May 15

No Separation – No Peace

Jamie DimonEven if your only source of news is FOX and Friends, you must certainly have heard by now that the nation’s largest bank, JP Morgan Chase, suffered a loss of at least $2 billion–and likely much more–in a botched credit derivatives trade. The trade, which spurred an all but dog-and-pony show investigation by the FBI and renewed lip-service on Capitol Hill for strengthening Dodd-Frank‘s Volcker Rule and swaps regulations, involved a corporate bond hedging strategy gone horribly wrong. A London based trader for JP Morgan assembled a huge portfolio of derivative credit default swaps and sold them off to investors based upon the trader’s wrong-headed belief that corporate bonds owned by JP Morgan would perform well. The market believed otherwise, and the once “well-intentioned” hedging strategy blew up in the face of JP Morgan chief Jamie Dimon and the rest of the masterly minds who also carry keys to the executive washroom. Losses began to mount, and rather than accept the losses commensurate with the oft-cited free market’s value of the underlying assets and derivatives, Dimon chose instead to attempt to call off the dogs by whining to the federal government yet again. Dimon, long the golden-boy of Wall Street for his perceived risk management acumen, suffered a scathing blow to his egregious ego.

Barack Obama is fond of referring to Dimon as one of Wall Street’s best and brightest.

JP Morgan is one of the best-managed banks there is. Jamie Dimon, the head of it, is one of the smartest bankers we got and they still lost $2 billion and counting,” the president said. “We don’t know all the details. It’s going to be investigated, but this is why we passed Wall Street reform.

I don’t know which claim in this sentence is the most absurd. First, if Jamie Dimon is one of the smartest bankers we’ve got, who is the worst? Good grief. If you have a potential loss looming into the many billions of dollars on a unnecessary and risky bet that was permitted to spiral out of control on your watch, you’re not a genius. If you beg Congress to limit the rules that could potentially prevent the loss from taking place in the first place, you’re an idiot whose hubris has digested whatever tiny amount of good sense you had remaining. You are by no stretch of the imagination to be held out as some captain of finance worthy of the respect of the common man and bankers alike. If you insult those who are attempting to promulgate rules to prevent you–yes you–from destroying the economy and sending millions back to the unemployment lines and soup kitchens, you are a sociopath incapable of understanding the profound effect your actions have on other human beings. You’re just another banker Mr. Dimon, and there are hundreds of thousands of people within fifty miles of Wall Street capable of stepping into your shoes and replicating your results in an instant. I only wish Barack Obama understood that simple fact. Let me backpedal a bit. In fairness, I am sure that he does understand, he just isn’t willing to act upon this knowledge. Continue reading

Apr 13

Wells Fargo and JP Morgan Chase Release Earnings

Earnings season is upon us, and no sector will be more closely watched by economists than the banking sector. Fresh from reports that the large banks are not cooperating with the Treasury Department on a floundering little known program to assist unemployed homeowners and underwater homeowners,  the large banks reported earnings that exceeded economic forecasts.

JP Morgan came in with EPS of $1.31 on $26.7b in revenues; impressively above the estimates of EPS $1.18 and revenues of $24.6b. Under the headline were murky details like credit cards swinging from a loss to a gain largely as a result of the release of $2billion in loan loss reserves.

Wells Fargo delivered earnings of $0.75 on $21.6b in revenues, handily ahead of estimates of $0.73 and $20.4b, respectively.

With similar failures–due in large part to banking push-back–of the HAMP and HARP programs to assist struggling homeowners modify and refinance their mortgages following the fraudulent run-up in home values due in part to large financial institutions like Wells Fargo and JP Morgan Chase, it is reassuring to know that the behemoths’ bottom lines are sound.

I have long since thrown in the towel on any hopes that the current administration will force the large banks to adhere to the terms if the various governmental programs set-up to offer real help to struggling homeowners. However, it is important that we not allow these large financial institutions to return to staggering profitability without calling attention to it.