J.P. Morgan Chase & Co. (NYSE: JPM) has done some severe damage to its image as the best risk manager of the large banks, and this damage may easily carry over into all of the ‘too big to fail’ banks. It is becoming more and more evident that the new ‘Best Bank in America’ title belongs to Wells Fargo & Co. (NYSE: WFC) as Warren Buffett keeps adding to this position each and every quarter. Now we are already hearing at least one call that Jamie Dimon might need to resign.
The Thursday disclosure of a loss of about $2 billion due to egregious failures in risk management now puts J.P. Morgan Chase in the same league as Bank of America Corporation (NYSE: BAC) and Citigroup, Inc. (NYSE: C). Jamie Dimon has been the most vocal bank executive out there and this is not exactly going to help Dimon in any of his future arguments against more and more bank regulations.
Simon Johnson at MIT’s Sloan School of Management is shown here calling for the possibility of a resignation of Jamie Dimon. Johnson went on to note that if any other company lost this much then the person responsible would be forced to resign. He did note that it is not going to happen in banking where regulators move to oust Jamie Dimon. Johnson is one of the voices calling for the break-up of the big banks
Dimon noted that this trade did not violate the Volcker Rule but it did violate the Dimon Principle. What happens when your hedges are wrong hedges? The loss could cost another $1 billion over the next quarter or two as well as the trade was called flawed synthetic credit derivatives which are volatile.
So, back to this call for a Dimon resignation. Dimon remains one of the top executives out there in banking and in corporate America. He was recently cleared to lift the common stock dividend and to buy back stock. Dimon always said that he would buy stock back when its price made sense to do. A drop of almost 8% down to $37.60 takes this banking stock down to prices not seen since February 16, 2012. The dividend-adjusted closing price at the end of 2011 was $32.80.
There is another call for Dimon’s role of Chairman and CEO to be split as well. AFSCME sent out an email noting, “After JP Morgan’s Jamie Dimon lost $2 Billion in risky trading, today, AFSCME issued a renewed call for the shareholders of JPM to end Dimon’s reign as Chairman and CEO and adopt an independent board chair.” In short, the call is keep Dimon on as CEO but to bring in a new Chairman of the Board that is independent of the company.
Congressman Barney Frank (co-author of Dodd-Frank) has publicly said, “JP Morgan Chase, entirely without any help from the government has lost, in this one set of transactions, five times the amount they claim financial regulation is costing them. The argument that financial institutions do not need the new rules to help them avoid the irresponsible actions that led to the crisis of 2008 is at least $2 billion harder to make today.”
Jamie Dimon may have taken a body blow here, but the notion that this will cause his resignation seems very unlikely. The next risk is the pending downgrade of more than 100 of the top global banks from Moody’s.
FBR was one of the firms which downgraded J.P. Morgan shares this Friday and the target was taken down to $37 from $50 previously.
JON C. OGG