named for former Federal Reserve Chairman Paul Volcker.

“He’s got a lot of egg on his face right now,” Craig Pirrong, a finance professor at the University of Houston, told Bloomberg. “Any chance they had of getting a relative loosening of Volcker rule, anything of that nature, that’s out the window.”

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